Umatilla Electric Cooperatie will use a $90 million federal loan to upgrade its grid in eastern Oregon. (Getty Images)
Though legal experts and even the Montana Legislature’s own legal staff warned the Republican-dominated House and Senate that many of the bills lawmakers were drafting and passing didn’t quite meet constitutional muster, the 2021 session produced a flurry of bills, most of which were signed by Gov. Greg Gianforte.
In the intervening months, courts across the state – both at the county and federal level – have struck down laws ranging from firearms on college campuses to five different bills that would have impacted voting rights.
Now, federal magistrate Judge Kathleen DeSoto has ruled that Senate Bills 265 and 266, which sought to force several owners of the coal-fired Colstrip plant to stay in Montana running the plant or face as much as $100,000 per day fine from the state’s attorney general are illegal. In her nearly 90-page decision, DeSoto said lawmakers violated both the state and federal constitutions, and sought to change the terms of the contracts as a way to disadvantage out-of-state owners and tilt any legal outcome toward Montana owners, including NorthWestern Energy and Talen.
During the 2021 session, lawmakers, chiefly Sen. Steve Fitzpatrick, R-Great Falls, became increasingly concerned that Oregon- and Washington-based utilities, which have an ownership stake in Colstrip, namely Portland General Electric, Avista Corporation, Pacificorp and Puget Sound Energy, would exit from Colstrip because both states have passed laws ordering utilities to abandon coal-fired power generation.
Fearing those companies’ exit may hasten or stop Colstrip altogether, the Legislature passed the two bills that changed the terms of the contract, including demanding that any arbitration dispute among the owners be held in Montana using a three-person panel, rather than relying on the operating agreement in place, which requires a one-person arbiter in Spokane, Washington, using the laws of the State of Washington.
Senate Bill 265 changed the terms of the ownership agreement from a single arbiter to requiring owners of any power generation plant in the state to go through an arbitration hearing from a three-member panel in Montana, unless all the owners agree unanimously in writing to a different a single-arbiter.
Senate Bill 266 also allowed the Montana Attorney General’s Office to assess as much as $100,000 per day fines for any of the owners who wanted to exit without unanimous approval of the owners. Utility companies that took the state and fellow co-owners to court argued the new laws were equivalent to economic blackmail, forcing them to continue to operate a power plant and yet not use the power.
DeSoto’s ruling sided with the companies, saying that Montana lawmakers couldn’t simply change the terms of a private contract, and that they could not show a compelling state interest to force companies to remain invested in Colstrip.
One of the key findings in DeSoto’s ruling was that SB265 violated the U.S. Constitution’s “Contract Clause,” which prohibits state legislatures from passing laws that “impair the obligation of contracts.”
“Senate Bill 265 does not advance a significant and legitimate public purpose because … it interferes with the purely private rights of the parties,” DeSoto said. “SB 265 has an extremely narrow focus aimed at abrogating venue provisions and altering the mechanism for dispute resolution in contracts involving electrical generation facilities in Montana.”
In her ruling, DeSoto explains that federal law does permit states to intervene when there’s an overwhelming public interest, as in the case of law enforcement or for public safety.
“It is difficult to see how Senate Bill 265 can be viewed as general legislation for the public welfare, when on its face it applies only to (a) narrow class of private contracts, in particular those ‘concerning venue involving an electrical generation facility’ in Montana,” the court said. “The threshold ‘requirement of a legitimate public purpose’ guarantees that the state is exercising its police power, rather than providing a benefit to special interests.”
Part of DeSoto’s ruling relied on testimony given during the 2021 Legislature in which Fitzpatrick and others described why it was essential to pass the two Senate Bills that forced owners to stay in Colstrip or face substantial fines.
“Again, I think it goes back to this very important public policy issue is whether the West Coast utilities should be able to shut down Colstrip,” Fitzpatrick said, while supporting the bill. “What we’re doing is we’re pushing back against really regulators in other states who are trying to impose kind of their new green deal type of public policy in the state of Montana, and it’s hurting Montana. And so I think we have every right to stand up and say, ‘No,’ and use any means necessary here at the Legislature to make sure that our interests aren’t trampled by the environmental views in states of Washington and Oregon.”
DeSoto said his testimony, as well as that of others, showed these bills were not aimed at the general public, rather as a means to punish those states and companies that want to exit coal-fired power.
De Soto also said that Montana Gov. Greg Gianforte’s comments at the bill signing helped establish that SB266 was “passed for the discriminatory purpose of fostering local economic activity to the detriment of out-of-state corporations seek Colstrip’s closure.”
When he signed the bill, Gianforte said, “Affordable power generated in Colstrip helped build Seattle’s big tech economy, but now woke overzealous regulators in Washington State are punishing the people of Colstrip with their anti-coal agenda. Montana stands with Colstrip ,which is why I proudly sign SB265 and 266.”
The group of owners from Oregon and Washington said in testimony that they had planned to call for a vote to shutter Colstrip Unit 3 on May 19, 2021, but did not because they feared “that even calling for a vote could be considered ‘conduct’ punishable by the imposition of a fine up to a $100,000 per day under SB 266.”
“The substance of Senate Bill 266 does not address any of its asserted objectives,” the court ruled. “For example, (the Washington and Oregon) owners rightly point out, SB266 does not authorize the state to act based on actual effects on the supply of electricity, worker safety, or environmental remediations, and it does not prevent Colstrip from closing, it just requires a unanimous vote to do so.”
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