BEFORE THE DEPARTMENT OF PUBLIC SERVICE REGULATION
OF THE STATE OF MONTANA
In the matter of the adoption of New Rules I through VI and the repeal of ARM 38.5.2001, 38.5.2002, 38.5.2003, 38.5.2004, 38.5.2005, 38.5.2006, 38.5.2007, 38.5.2008, 38.5.2009, 38.5.2010, 38.5.2011, 38.5.2012, 38.5.2016, 38.5.8201, 38.5.8202, 38.5.8203, 38.5.8204, 38.5.8209, 38.5.8210, 38.5.8211, 38.5.8212, 38.5.8213, 38.5.8218, 38.5.8219, 38.5.8220, 38.5.8221, 38.5.8225, 38.5.8226, 38.5.8227, and 38.5.8229 pertaining to resource planning
NOTICE OF ADOPTION AND REPEAL
TO: All Concerned Persons
1. On July 22, 2022, the Department of Public Service Regulation published MAR Notice No. 38-5-256 pertaining to the public hearing on the proposed adoption and repeal of the above-stated rules at page 1229 of the 2022 Montana Administrative Register, Issue Number 14. On November 4, 2022, the department published an Amended Notice and Extension of Comment Period on the proposed adoption and repeal at page 2159 of the 2022 Montana Administrative Register, Issue Number 21.
2. The department has repealed the following rules as proposed in the July 22, 2022 original notice: ARM 38.5.2001, 38.5.2002, 38.5.2003, 38.5.2004, 38.5.2005, 38.5.2006, 38.5.2007, 38.5.2008, 38.5.2009, 38.5.2010, 38.5.2011, 38.5.2012, 38.5.2016, 38.5.8201, 38.5.8202, 38.5.8203, 38.5.8204, 38.5.8209, 38.5.8210, 38.5.8211, 38.5.8212, 38.5.8213, 38.5.8218, 38.5.8219, 38.5.8220, 38.5.8221, 38.5.8225, 38.5.8226, 38.5.8227, and 38.5.8229.
3. The department has adopted the following rules as proposed in the November 4, 2022 amended notice, but with the following changes from the amended notice, new matter underlined, deleted matter interlined:
NEW RULE I (38.5.2020) GOAL AND POLICY (1) Integrated least-cost resource planning and acquisition is an ongoing, dynamic, and flexible process that:
(a) through (d) remain as proposed.
(e) is transparent and reasonably understandable to stakeholders, the public, and the C
(2) and (3) remain as proposed.
(4) The rules implement the C
commission's regulatory objective of ensuring an efficient allocation of society's resources to provide adequate, reliable electricity services and just and reasonable rates for consumers at the lowest long-term total cost. In furtherance of this objective, utilities shall operate existing resources and acquire new resources only when needed and in a manner consistent with these rules.
(5) and (6) remain as proposed.
(7) Integrated least-cost resource planning consistent with the rules may demonstrate that previously rate-based resources should be abandoned and replaced by new resources. If such situations occur, the C
commission will determine the appropriate recovery of undepreciated, rate-based capital costs in separate, contested case proceedings.
(8) and (9) remain as proposed.
AUTH: 69-3-1204, 69-3-1206, MCA
IMP: 69-3-1204, 69-3-1205, 69-3-1206, 69-3-1207, 69-3-1209, MCA
NEW RULE II (38.5.2021) DEFINITIONS (1) and (2) remain as proposed.
(3) "Affiliate" means, for purposes of this rule,
a person or organization officially attached to a utility through common ownership, common management, or the existence of a contract. a parent, subsidiary, division, or the like, regardless of designation, owning or controlling the utility, owned or controlled by the utility, under common ownership with the utility, or under common control with the utility.
(4) through (10) remain as proposed.
(11) "Qualifying facility" means a resource as defined in 18 CFR part 292.101, and certified by the Federal Energy Regulatory Commission.
(12) through (16) remain as proposed but are renumbered (11) through (15).
AUTH: 69-3-1204, 69-3-1206, MCA
IMP: 69-3-1204, 69-3-1205, 69-3-1206, 69-3-1207, 69-3-1209, MCA
NEW RULE III (38.5.2022) PLAN CONTENTS (1) Resource plans shall contain at least the following information:
(a) A description of any changes a utility has made to the content of its plan or its planning process in response to the C
commission's comments on its last plan and how the changes affect the current plan, along with reasoned explanations for any C commission comment with which the utility disagrees. Cross-references shall be provided for all changes.
(b) through (f) remain as proposed.
(g) A resource adequacy assessment based on existing resources and a description of the nature of the need for additional resources to achieve industry-standard adequacy standards or reserve margin requirements. The plan must completely and thoroughly describe the method(s) and assumptions used in the assessment, including the basis for the adequacy standard or reserve margin requirement and computer modeling and model validation procedures. The assessment must document energy and capacity deficits, their duration, frequency, and timing, given the energy and demand forecasts in (b) and resource capabilities in (d) and (f). In addition, the assessment must document energy and capacity deficits for scenarios that involve higher and lower forecasts of energy and demand requirements; alternative
energy and demand load profiles; and alternative performance levels for existing resources to account for the effects of, among other things, extreme weather events; demand-side and distribution-side resources; electrification; and price response.
(h) and (i) remain as proposed.
(j) For computer modeling used to perform the evaluation in (i):
(i) through (iii) remain as proposed.
sufficient information on modeling inputs and outputs to reasonably permit alternative modeling in another program comprehensive descriptions of and data for modeling outputs and results; and
sufficient explanation of the modeling results to enable the commission and stakeholders to understand the results comprehensive, understandable explanations of the modeling results .; and
(vi) a thorough description of the process by which a stakeholder can obtain inputs electronically in order to conduct alternative modeling.
(k) through (2) remain as proposed.
AUTH: 69-3-1204, MCA
IMP: 69-3-1204, 69-3-1205, 69-3-1206, 69-3-1207, 69-3-1208, 69-3-1209, MCA
NEW RULE IV (38.5.2023) PLANNING PROCESS (1) through (4) remain as proposed.
