NorthWestern Energy interim rate increase reduced by Commission

  • September 28 2022

HELENA, Montana — 

The Montana Public Service Commission unanimously agreed to allow a reduced interim rate increase for NorthWestern Energy on Tuesday. In its application for an interim increase in electric and natural gas utility rates pursuant to Montana law, NorthWestern Energy had asked for an increase in electric utility rates of $114.7 million and natural gas utility rates of $5.7 million. The average residential customer bill would have increased by $14 and $1.60 respectively. The Public Service Commission authorized increases in the electric and natural gas rates at $90.5 and $1.7 million respectively which results in a lower than requested average monthly increase of $11.19 and $.48.


These adjustments based on electric and gas revenue requirements as well as the Power Cost and Credits Adjustment Mechanism (PCCAM) are required by Montana law and utility regulatory principles. Gary Duncan, regulatory analyst at the PSC, stated “principals of rate regulation require that we balance fair return opportunities vs just and reasonable rates. Wholesale prices of electricity have gone up 140% since 2020 and NorthWestern Energy is entitled to these pass-through costs to its customers who have already used the power. Continued under collections will likely lead to credit rating downgrades.”


The largest portion of this increase, the PCCAM, allows utilities to recover prudently incurred costs such as power purchases and fuel used in the generation of electricity for its customers. NorthWestern Energy’s historical electricity supply cost is a known and clearly identifiable cost to the utility. While NorthWestern Energy’s costs for natural gas are updated monthly, electric supply under-collections have been significant and may lead to credit downgrades if not recovered. NorthWestern filed its updated PCCAM rates on September 1, 2022 reflecting a $58 million under collection for the 2022 tracker year. 


However, the purpose of increasing the PCCAM Base Costs is to attempt to eliminate the annual large under collections such as the $58 million for the 2022 tracker year. If, after implementing the new PCCAM Base Costs, there are no under or over collections for the 2023 tracker year, then on October 1, 2023, there would be an anticipated reduction in required PCCAM revenues of $52.8 million reflecting the full recovery by NorthWestern of the 2022 tracker year underrun. This reduction would equal a monthly decrease to the average residential monthly bill of $7.18 or 8%.  


Additionally, Commission rules require interim revenue requirement requests to utilize the last approved return on equity using the methodologies and adjustments used by the Commission in the last general rate order. NorthWestern Energy’s interim filing meets these requirements. The revenue requirement includes the operating expenses, taxes, and depreciation associated with NorthWestern’s transmission and distribution network, plus the required return on infrastructure investment.


The Commission disallowed an increase in estimated property tax increases. NorthWestern Energy files its proposed property tax increases in mid-December every year to be effective January 1, per statute. The legislature, not the PSC, has authorized this pass through to customers.


“No one wanted to see this motion today, neither the Commission nor the utility. We are allowing NorthWestern Energy to recover costs they are entitled to under statute. Simply put, a failure to act could lead to severe consequences” stated Vice-President Brad Johnson. The Commission is expected to issue a final order on NorthWestern Energy's request for a rate increase in early 2023.