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How the Public Commission Works

The PSC's Role

It is the responsibility of the PSC to ensure that public utilities in Montana provide adequate service to customers at reasonable rates. In its decisions, the commission tries to balance the interests of ratepayers who are concerned about utility costs with the utilities' need to have the opportunity to earn a fair rate of return on their investment.

Public utility rate regulation can be complex because the utility business is complex. As long as utility service is provided by private monopolies, however, the public interest must be protected through regulation.

History & Organization

Regulation of public utilities in Montana has evolved from the 3-member Board of Railroad Commissioners created by the Legislature in 1907 to the present 5-member Public Service Commission. In the past, 3 commissioners were elected statewide to 6-year staggered terms, but in 1974 the Legislature expanded the commission to 5 members who are elected from regional districts to 4-year staggered terms. The commissioners elect a chair from among themselves every other year.

The Department of Public Service Regulation provides staff support for the commission. The department's three divisions are Regulatory, Legal and Centralized Services. Employees include economists, accountants, attorneys, rate analysts, enforcement and compliance personnel, and support staff.

Jurisdiction

The PSC generally regulates private, investor-owned natural gas, electric, telephone, water and private sewer companies doing business in Montana. In addition, the PSC regulates intrastate railroads and certain motor carriers hauling regulated commodities. The PSC oversees natural gas pipeline safety regulations.

Not all utilities in Montana are regulated by the PSC. Outside PSC jurisdiction are: rural electric and telephone cooperatives; cellular telephone companies; cable TV companies; the quality of municipal water and sewer services; and propane dealers.

How utility rates are set

The process of setting utility rates is somewhat like the process a banker uses in making a business loan. Bankers usually ask applicants for detailed financial statements. A banker and a loan applicant may discuss whether or not the financial statements, which depict a historical period, will accurately represent the future. If the banker thinks that some future event may affect the business by either increasing or decreasing earnings, then that factor may be used to adjust the historical financial statements. This, in turn, may cause the banker to increase or decrease the loan amount. Naturally, bigger businesses are more complicated to analyze. Businesses as big as major public utilities are very complicated.

The PSC's rate-setting process is like the banker's loan process, although the PSC certainly doesn't lend money. Before the PSC sets a utility's rates, it analyzes the company's financial statements for accuracy, examines its operating practices to ensure efficiency, and reviews known future events that may affect the business.

There is a major difference between the PSC and the banker, however. The banker would be pleased if a loan applicant could make very high profits. By law, the PSC must allow only those profits that are just and reasonable. In other words, the PSC must allow utilities an opportunity to earn just enough profit so that utility owners will have the incentive to provide adequate service to customers. No more, no less. It is this public interest protection that makes the PSC unique.

After the PSC examines all the factors affecting a utility's profitability, it approves a total revenue level. One more matter is then considered: how much should each customer group be charged? The charges from all groups must equal the total revenue level and customer groups cannot be discriminated against. For example, if each customer were exactly equal, simple division of the total revenue level by the number of customers would equal a nondiscriminatory rate. In practice, however, customers are not equal. Some use more of the utility's service than others; some use it at peak times; some live in towns where service is readily available, while others live in isolated areas where the cost of service may be quite high; and some have alternatives to utility service. These are only a few of the differences among customers that the PSC must consider to avoid rates which unduly discriminate in favor of any customer or customer group. From these factors, balanced against the total revenue level, the PSC calculates rates, usually by unit of consumption.

Public participation

When a utility applies to the PSC for a rate change, the PSC alerts affected ratepayers though legal notices to local newspapers and press releases. Major rate cases usually receive widespread media coverage. Interested parties actively participate in the ratemaking process by intervening in the case. Intervenors normally represent large groups of utility customers and, in order to effectively participate, they usually hire legal counsel and expert witnesses to present their points of view.

The Montana Consumer Counsel is charged by law to represent consumer interests in matters before the commission. The consumer counsel is located at 616 Helena Ave., Helena, Montana 59620. The phone number is 444-2771.

Formal hearings held by the PSC in rate cases are mostly technical in nature. Individual consumers are welcome to testify, either at the formal hearing or at hearings scheduled by the PSC specifically to gather public comments on the utility's rate change proposal.

Rate & service information

Regulated utilities operate under rules and tariffs that are available both at utility company offices and at the commission. Consumers who need information on rules, services, rates or fares should first ask the company involved. The commission expects most questions will be answered and most complaints satisfactorily settled by the company. However, if a consumer is not satisfied with a company response, the PSC is available to investigate the matter and attempt to resolve the problem.