(5) A utility shall publish a draft of its resource plan at least 70 days before filing the resource plan with the C
commission and accept comments on the draft resource plan for at least 55 days.
(6) remains as proposed.
AUTH: 69-3-1204, MCA
IMP: 69-3-1204, 69-3-1205, 69-3-1208, MCA
NEW RULE V (38.5.2024) RESOURCE PROCUREMENT (1) A utility's resource procurement processes shall be guided by the policy in 69-3-1202, MCA, input from the public and the advisory committee provided for in 69-3-1208, MCA, and comments of the C
commission on the utility's most recent resource plan.
(2) remains as proposed.
(3) A utility shall notify the C
commission of a decision to issue a competitive solicitation. The notice shall precede release of a draft of the solicitation by at least 20 days. Before issuing the solicitation, the utility shall submit a draft of the solicitation to the C commission in accordance with 69-3-1207, MCA, with a thorough description of the input and recommendations of the advisory committee regarding the solicitation process and how the utility modified the solicitation process in response to the advisory committee's input and recommendations or, alternatively, the basis for not modifying the process. Upon notification of a utility's intent to issue a solicitation, the C commission will open a docket for purposes of receiving the draft solicitation and accepting public comment on the draft solicitation. The C commission shall provide notice to the public of the receipt of the draft solicitation and provide 45 days for interested persons to file written comments. The utility shall not issue the final solicitation until at least 70 days after submitting the draft solicitation. Upon issuing the final solicitation, the utility shall concurrently submit the solicitation to the C commission in the docket assigned to the draft solicitation.
(4) and (5) remain as proposed.
AUTH: 69-3-1204, MCA
IMP: 69-3-1204, 69-3-1205, 69-3-1207, 69-3-1208, 69-3-1209, MCA
NEW RULE VI (38.5.2025) REQUIREMENTS FOR COMPETITIVE SOLICITATIONS (1) A competitive solicitation issued by a utility shall treat similarly situated bidders similarly and fairly, use understandable processes, and result in decisions and outcomes that are transparent and understandable to bidders, stakeholders, and the C
(2) remains as proposed.
(3) A utility's process for evaluating offers or bids in competitive solicitations shall:
(a) and (b) remain as proposed.
(c) apply a transparent and systematic rating methodology to objectively rank bids with respect to price and, as appropriate, non-price factors. Non-price factors must be objectively quantifiable where practicable. The rating methodology shall be based on information and analyses from a utility's most recent resource plan, any C
commission comments on the plan, input from the advisory committee, public comments on the utility's draft solicitation, if applicable, input from a third-party administrator, and industry best practices;
(d) through (6) remain as proposed.
(7) If a utility acquires resources involving affiliate transactions it shall be subject to the following filing requirements in any subsequent application regarding cost recovery under 69-3-301 through 69-3-310, MCA:
(a) through (c) remain as proposed.
(d) an affirmation that books of account and related records of any affiliate transacting business with the utility shall be available for audit and review by the C
commission. As reasonable and necessary and when lawful, the C commission will protect affiliate information from public disclosure; and
(e) and (8) remain as proposed.
(9) The consumer counsel should consider the following guidelines when it decides to engage an independent monitor pursuant to 69-3-1207(4), MCA:
(a) notify the C
commission as soon as practicable following notice by a utility of a decision to issue competitive solicitation if the consumer counsel intends to retain an independent monitor; and
(b) provide information needed and requested by the C
commission to establish the process by which the C commission will charge a fee to the utility to pay costs incurred by the consumer counsel related to the independent monitor.
(10) through (12) remain as proposed.
AUTH: 69-3-1204, MCA
IMP: 69-3-1204, 69-3-1205, 69-3-1207, 69-3-1208, 69-3-1209, MCA
4. The department thoroughly considered the comments and testimony received on the original proposal notice. A summary of the comments received on the original proposal notice and the department's responses to those comments are set forth in Comment #1/Response #1 through Comment #41/Response #41 below. The revisions mentioned in Response #1 through Response #41 can be found in the November 4, 2022 amended notice.
COMMENT #1: Multiple comments suggest that the proposed rules do not adequately implement the legislative intent and/or explicit directives of HB 597. These comments emphasize provisions in the statute that establish a state policy requiring efficient utility rates. They note that fulfilling that policy requires the Commission to effectively implement the provisions in the statute that establish a state policy encouraging utilities to acquire resources using a competitive solicitation process. They further note that through HB 597 the Legislature sought to promote the use of fair and transparent competitive solicitation processes to counter the inherent bias of utilities to build and own their own resources and to put utility and non-utility independent power producer resources on a level playing field. The comments state that HB 597 is designed to minimize the cost to provide utility consumers with adequate and reliable service by stimulating effective competition and the proposed rules do not sufficiently implement the bill's intent.
RESPONSE #1: The Commission appreciates these comments and generally agrees. The Commission recognizes that HB 597 articulates a clear policy of encouraging utilities to acquire resources using competitive solicitation processes and that effective competitive solicitation processes can promote efficient utility rates. The Commission agrees that to be effective, competitive solicitation processes must instill confidence in potential bidders and stakeholders that the process will be conducted objectively and transparently and treat all bidders fairly. There would be no effect from the state's policy of encouraging utilities to use competitive solicitations if, in creating the policy, the Commission were not authorized to adopt rules ensuring that when utilities conduct solicitations, they do so in a manner that maximizes the likelihood of obtaining lower costs and more efficient rates for consumers. The Commission agrees, therefore, that revisions to the proposed rules are appropriate to fully implement state policy. These revisions are discussed in responses to specific comments below.
COMMENT #2: Several comments state that the permissive, non-binding terms in the proposed rules prevent the rules from fulfilling both the intent and the specific requirements of HB 597. The comments recommend converting these permissive, non-binding terms to requirements.
RESPONSE #2: The Commission agrees. As discussed in Response #1, the Commission finds that to effectuate the state's policy of encouraging utilities to use competitive solicitations, utility solicitations, when used, must involve robust competition and fair and objective analysis of bids to produce lower costs and more efficient rates for consumers. The Commission concludes that specifying requirements for procurement processes and competitive solicitations will be more effective than providing guidelines, and better implements state policy. The Commission has revised the proposed rules by replacing permissive terms with mandatory terms throughout the rules.
