Montana PSC Votes to Lower NorthWestern Energy's Electricity Rates

The typical NorthWestern Energy residential customer will see a $7.96 decrease in their monthly electricity bill following the Montana Public Service Commission’s (PSC) decision to adopt a temporary rate structure.

On Tuesday, November 26th, commissioners authorized the 7.2% rate decrease at the recommendation of PSC staff, who determined that falling natural gas prices and a shifting regional energy market are working in electricity consumers’ favor.

The PSC is the elected utility board tasked with balancing the financial health of monopoly utilities with the concerns of their customers, who cannot shop around for other providers. The largest utility the PSC regulates is NorthWestern Energy, which serves about two-thirds of Montana’s electricity and natural gas customers.

In July, NorthWestern Energy requested a $193 million rate increase to recoup investments in its generation, distribution and transmission systems, earn a 10.8% return on equity for its shareholders, and cover the company’s rising property tax bill. NorthWestern broke its request into two pieces, asking for a smaller interim increase to address the lag between its initial filing and the commission’s final order, which isn’t expected until next year.

NorthWestern incorporated a “bridge rate” in its interim electricity rate request, arguing that it should have the authority to recover $58 million for the anticipated “market benefit” of its new gas plant in Laurel as soon as the plant entered into service. Late last month, NorthWestern mostly hit that milestone, pumping uncommonly cheap natural gas into 16 of the Yellowstone County Generating Station’s 18 engines and feeding that electricity into the grid.

The PSC’s order allows the utility to start recovering some of the costs associated with operating YCGS, but commissioners balked at the $58 million bridge rate. In denying it, PSC staff suggested that NorthWestern had missed the mark by a wide margin.

“The bridge rate is more than the proposed cost of service for YCGS by approximately $57 million dollars, resulting in a significant overcharge to customers,” PSC rate analyst Brooke Umsted explained to the commission during Tuesday’s proceedings. “The proposed bridge rate does not comply with generally established principles of utility rate regulation.”

Umsted also noted that having YCGS in service means that NorthWestern can sell more power to other utilities, which serves to offset some of the power generation expenses incorporated in NorthWestern’s customers’ bills. The decreased rates arose from a reduction in the Power Costs and Credits Adjustment Mechanism, a type of cost tracker that helps energy companies reduce the lag between when they purchase plant fuel and market power and when they can bill customers for those purchases.

Though the commission denied significant pieces of NorthWestern’s interim rate request, the commission largely complied with a couple of the South Dakota-based utility’s smaller asks. In addition to approving the company’s property tax-related increase in full, an increase of about $7.6 million that will go into effect in January, the PSC agreed to a temporary increase in natural gas rates to reflect investments in the transmission, distribution, storage and production of natural gas.

The average residential customer using 65 therms of natural gas a month will therefore see a $4.38 increase in their natural gas bill.

Commissioners James Brown, Jennifer Fielder, Tony O’Donnell and Anne Bukacek voted for the interim rate structure. Commissioner Randy Pinocci was not present for the proceeding.

In a press release touting the PSC’s order, PSC President James Brown said the commission “has once again satisfied its obligation to customers of NorthWestern Energy to ensure utility rates are fair and justified.”

“The entire commission recognizes that Montanans have been facing historically high prices for everything from housing to health care, food to insurance, diesel fuel and gasoline for the last four years. Going into the holiday season this year, electricity bills will be going down for NorthWestern’s electricity customers in the interim period, more than offsetting a smaller increase in their natural gas bills.”

In the coming months, the PSC, the Montana Consumer Counsel, the Montana Environmental Information Center, and a cohort of Northwestern’s largest customers will continue to review outstanding issues in the larger rate case, including the prudency of NorthWestern’s investment in YCGS. If the proceeding follows the same trajectory as Northwestern’s last rate case, a handful of intervening parties will enter into a settlement agreement sometime next spring.