Generating plants producing 1 megawatt or more by means of an alternative renewable energy source are eligible for the new or expanded industry property tax reduction on the local mill levy during the first nine years of operation, subject to approval by the local government. If so approved, the facility is taxed at 50 percent of its taxable value in the first five years after the construction permit is issued. Each year thereafter, the percentage is increased by equal percentages until the full taxable value is attained in the tenth year.

The tax reduction applies only to taxes levied for the local high schools and elementary schools and for the local government offering the reduction.

If owned by a utility, an exempt wholesale generator or certain other electrical energy producers, this property is class 13 property and otherwise would be taxed on 6 percent of assessed value. If owned by an electric cooperative, this property is class 5 and otherwise would be taxed at 3 percent of assessed value. If owned by any other business, the real property is class 4 and otherwise would be taxed at 3.07 percent of assessed value in 2007 and 3.01 percent beginning in 2008 and the personal property would be class 8 with a tax rate of 3 percent of assessed value. The assessed value of real property is adjusted every five years to reflect market trends. The assessed value of personal property is adjusted yearly based on a trend factor that reflects the relevant rate of inflation and on the Department of Revenue’s depreciation schedule.

Commercial and net metering alternative energy investments of $5,000 or more are eligible for up to 35 percent tax credit against individual or corporate tax on income generated by the investment. The credit may only be taken against net income produced by the eligible equipment or by certain associated business activities. Associated facilities, manufacturing plants producing alternative energy equipment and new or expanded businesses using the energy generated by the alternative energy investment may use the tax credit.

The tax credit must be taken the year the equipment is placed in service; however, any portion of the tax credit that exceeds the amount of tax to be paid may be carried over and applied against state tax liability for the following 7 years. A project of 5 MWs or larger on a reservation may carry the credit over for 15 years, if it has an employment agreement with the tribal government.

Taxpayers may not take this credit in conjunction with any other state energy or state investment tax benefits, or with the property tax exemption for nonfossil energy property 15-6-224.

This credit is available to taxpayers purchasing an existing facility as well as to those building a new facility.

The corporate tax rate is 6.75 percent.

The renewable resource grant and loan program is administered by the Department of Natural Resources and Conservation. Historically the program primarily has funded water projects, but it does offer grants to renewable energy projects of state, local, or tribal government entities. On a biennial basis, DNRC evaluates and recommends projects to the Legislature for funding.

The board of research and commercialization technology gives grants for renewable resource research and development projects, among other types, to be conducted at research and commercialization centers located in Montana.

Limited obligation local government bonds ("special revenue bonds") may be issued for qualified electric energy generation facilities, including those powered by renewables. These bonds generally are secured by the project itself. The taxing power or general credit of the government may not be used to secure the bonds. Local governments may not operate any project financed by the sale of revenue bonds as a business except to lease it to some other party.

These bonds are exempt from state taxes and may qualify for federal tax incentives. The tax-exemption feature allows funds to be borrowed at a significantly lower rate (1-2 percent) than possible with taxable bonds. There are various restrictions on how such bonds may be used. Because of the legal complexity of a bond issue, retaining bond counsel is important.

The total amount of special revenue bonds that can be issued by state and local governments combined is capped, which theoretically could limit a government’s ability to issue new bonds for a generation facility.

The alternative energy revolving loan program offers low-interest loans for up to $40,000 with repayment up to ten years. The loans are for the purpose of installing alternative energy systems that generate energy for the building occupant's own use or for net metering. Energy conservation measures may also be financed along with the alternative energy project.

The number of loans that will be made is subject to funding availability. The projects must be located in Montana.

Loans subsidized by tax-exempt bonds issued by the Montana Agricultural Loan Authority may be used for the production of energy using an alternative renewable energy source. The program is run through existing private agricultural lenders. The intent is to provide lower interest (1-2 percent below market) loans up to $250,000 to eligible beginning ag operators. To meet IRS regulations, the energy generated must be used within the agricultural operation.

The Public Service Commission sets special rates at which NorthWestern Energy or Montana-Dakota Utilities must buy power from qualifying facilities that either 1) use renewable resources or waste materials or 2) cogenerate. Flathead Electric Coop is the only rural electric cooperative that must offer QF contracts. It is regulated directly by FERC.

The nameplate capacity of eligible facilities can be no more than 80 MW according to federal legislation. However, the PSC requires QFs larger than 3 MW to go through an RFP process to obtain a long-term contract. Between solicitations, QFs larger than 3 MW can sell to the utility at a tariffed short-term rate. For NWE, the short-term rate options are the two hourly rates in the QF-1 tariff.

The rates set by the PSC must be in compliance with the federal Public Utility Regulatory Policies Act. The current QF rate for NWE is found under the QF - 1 Tariff and will have three rate schedules from which a QF under 3 MW may elect to receive payment. These contracts are available from up to 7 to 20 years, depending on which payment option the facility chooses.

Avista, Black Hills Power, and Powder River Energy, which serve only small areas and a handful of customers in Montana, also are required to offer QF contracts.

The 2003 Legislature passed HB417, which repeals all Montana mini-PURPA, contingent on repeal of federal PURPA. It would not affect any legal action or agreement made prior to the repeal.

NorthWestern Energy must offer customers an opportunity to purchase a separately marketed (and possibly differently priced) product composed of power from biomass, wind, solar or geothermal resources.

All distribution utilities and cooperatives must collect a Universal System Benefits Charge (USBC), which is used for low-income assistance and weatherization, energy efficiency, renewable energy, and R&D programs. Utilities and cooperatives may manage their own USB program, or may pay into state funds that implement the USB program. The USBC currently is slated to terminate December 31, 2009. The charge is set at a level that would generate 2.4 percent of each utility’s 1995 retail sales revenue, given 1995 sales volumes. However, the amount that can be charged to large customers is capped. The total annual collection is less than 2.4% of the total utility and coop revenue. Since actual loads vary year to year, total USBC collections also vary. The largest program is run by NorthWestern Energy.

The Public Service Commission has the authority to regulate abusive practices by suppliers and others. The PSC requires suppliers to substantiate any claims that their energy is from renewable resources. (See ARM 38.5.6010 Claims Made In Marketing Electricity Or Natural Gas.)

The PSC also is developing a proposal to require suppliers to provide fuel mix information as a percentage of the total product, along with information on certain environmental impacts. The regulations on labeling could be issued in the future.

Net metering is an arrangement that allows surplus energy generated by the customer’s renewable energy system to go back on the utility electric system. The customer’s meter measures the electricity the customer uses from the utility system less the electricity the customer’s system puts back. The customer receives "credit" at retail rates for the electricity put back on the system, up to the amount of power the customer actually consumes at his location.

NorthWestern and MDU must procure supplies for a minimum of 5% of their retail sales of electrical energy in Montana from eligible renewable resources through 2009, 10% between 2010 and 2014, and 15% starting January 1, 2015. Starting in 2010, a portion of their RPS requirement must be met with electricity from community renewable energy projects. Renewable energy credits created by an eligible renewable resource purchased separately from the associated electricity may be used to meet the RPS.

A cooperative utility with 5,000 or more customers is responsible for implementing and enforcing its own renewable energy standard that recognizes the intent of the legislature to encourage new renewable energy production and rural economic development.

The RPS also applies to competitive electricity suppliers, defined as any supplier other than a public utility or a cooperative selling electricity at retail rates to customers whose individual load has an average monthly demand of less than 5,000 kilowatts.