COMMENT #3: Several comments recommend adding back a rebuttable presumption included in preliminary drafts of the rule that resources with certain characteristics are not in the public interest if they are not acquired using a competitive solicitation process. The comments suggest this revision will more effectively encourage use of competitive solicitations.
RESPONSE #3: The Commission declines to make this revision. The regulated community rightly pointed out in response to preliminary drafts that there is no basis in statute to create a rebuttable presumption against opportunity resources. In addition to establishing a policy encouraging utilities to acquire resources using competitive solicitations, HB 597 exempted opportunity resources from the competitive solicitation process. Given this exemption, there is no statutory basis for creating a rebuttable presumption to discourage opportunity resources.
When a utility applies to recover through rates the costs of acquiring a resource, the utility bears the burden of proving by a preponderance of evidence that the acquisition is in the public interest. This "preponderance of evidence" standard also applies to overcome a rebuttable presumption under Montana Rule of Evidence 301. Although it has not created a rebuttable presumption in rule, the Commission still expects utilities to prove by a preponderance of evidence that their decisions regarding resource acquisition are in the public interest.
The Commission further concludes that it is reasonable and consistent with state policy to require utilities to use transparent, independently administered competitive solicitations whenever practicable, subject to the exceptions in 69-3-1207, MCA, and has revised the rules accordingly. Although opportunity resources can be in the public interest, competitive solicitations, properly conducted, provide a systematic and transparent method of ensuring that acquired resources are truly least-cost.
COMMENT #4: Several commenters recommend adding requirements for utility solicitations to include sufficient information regarding bid evaluation and scoring so that the process is transparent and so bidders and others can be confident in the fairness of the results.
RESPONSE #4: For reasons explained in Responses #1 and #2, the Commission agrees and has revised NEW RULE VI (38.5.2025) based on these comments. In particular, the Commission believes revisions to (3)(d) provide a reasonable opportunity for bidders to predict how their bids will be scored on both price and non-price factors.
COMMENT #5: Several commenters recommend requiring Commission certification of a utility's competitive solicitation as compliant with the rules.
RESPONSE #5: The Commission declines to include this revision. A formal Commission decision on compliance with a rule necessitates a contested case proceeding. There is no basis in the statute for the Commission to conduct a contested case proceeding on a utility's competitive solicitation prior to the utility issuing the solicitation. Section 69-3-1207, MCA, authorizes the Commission to accept public comment on a draft of a utility's solicitation. To impose a requirement for preapproval by the Commission of a utility's solicitation would exceed what the statute authorizes. Instead, the docket the Commission initiates pursuant to NEW RULE V (38.5.2024) to receive the utility's draft solicitation, accept public comments on the draft, and receive the utility's final solicitation provides an opportunity to create a record of any perceived deficiencies in the solicitation that will be available to the Commission and parties in subsequent contested case proceedings involving rate recovery for resources that may be acquired through competitive solicitations.
COMMENT #6: Some comments recommend adding back the cost-effectiveness standard for opportunity resources included in preliminary drafts of the rules.
RESPONSE #6: The Commission declines to add a specific cost-effectiveness standard for opportunity resources. The Commission's proposed rules contain a general definition of "cost-effective." The Commission believes that definition establishes an adequate basis for evaluating the cost-effectiveness of opportunity resources as well as other resources, including those acquired through competitive solicitation processes.
COMMENT #7: Multiple comments express concern that structural and organizational changes in the proposed rule compared to preliminary drafts resulted in the omission of important elements in NEW RULE III (38.5.2022). The comments stated that the proposed rules are too general and lack the specificity of preliminary drafts and, consequently, the proposed rules will result in utility resource plans and planning processes that are not optimal.
RESPONSE #7: The Commission agrees in part and disagrees in part. The Commission has revised NEW RULE III (38.5.2022) in several respects as discussed in more detail in response to specific comments below.
COMMENT #8: A comment recommends including a requirement for utilities to provide a comparison of the planning assumptions in the utility's prior three plans to actual historical data. According to the comment, without such information the Commission and others will not have a sense of whether the assumptions in the present plan should be scrutinized through sensitivity testing.
RESPONSE #8: Although the Commission agrees that the planning process should involve a thorough analysis of assumptions, including, where useful, a review of how assumptions in prior plans have fared against reality, the Commission declines to include the proposed revision. The Commission finds the rule included in preliminary drafts vague and potentially burdensome. Some planning assumptions may not involve "values" that can be compared to "historical data." It is further unclear whether comparing assumptions that are nine or more years old will always be useful. The Commission agrees that assumptions are critical to the planning analysis and that they should be fully assessed in the planning process. The Commission believes the enhancements to the planning process, including the required work plan and structured information exchange, provide a reasonable mechanism for the advisory committee to ensure planning assumptions are thoroughly vetted or to identify deficiencies in the event they are not. The Commission concludes that it is reasonable to expect a resource plan to justify planning assumptions and has revised the requirements in NEW RULE III (38.5.2022) accordingly. To the extent a comparison to historical values is necessary to justify present planning assumptions, this revision is responsive to the comment.
COMMENT #9: Some comments state that the proposed rules fail to specify dynamic conditions currently affecting the industry that should be considered in forecasting electricity usage.
RESPONSE #9: The Commission believes the rules require sufficient transparency regarding the development of a utility's load forecasts. That transparency empowers the advisory committee to identify where a utility's forecasting may not adequately account for any current industry conditions with the potential to affect future loads. The Commission is generally concerned that including a partial list of potentially relevant examples of current industry conditions could discourage utilities from considering other, unlisted conditions. However, the Commission has added several examples in NEW RULE III (38.5.2022)(1)(g), and encourages utilities to consider other conditions as necessary.
COMMENT #10: Several comments state that the rules should include a requirement to address alternatives that do not directly generate power.
