NorthWestern Corp. v. Montana Department of Public Service Regulation, 2016 Mont. LEXIS 885

NorthWestern Energy sought recovery of $1,419,427 in replacement regulation-service costs after a complete outage (Jan–May 2012) at its first‑of‑its‑kind Dave Gates Generating Station (DGGS); DGGS turbulence/thermal damage from aggressive ramping caused the outage.
DGGS supplier PWPS repaired turbines under an extended warranty but the contract waived consequential‑damages, so PWPS did not cover replacement regulation purchases; NorthWestern purchased replacement service from Powerex and Avista.
Montana Consumer Counsel and the Commission found NorthWestern had not investigated outage insurance or otherwise prudently managed known risks (e.g., extreme ramping, lack of minute‑by‑minute ramp data, software allowing excessive ramp rates). The Commission disallowed the outage costs from rate recovery.
Separately, NorthWestern’s DSM (demand‑side management) true‑up relied on consultant SBW/RIA free‑ridership and spillover calculations; SBW’s draft produced a 0.908 net‑to‑gross (NTG) but the final report and RIA witness advocated using a 1.0 NTG (assuming perfect offset) because of alleged measurement limitations.
The Commission rejected the 1.0 NTG assumption, adopted the draft empirical values (0.908 NTG), lowered NorthWestern’s realized savings rate from 87% to 79%, and ordered refunds for over‑collected revenues. NorthWestern appealed; the district court affirmed and the Supreme Court likewise affirms.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Commission used correct legal standard to review prudence of replacement outage costs	NorthWestern: “prudently incurred” is the objective "reasonable utility" standard — ask whether a reasonable utility in similar circumstances would have acted the same	Commission: "prudent" must be interpreted with statutory duties and Commission rules (risk identification/mitigation, planning under §69‑8‑419, etc.); reasonable‑utility is only one factor	Court: Affirms Commission. "Prudent" includes Commission’s statutory/rule‑based risk‑management inquiry (not limited to a comparativist reasonable‑utility test); disallowance supported by record (lack of risk evaluation, poor operation/monitoring)
Whether Commission’s adoption of free‑ridership and spillover values (rejecting 1.0 NTG) was supported by substantial evidence	NRDC/HRC/NorthWestern: RIA witness repudiated her draft numbers and endorsed 1.0 NTG; court should not rely on draft values if the expert disavowed them	Commission: Draft empirical values were produced by accepted methods and comparable to other studies; expert could not prove 1.0 is correct and admitted the draft data were reliable	Court: Affirms Commission. Substantial evidence supports using empirically derived NTG (0.908); expert testimony did not justify discarding the only empirical data; agency may use its technical expertise

Whitehall Wind, LLC v. Mont. Pub. Serv. Comm’n, 347 P.3d 1273 (Mont. 2015) (administrative‑appeal standards and deference to agency)
Molnar v. Fox, 301 P.3d 824 (Mont. 2013) (conclusions of law reviewed de novo; administrative record review)
Williamson v. Mont. Pub. Serv. Comm’n, 272 P.3d 71 (Mont. 2012) (definition of clearly erroneous and substantial‑evidence standard)
Mayer v. Bd. of Psychologists, 321 P.3d 819 (Mont. 2014) (competent substantial evidence standard)
Knowles v. State ex rel. Lindeen, 222 P.3d 595 (Mont. 2009) (deference to agency technical expertise under statute)
Schuster v. Northwestern Energy Co., 314 P.3d 650 (Mont. 2013) (agency powers and limits)
Billings v. Pub. Serv. Comm’n, 631 P.2d 1295 (Mont. 1981) (scope of Commission jurisdiction)
Mont. Power Co. v. Mont. PSC, 26 P.3d 91 (Mont. 2001) (Commission charged with implementing statutory deregulation framework)