PSC declines to reverse NorthWestern Energy rate hike

The NorthWestern Energy rate hike that the Montana Public Service Commission adopted in October will stand following a decision from the commission this week.

The increase was originally forecast to raise residential customers' electricity bills by 28 percent, but a reduction in NorthWestern's property tax bill and a "true-up" process designed to square NorthWestern's forecasted market power purchases with its actual expenditures have brought that figure down slightly. 

The rate increase the PSC adopted in October was forwarded to the commission by NorthWestern, the Montana Consumer Counsel and representatives from several of its largest customers. It garnered opposition from NorthWestern's residential and small business customers as well as groups opposed to NorthWestern's investment in fossil fuel plants.

Opponents to the rate hike filed three qualifying petitions with the Public Service Commission, an elected body charged with balancing the financial health of monopoly utilities with the interests of its customers who are unable to shop for service from other utilities. All five commissioners currently on the PSC are Republicans.

During its Tuesday meeting, PSC chief legal counsel Lucas Hamilton and other commission staff summarized and responded to the petitioners' claims, which covered a broad range of issues. After hearing a run-down of issues the petitioners presented and asking occasional questions of Hamilton and other PSC staff, the commission unanimously adopted an order that directs NorthWestern to report on affordability for its low-income customers and convene a group to explore a framework to reduce its overall electricity requirements. The order doesn't, however, alter the formulas NorthWestern uses to calculate its customers' monthly bills.

The claim that generated the most discussion Tuesday related to an allegation by the climate advocacy organization 350 Montana that the rate increase discriminates against residential customers by requiring them to shoulder the bulk of the $82 million increase in revenue the electricity rate hike is expected to garner Montana's largest regulated utility. PSC staff disputed that assertion in a memo it submitted to the commissioners ahead of their Tuesday meeting. 

"NorthWestern does not provide all customers the same service, which is precisely why customers are separated into distinct customer classifications," the memo reads. "Rate differences between service classifications that are based on costs of service are lawful, consistent with established ratemaking principles, and are not unjustly discriminatory."

Other claims by 350 Montana focused on debt service for NorthWestern's 2008 purchase of a share of the Colstrip coal-fired power plant, the inclusion of some of NorthWestern's advertising expenses in the rate case, the "range of reasonableness" analysis that PSC staff used in determining the appropriateness of the rate hike, and oversight of a controversial gas plant that NorthWestern is building in Laurel. The commission dismissed these claims as being ill-founded.

The commission also dismissed a claim forwarded by power and storage company Broad Reach Power that it was denied due process because it didn't have long enough to review the rate increase proposal before a multi-day hearing devoted to it began. That claim was dismissed by PSC staff on the grounds that rescheduling the hearing would have outweighed the benefit of giving groups like Broad Reach more than eight days to prepare for the hearing.

The commission did, however, find merit to claims made by the Human Resource Council, the Natural Resources Defense Council and NW Energy Coalition that NorthWestern should have done more to explore and implement demand-side management and alternative ratemaking methods. Demand-side management involves working with large electricity users to schedule surges in usage for off-peak hours so that utilities like NorthWestern can reduce their overall power requirements.

To address that concern, the commission's order directs NorthWestern to maintain a permanent stakeholder group to evaluate and provide input on demand-side management policies.

The trio of organizations also argued that the rate case failed to evaluate impacts on low-income customers. To address that concern, the commission is directing NorthWestern to "address apparent information gaps" related to participation in low-income assistance programs and coordination across existing assistance programs. Starting in March, NorthWestern will be required to provide affordability data to the commission on an annual basis.

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