RESPONSE #10: The Commission agrees and has revised NEW RULE III (38.5.2022) accordingly. For example, the Commission has included a requirement that utilities consider transmission system improvements that could open access to new resources.
COMMENT #11: Several comments recommend requiring utilities to provide specific details of the utility's planning model(s) in resource plans.
RESPONSE #11: The Commission agrees and has added provisions to NEW RULE III (38.5.2022) to incorporate the recommendations in the comments. Specifically, (1)(j) requires utilities to provide details about modeling used in resource planning.
COMMENT #12: A comment recommends requiring utilities to explain the techniques used to calculate avoided costs used to assess the cost-effectiveness of demand-side resources.
RESPONSE #12: The Commission agrees and has revised NEW RULE III (38.5.2022) (1)(k) to incorporate the recommendations in the comment.
COMMENT #13: Multiple comments state the proposed rules appear to be narrowly focused on the minimum criteria outlined in HB 597. The comments observed that resource planning and procurement rules have not been updated since 1992. The comments assert that the proposed rules would put Montana behind other states in the region and recommend more expansive rules with robust language based on the Commission's broad authority under 69-3-103, MCA.
RESPONSE #13: The Commission agrees in part. The Commission acknowledges that resource planning and procurement rules have not been updated recently, but notes that the Commission engaged in resource planning rulemaking in 2003 and 2008. As explained in Responses #1 and #2, the Commission also agrees that revisions to the proposed rules are appropriate to fully implement state policy and has revised the rules in an effort to update the rules and incorporate best practices when possible, consistent with Montana law.
COMMENT #14: Several comments express concern about the reasonableness of selecting a third-party administrator for competitive solicitations through competitive processes and whether requiring a third-party administrator would increase the cost burden to ratepayers.
RESPONSE #14: The Commission notes that the statute requires use of a third-party administrator selected by the utility in certain instances provided for in 69-3-1207(1)(c), MCA. The Commission agrees with comments that the purpose of a third-party administrator is to provide independence and objectivity in the evaluation of bids, which is particularly important when bids may include utility ownership or utility affiliate transactions. Similarly, the Commission believes providing for advisory committee input on the selection of a third-party administrator promotes greater transparency and confidence in the competitive solicitation process.
COMMENT #15: Several comments recommend providing greater opportunities for stakeholder feedback and participation through discovery in the planning process and access to utility planning models.
RESPONSE #15: The Commission agrees that revisions to the proposed rules are appropriate to provide for greater stakeholder engagement and has revised NEW RULE IV (38.5.2023) (4) to include requirements for the work plan, including a structured process for submission of written inquiries and comments to the utility during the planning process and written responses by the utility. The revisions also include a requirement for the utility to address procedures for access to the planning model during the planning process by the advisory committee. The Commission notes that the resource planning process is not a contested case, and there are no formally recognized intervenors, and as such, "discovery" in the traditional, legal sense is a poor fit for the process. The Commission therefore does not intend to consider and rule on motions, objections, or other disputes regarding the informal, question-and-answer process provided in the revised rule. The Commission will instead leave it to utilities and stakeholders to work through any disputes, and will consider a utility's candor and information-sharing practices when preparing its own comments on a resource plan.
COMMENT #16: Comments recommend that the rules provide for an opportunity for discovery in the competitive solicitation process, including on reports submitted by the third-party administrator and independent monitor.
RESPONSE #16: Discovery is a tool best suited for contested cases. As explained in response to prior comments, there is no basis in the statute for the Commission to conduct a contested case proceeding on a utility's competitive solicitation prior to the utility issuing the solicitation. The docket the Commission initiates to receive the utility's draft solicitation, accept public comments on the draft, and receive the utility's final solicitation will provide a thorough record of any alleged deficiencies in the solicitation that will be available to the Commission and parties in a contested case involving rate recovery for any resources that result from the solicitation. Opportunities for discovery regarding the competitive solicitation process, including reports submitted by the third-party administrator and independent monitor, will exist in contested cases involving a utility's request for rate recovery for any resource acquired through a competitive solicitation.
COMMENT #17: Multiple comments propose longer comment periods in both the resource planning and competitive solicitation processes. Several comments recommended a 70-day process for competitive solicitations and a symmetrical 70-day process for draft resource plan, with a 55-day public comment period, to ensure sufficient time for public input and for the utility to review comments and incorporate changes before issuing a final solicitation or plan.
RESPONSE #17: The Commission agrees and has revised the rules accordingly.
COMMENT #18: A comment expresses concern that the definition of "societal cost" would result in unjust and unreasonable rates and proposes that the definition be removed.
RESPONSE #18: The Commission notes the definition of "societal cost" originates from ARM 38.5.2002, which is largely carried forward in NEW RULE II (38.5.2021), and that externalities are defined under 69-3-1203(6), MCA. The Commission further notes that it is generally not permitted to include in the cost of a new resource a bonus or adder to compensate for environmental externalities, as provided in 69-3-1206(3), MCA. The Commission has revised the rules for clarity, but disagrees with the assertion that the definition of societal costs and its use in the rules would force unknown and undefined costs into the cost calculations of economically optimal portfolios.
COMMENT #19: A comment recommends including the social costs of carbon in the definition of "societal cost" or "cost" and quantifying the emissions.
RESPONSE #19: The Commission appreciates this perspective but believes this inclusion would go beyond the intent of this rulemaking, which is to implement HB 597, and notes there has not been an internalized carbon dioxide cost in the state.
COMMENT #20: Comments raised questions about how the proposed definition of "cost-effective" would be applied to relevant Montana statutes and suggested more clearly defining "reliability" to ensure clarity on meeting the cost-effective threshold as defined in the rules. One comment suggested that the concepts of reliability and availability involve separate analysis outside of a cost-effectiveness determination and the proposed definition allows a utility to exclude a potential resource prior to a cost-effectiveness determination.
RESPONSE #20: The Commission disagrees. The Commission notes that the proposed definition of "cost-effective" mirrors the definition in the Northwest Power Act and has been applied for decades by the Northwest Power and Conservation Council (NWPCC) in the development of regional power plans. None of the commenters explained how the definition would allow a utility to exclude consideration of a plausibly cost-effective resource from the planning process or how the NWPCC has been forced to exclude resources due to the definition. Importantly, cost-effectiveness analysis always involves an objective; cost-effectiveness analysis answers the question: Given an objective, what is the least-cost way to achieve it? One commenter incorrectly states that "cost-effectiveness appropriately analyzes only whether a resource or measure saves money compared with an alternative." That statement is true only when paired with an objective, such as "while providing the same or comparable end use services." Comparing costs for alternatives without an objective is a meaningless exercise. The statutorily required objective of an electric utility is to provide adequate and reliable service at just and reasonable rates. Integrated least-cost resource planning and acquisition finds the least-cost way to achieve the statutory objective. In the context of integrated resource planning, it is not useful merely to compare the costs of one resource against another, for example the cost of a wind resource to a gas-fired generator on cost per kWh basis, and pick the one with the lower cost. Resources have different attributes that can combine in both complementary and antagonistic ways and cost-effectiveness is ultimately a function of the integration of potential new resources and existing resources. No resource is 100% reliable and the definition of "cost-effective" does not impose that standard on resources before they can be evaluated in the planning process. The Commission finds the concerns expressed in the comments are unwarranted. However, if an interested party believes there is a better way to define "cost-effective" in the context of integrated resource planning, the Commission invites that party to petition the Commission to modify the rule.
COMMENT #21: A commenter expresses concern that the statute requires an evaluation of the full range of cost-effective resources, but the proposed rules call for only a description.
RESPONSE #21: The Commission disagrees. NEW RULE III (38.5.2022) (1)(i) fully satisfies the statutory requirement to which the comment refers.
COMMENT #22: A comment recommends that the rules require utilities to provide meeting information and materials or presentations prior to advisory committee meetings to the extent practicable.
RESPONSE #22: The Commission agrees and has revised the rules accordingly.
COMMENT #23: Some comments state that NEW RULE I (38.5.2020) should be broken apart to differentiate between goals and policies.
RESPONSE #23: The Commission disagrees. Goals and policies are interrelated concepts. The Commission finds that it is both reasonable and appropriate to include them in a single rule. However, the Commission has revised language in this rule to further link planning and procurement, consistent with state policy.
COMMENT #24: Comments state the proposed rules should have addressed the Inflation Reduction Act (IRA) and its effects in planning and procurement decisions.
RESPONSE #24: The Commission notes that the IRA had not yet been enacted when the Commission published notice of its proposed rules. Further, the comments were not specific regarding how the rules should address the IRA. The Commission has not yet fully evaluated the IRA and is not prepared to revise the rules absent specific facts and proposals from commenting parties. The Commission invites stakeholders to petition the Commission to make specific revisions to the rules as appropriate.
COMMENT #25: A comment suggests that the utility should be required to negotiate a discounted licensing fee for stakeholders to perform modeling runs in the same software as the utility and directing the utility to absorb the costs.
RESPONSE #25: The Commission declines to make this revision. The determination of discounted licensing fees, procedures for accessing modeling, and who bears the burden of paying for new modeling runs requires further fact development through the advisory committee process, a commission investigation, or another proceeding outside this rulemaking.
COMMENT #26: A comment questions whether the definition of "cost" included capital costs.
RESPONSE #26: The Commission believes the definition of "cost" in the proposed rules included capital costs but has revised the rules to provide more clarity.
COMMENT #27: A comment recommends providing definitions for "long-term" and "affiliate" since the words are used throughout the rules.
RESPONSE #27: The Commission agrees and has updated NEW RULE II (38.5.2021) to include those definitions.
COMMENT #28: Multiple comments express concern that the proposed rules limit stakeholders.
RESPONSE #28: As explained in responses to prior comments, the Commission has revised the rules regarding a utility's advisory committee and stakeholder engagement in response to the concern. In particular, the Commission will now require utilities to provide a structured process for submitting written questions and receiving written responses, which may be used in future proceedings.
COMMENT #29: A commenter suggests non-bidder stakeholders should have access to confidential information subject to protective order in a competitive solicitation process.
RESPONSE #29: The Commission appreciates this comment and agrees transparency is important in the competitive solicitation process; however, the Commission believes questions of access to confidential information should be resolved on a case-by-case basis, considering the nature of the information and balancing the public and private interests involved. Further, the Commission has an affirmative duty to review alleged confidential records at the time of filing and make an independent determination of confidentiality. The Commission cannot make such a determination in rule, in advance of any filings.
COMMENT #30: The Commission also received comments from the sponsor of HB 597, who generally opposed the proposed rules. The sponsor described the rules as "extremely permissive and subject to utility interests." The sponsor's request to eliminate permissive language throughout the rules has been adopted in the revisions shown above. The sponsor also stated that the intent of HB 597 was to provide "a fair, competitive, and free market solicitation process based on national standards that allows for fair competition to select the most affordable resource that fit[s] the need."
RESPONSE #30: The Commission appreciates the sponsor's perspective and has replaced permissive "should" language throughout the rules with mandatory "shall" and "must" language. While HB 597 established a state policy encouraging the use of competitive solicitations and required their use when a utility seeks preapproval under 69-8-421, MCA, the Commission also recognizes that the law did not require the use of competitive solicitations in all circumstances, including the acquisition of opportunity resources. As detailed below, the Commission has made additional changes in response to specific requests from the sponsor.
COMMENT #31: The sponsor of HB 597 requested that the Commission carry forward language that currently exists in ARM 38.5.2001(9), (10), and (11).
RESPONSE #31: Current ARM 38.5.2001(10) is reflected in NEW RULE I (38.5.2020), in the renumbered (9). Current ARM 38.5.2001(9) required utilities to thoroughly document the exercise of its judgment in resource planning. NEW RULE II (38.5.2021) and NEW RULE III (38.5.2022) accomplish the same goal with greater specificity. Current ARM 38.5.2001(11) discussed the need for a "commitment from both the public and private sectors to honor the spirit and intent of the guidelines." In this rulemaking, the Commission has opted to provide clearer, more granular requirements, rather than relying on "the spirit and intent of the guidelines."
COMMENT #32: The sponsor of HB 597 asked the Commission to include a statement that the "Commission strongly encourages utilities to acquire resources using competitive solicitations" as part of NEW RULE I (38.5.2020).
RESPONSE #32: The Commission declines to adopt this change, since such a statement is largely unenforceable as a rule. Instead, the Commission has incorporated this concept by adding (6) in NEW RULE I (38.5.2020), which requires utilities to acquire resources through transparent, independently administered competitive solicitations whenever practicable, subject to the limitations of HB 597, which were codified in 69-3-1207, MCA.
COMMENT #33: The sponsor requested additions to the definitions included in NEW RULE II (38.5.2021), including an expanded list of "costs" and definitions for "long-term" and "affiliate."
RESPONSE #33: The Commission has largely adopted the sponsor's requested definitions. The Commission further notes that the costs listed in this definition are not intended as an exhaustive list.
COMMENT #34: Regarding NEW RULE III (38.5.2022), the sponsor requested that the Commission include certain statutory language from 69-3-1209, MCA, pertaining to avoided costs and the techniques used to estimate those costs.
RESPONSE #34: Pursuant to 2-4-305, MCA, the Commission's rules "may not unnecessarily repeat statutory language." The Commission therefore did not propose to repeat elements of the language adopted by HB 597 in its proposed rules. This does not mean, however, that the Commission does not intend to enforce the requirements of Montana law. In response to the sponsor's comments, the Commission has reiterated language from the statute in NEW RULE III (38.5.2022) (1)(f)(iv).
COMMENT #35: The sponsor also requested that the Commission revise NEW RULE III (38.5.2022) (1)(k), (1)(l), and (1)(m) to include additional details about a utility's responses to feedback in the planning process and future plans for acquiring resources.
RESPONSE #35: The Commission has incorporated the spirit of the sponsor's requests for additional details in (1)(l) and (1)(m) of NEW RULE III (38.5.2022), which requires utilities to describe their responses and reactions to comments and input in public meetings and in response to draft resource plans. The Commission has included the sponsor's requested revision striking the word "substantial" in (1)(k) of NEW RULE III (38.5.2022). The Commission has not included the sponsor's requested edits in (1)(n) as the Commission believes the existing language achieves the same result in fewer words. Both the sponsor's request and the rule as adopted require the utility to describe the process it intends to use to acquire resources, including the use of competitive solicitations.
COMMENT #36: The sponsor requested that the Commission include a process for stakeholders to issue data requests after a utility's plan is submitted.
RESPONSE #36: The Commission notes that resource planning is not a contested case, and as such, there are no intervenors with rights to conduct discovery in the traditional, legal sense. Instead, the Commission has added in NEW RULE IV (38.5.2023) (4) a requirement for utilities to provide a process for written questions and answers, which may be referred to in future proceedings. The Commission also reiterates that it has broad investigative authority, and nothing in these rules limits the Commission's investigative authority.
COMMENT #37: The sponsor requested that the Commission require utilities to make proprietary modeling software used in preparing resource plans available to stakeholders by negotiating a licensing fee that permits stakeholders to perform their own modeling. The sponsor cites the requirement in 69-3-1204(2)(b), MCA, that utilities "fully explain, justify, and document the data, assumptions, methodologies, models, determinants, and any other inputs on which it relied to develop" their resource plans.
RESPONSE #37: As discussed in response to prior comments, the Commission has added detailed requirements of utilities to satisfy the statutory requirement of fully explaining, justifying, and documenting its use of a proprietary model. The Commission's rule provides transparency and follows the plain language of the statute, without subjecting utilities and their customers to unknown licensing costs associated with stakeholders' access to run alternative simulations within the model. The Commission has also revised the rule to require utilities to consult with their advisory committees about providing access to proprietary models.
COMMENT #38: Regarding NEW RULE IV (38.5.2023), the sponsor asked the Commission to repeat in its rule elements of statutory language from 69-3-1208, MCA, concerning the makeup of the advisory committee and the two public meetings a utility is required to host.
RESPONSE #38: The Commission believes the requirements of the statute are incorporated in the rule's reference to "an advisory committee according to 69-3-1208, MCA." Similarly, the Commission declines the sponsor's request to repeat the statutory requirement that the utility hold two public meetings on its resource plan. The Commission intends to enforce the meeting requirement as provided in statute. Through this rule, the Commission has detailed specific notice requirements, which will provide the public an opportunity to meaningfully participate in the statutory meetings. The Commission has also generally incorporated the sponsor's requests for revisions that replace permissive language with mandatory language throughout NEW RULE IV (38.5.2023).
COMMENT #39: The sponsor described NEW RULE V (38.5.2024) as "extremely disappointing" and said the rule was too permissive to carry out the purpose of the statute. The sponsor further asks the Commission to establish in rule a rebuttable presumption that procurement of certain power resources outside of competitive solicitation is not in the public interest.
RESPONSE #39: The Commission has revised NEW RULE V (38.5.2024) (2) to require utilities to acquire needed resources through competitive solicitations whenever practicable, subject to 69-3-1207, MCA. The Commission believes this matches the scope of the competitive solicitation requirement outlined in 69-3-1207, MCA. For the reasons described in response to prior comments, the Commission declines to establish a rebuttable presumption that resources acquired outside of a competitive solicitation are not in the public interest. The limits established in 69-3-1207(1) and (5), MCA, do not support such a presumption. Furthermore, the utility will continue to bear the burden of proving by a preponderance of the evidence that an acquisition is in the public interest. Failing to carry that burden of proof would result in the denial of rate recovery.
COMMENT #40: The sponsor requested that the Commission apply to opportunity resources the standards used for evaluating avoided costs in the context of the Public Utility Regulatory Policies Act (PURPA).
RESPONSE #40: The Commission appreciates the sponsor's perspective, but declines to adopt this change at this time. The discussion of opportunity resources in HB 597 exempted those resources from the competitive solicitation requirement, but it did not otherwise prescribe how the Commission should evaluate those resources. The Commission is currently undertaking rulemaking under PURPA that may revise the way avoided costs are calculated in that context. To the extent PURPA requires the Commission to apply the same evaluation methods to both opportunity resources and qualifying facilities under PURPA, the Commission believes the more appropriate venue to reach that conclusion is in a contested case with the benefit of full legal briefing. Finally, the Commission believes that the definition of "cost-effectiveness" adopted in these rules provides a sufficient basis for evaluating opportunity resources.
COMMENT #41: Regarding NEW RULE VI (38.5.2025), the sponsor asked the Commission to make certain revisions to improve fairness and transparency in the competitive solicitation process.
RESPONSE #41: As discussed in response to prior comments, the Commission has revised NEW RULE VI (38.5.2025) to shift guidelines to requirements, to the extent allowed by law. The Commission agrees with the sponsor and other commenters that bidding in competitive solicitations could be curtailed by the perception that the process is not open and fair. To that end, the Commission's revisions incorporate elements of the sponsor's proposed language, and require utilities to provide a more detailed discussion of the objective criteria and rubrics used to evaluate both price and non-price factors. The Commission has also revised the rule to include more details regarding the role of a third-party administrator, when one is required by statute. Finally, the Commission has reorganized the rule to group together requirements that arise from the possibility of a utility or its affiliate submitting a bid in the utility's own competitive solicitation.
5. The department thoroughly considered the comments received on the amended notice. A summary of the comments received on the amended notice and the department's responses are as follows:
COMMENT #42: A comment recommended either substituting the language in New Rule I(4) with the term "lowest long-term total cost" or incorporating the language of New Rule I(4) into New Rule III(1)(i) as presently written.
RESPONSE #42: The Commission has revised New Rule I(4) to incorporate the term "lowest long-term total cost."
COMMENT #43: A comment stated the language regarding long-term societal costs in New Rule I is too vague.
RESPONSE #43: The Commission has revised language in that rule to refer to long-term total costs, including scenarios based on societal costs. The term "societal cost" is defined in New Rule II and accommodates the commenter's example of the social cost of carbon.
COMMENT #44: A comment recommended supplementing the language requiring the filing of a resource plan every three years.
RESPONSE #44: The Commission appreciates this comment but believes the statutory definition of "planning period" includes the commenter's recommended language.
COMMENT #45: One comment suggests including annual emissions of carbon dioxide in New Rule III(1)(d) for proposed new resources.
RESPONSE #45: The Commission declines to adopt this change because the suggested language is included in New Rule III(1)(h) and (p) as well as in New Rule VI(5)(d).
COMMENT #46: One comment recommended adding language in New Rule III(1)(h) to require an evaluation of emerging energy resources that are free of carbon emissions and when these resources are likely to become feasible resource additions.
RESPONSE #46: The Commission declines to make this revision. The Commission appreciates this perspective and believes that New Rule III already requires consideration of emerging energy technologies to the extent they are or may become plausibly cost-effective during the planning period.
COMMENT #47: One comment stated that the use of the term "shall" is inconsistent with New Rule I (38.5.2020) and makes the rule unworkable. According to the commenter, goals and policies describe where effort should be directed and are not commands or requirements.
RESPONSE #47: The Commission disagrees that using the term "shall" with a rule addressing goals and policies is unworkable. It is often necessary to satisfy requirements to achieve goals – if one has a goal to become a doctor, one is required to complete medical school. Similarly, achieving Montana's policy goals of efficient utility operations, efficient use of utility services, and efficient rates requires completing certain planning evaluations and procurement processes. The Commission agrees with the comments on the initially proposed rule that permissive, non-binding terms prevent the rules from fulfilling both the intent and the specific requirements of HB 597, as explained in the response to Comment #2.
COMMENT #48: One comment stated that requiring the utility to provide competitive solicitation scoring criteria and a sample evaluation to potential bidders is "teaching to the test," and that it is not an industry best practice.
RESPONSE #48: The Commission disagrees. The commenter, a public utility, provided no basis for the assertion that the proposed rule departs from best practices. Further, the commenter bears the burden of providing evidence that rules that require more transparency into bid evaluation processes are less successful. The Commission disagrees that requiring solicitations to provide scoring criteria and a sample evaluation rubric to potential bidders is not an industry best practice. Multiple studies have determined that effective competitive solicitation processes require regulatory oversight that instills confidence in participants that their bids will be considered fairly and objectively. In addition, to encourage robust competition, solicitations must provide prospective bidders adequate information about bidder requirements, evaluation procedures, product specifications, and other factors that affect the resources that are offered. Moreover, these studies are not new. See, for example, Competitive Procurement of Retail Electricity Supply: Recent Trends in State Policies and Utility Practices, The National Association of Regulatory Utility Commissioners, July 2008; How to Build Clean Energy Portfolios: A Practical Guide to Next-Generation Procurement Practices, RMI, 2020.
COMMENT #49: One comment expressed concerns that the rules prohibit a utility from initiating a proceeding to address cost recovery of undepreciated, rate-based capital costs.
RESPONSE #49: The Commission disagrees. Nothing in the proposed rules prevents a utility from filing an application; ARM 38.5.2020(7) merely states that the determination of the appropriate cost recovery will be determined in a separate contested case proceeding and not in the review of a utility's resource plan.
COMMENT #50: One comment contended that the rule prohibiting a utility from issuing a competitive solicitation until 70 days after submitting the draft solicitation is unreasonable and suggested a 30-day public comment period instead of 45.
RESPONSE #50: The Commission disagrees – robust and transparent stakeholder engagement in the procurement process is in line with the statute. The Commission also declines to make the revision to the public comment period. The 45-day public comment period coinciding with the 70-day draft solicitation process will provide meaningful stakeholder input and allow the utility enough time to modify the draft solicitation based on feedback if necessary prior to issuing the final solicitation. If a utility has good cause for a shorter comment period or quicker release of a solicitation based on the nature of the solicitation and the resource need being addressed, a utility may request a waiver of the rule.
COMMENT #51: One comment stated New Rule I expands the scope of long-term integrated resource planning to include distribution planning.
RESPONSE #51: The Commission disagrees. An Integrated Resource Plan (IRP) must evaluate "the full range of cost-effective means" of meeting customer service requirements. Distribution-side resources offer potentially cost-effective means of meeting customer service requirements and, therefore, cannot be ignored in the planning process. Utilities have recognized this fact in the past. A plan submitted by a utility in 2019 addressed several distribution-side resources, including a microgrid project and three distribution-level community solar projects. By influencing the shape and/or peak of the load at the distribution level, these resources affect resource needs at the transmission level. Although the Commission disagrees that the rule requires a full integration of distribution planning and resource planning, any resource acquisition strategy may be accompanied by impacts on delivery systems and those impacts should not be ignored in the resource planning process.
COMMENT #52: One comment stated that the Commission has misunderstood HB 597 by confusing the roles of the independent monitor and the third-party administrator.
RESPONSE #52: The Commission disagrees. Although Montana law differs in certain respects from similar laws in other states, the Commission's proposed rule pertaining to use of the third-party administrator required in HB 597 is reasonable. The legislature did not define the term "third-party," but the term is sometimes defined as "any party to an incident, case, etc. who is incidentally involved." In turn, "incidentally" is defined as "apart or aside from the main subject of attention." The Commission is persuaded by a preponderance of public comments, including comments from the bill sponsor, as well as the plain meaning of "third-party" and common sense, that the legislature intended a degree of separation or independence in requiring a utility to use a third-party administrator to evaluate bids when a competitive solicitation may result in utility ownership of a selected resource. As the Commission explained in responses to Comments #1, #2, and #4, effective competition that achieves statutory planning goals and benefits customers requires a fair and objective process that instills confidence in prospective participants. Utilities seem to acknowledge this. In a recent draft IRP, one utility asserts its competitive solicitation processes will be conducted, monitored, evaluated, and scored by an "independent evaluator."
COMMENT #53: Several comments expressed concern over the proposed definition of affiliate.
RESPONSE #53: The Commission appreciates this perspective and has replaced the definition with a modified pre-existing definition of affiliate from ARM 38.5.7001.
COMMENT #54: One comment expressed concerns regarding the inclusion of costs for fuel delivery, infrastructure, permitting, land use and rights of way, abandonment, and securitization in the definition of cost.
RESPONSE #54: The Commission declines to eliminate these items from the definition. Although a utility may not know the actual costs for these items in the planning process, the goal is not to ignore the potential or likelihood of such costs, which could distort planning results and procurement strategies in ways that increase risk to the utility and its customers. The point is to be thorough and transparent in the planning analysis. Many costs analyzed in the planning process are estimates and the identified cost items are no different. In addition, because the rules address costs in both the planning and procurement context, the definition needs to be broad enough to work in both contexts.
COMMENT #55: One comment disagreed with the inclusion of probabilistic estimates under New Rule III(1)(d).
RESPONSE #55: The Commission believes it is reasonable to expect probabilistic measures of the capacity value of resources and notes that the methods suggested (outage rates, historical performance, and performance testing) would reasonably be considered probabilistic. The Commission cautions utilities against potentially discriminatory applications of capacity value metrics in planning processes. For example, an expected forced outage rate may not effectively capture extreme weather-driven outages at thermal plants that coincide with peak demands, which could be better captured through effective load carrying capability (ELCC) analyses.
COMMENT #56: One comment expressed concerns the resource adequacy assessment required under New Rule III(1)(g) has vague and unclear requirements to document alternative energy.
RESPONSE #56: The Commission appreciates this comment and has modified the language in New Rule III(1)(g) to clarify the scenario.
COMMENT #57: One comment stated the Commission should either remove the requirement in New Rule III(1)(h) for utilities to provide a description of plausibly cost-effective resources that could be acquired, or redraft the rule to require utilities to provide a description of plausibly cost-effective resources, including those the utility has reasonably determined could be acquired after an investment to the transmission system.
RESPONSE #57: The Commission declines to make this revision. It is unclear how the proposed rule differs from the commenter's proposal.
COMMENT #58: One comment disagrees with the requirement for a description of the characteristics of the resources in New Rule III(1)(h) and states the cost estimates are location specific.
RESPONSE #58: The Commission disagrees with the characterization of the requirement. The rule requires estimates of potential costs, not actual location specific costs. See also the response to Comment #55.
COMMENT #59: One comment states the descriptions and information required in New Rule III(1)(j) for computer modeling are vague and arbitrary.
RESPONSE #59: The Commission appreciates this comment and has adjusted the language to be clearer.
COMMENT #60: One comment states New Rule VI (38.5.2025) (3)(c) and (3)(d)(ii) are unreasonable because they combine "must" with "where practicable."
RESPONSE #60: The Commission disagrees and believes the "must" is clearly conditional and does not create conflict.
COMMENT #61: One comment expressed concerns the rules expand competitive solicitations beyond preapproval.
RESPONSE #61: The Commission recognizes the rules mandate competitive solicitations where practicable subject to 69-3-1207, MCA, and the Commission's rules. The Commission believes HB 597 articulates a clear policy of encouraging utilities to acquire resources using competitive solicitation processes and that effective competitive solicitation processes can promote efficient utility rates. If a utility has good cause for not using competitive solicitation, a utility may request a waiver of the rule. Prudence of procurement processes and resource decisions will be examined in applications for rate recovery.
COMMENT #62: Multiple comments expressed support for the rules and encouraged the Commission to adopt them without further delay.
RESPONSE #62: The Commission appreciates the perspective of the comments.
6. In addition to making changes to the proposed rules in the amended notice for the reasons described in the responses to the comments, the department removed proposed New Rule II(11) since the term "qualifying facility" is not used in new rules. Also, the department capitalized "Commission" throughout the new rules for consistency.
/s/ LUCAS HAMILTON /s/ JAMES BROWN
Lucas Hamilton James Brown
Rule Reviewer President
Public Service Commission
Certified to the Secretary of State January 3, 2023.