Montana utility board: NorthWestern can put $246 million of its new gas plant into customers’ rates
Montana’s utility board is poised to incorporate approximately $246 million for NorthWestern Energy’s recently constructed gas plant into its customers’ rates.
On Wednesday, the Montana Public Service Commission gave Montana’s largest utility tentative authorization to begin recovering costs for the 175-megawatt plant near Laurel in the new year.
In its original request, NorthWestern Energy, which provides electricity service to about 413,000 Montanans, asked its regulators for approval to collect approximately $289 million for the Yellowstone County Generating Station from its customers. The commission balked at that figure, arguing that some of the costs associated with the plant could have been avoided.
Prior to the commissioners’ discussion of key issues surrounding the plant, PSC rate analyst Haylee Gobert flagged “deficiencies” in NorthWestern’s decision-making evident at multiple points in the planning and construction process.
“NorthWestern’s planning and procurement process did not adequately evaluate the full range of cost-effective resources, was not fair and transparent, and did not cost-effectively manage and mitigate risks,” Gobert said.
Her colleague, Brooke Umsted, added that the project was $45 million over budget and came online nine months late.
“With a lack of transparency and documentation, staff is unable to determine if NorthWestern acted prudently and acted the same as a reasonable utility manager would under the same circumstances, and staff agrees with [other intervenors] that NorthWestern knew it was making a risky decision when selecting YCGS,” Umsted added.
Despite finding that NorthWestern did not meet the burden of proof in demonstrating that building the plant was in the public’s interest, staff ultimately recommended that the commission allow NorthWestern to recover most of its costs from customers plus a 9.65% return on equity.
The following day, the commission voted 4-0 to reject $43 million of NorthWestern Energy’s original ask, arguing cost overruns associated with construction snags were avoidable. Commissioner Annie Bukacek sided with NorthWestern in her discussion of the construction costs, maintaining that construction challenges related to the COVID-19 pandemic put the utility in an unusual position. Bukacek abstained from voting on the issue, but did not say why.
The commission also voted 4-0 to deny approximately $900,000 in collections associated with plant deprecation at the recommendation of the Large Customer Group, a coalition of NorthWestern’s largest customers. Bukacek abstained from that vote as well.
Commissioners disagreed with staff recommendations regarding the incorporation of $18-$19 million of litigation-related delays into customers’ rates. In a 4-0 vote (with Bukacek abstaining), the commission determined that NorthWestern acted prudently based on its receipt of an air quality permit from state environmental regulators. The plant was the subject of an environmental lawsuit targeting its greenhouse gas, noise and lighting impacts, as well as a challenge related to zoning jurisdiction.
Commissioner Brad Molnar argued that litigation costs and a district court order temporarily stopping work on the project should be incorporated in the product – electricity service — the company supplies to Montana the same way it would be if NorthWestern were another business like a grocery store facing similar circumstances.
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PSC Vice President Jennifer Fielder, who presided over both days’ proceedings, directed the staff to incorporate the commission’s votes in a new final order by Dec. 24, at which point the commission will make a final decision.
Tuesday’s proceedings opened with public comment. More than a dozen people asked the PSC to reject NorthWestern’s rate hike request, arguing that Montanans need reprieve from cost-of-living increases and NorthWestern’s shareholders and executives can afford to ride out economic volatility in a way the company’s customers cannot.
Barbara Burkland, a retired Helena resident, asked the commission to oppose the rate increase, arguing that the company has “made some bad business decisions recently, and that is not the fault of residential customers.”
Burkland went on to say that she lives on a fixed income and the rising cost of living in Montana has recently driven her son, a paramedic, to move out of state.
“We desperately need paramedics. He’s a fifth-generation Montanan. He can’t afford to live here. So I ask you again to consider people like him, who come and pick your constituents off the side of the road when they have an accident or respond to a heart attack, and realize we need this to be a place where they can live,” she said. “For the sake of people you represent, please deny this rate increase.”
Jack Hanson, a Billings resident who is both a NorthWestern Energy customer and a shareholder in the company, took a more academic approach in his opposition to the rate hike. Companies like NorthWestern with a set return on equity are incentivized to build expensive projects to increase their profits, which is why careful oversight is so important, he argued.
“This is exactly what’s going on with NorthWestern’s methane plant in Laurel. This commission is set up expressly to counter this sort of perverse incentive by policing the reward that a utility can get from manipulating its asset base in this way,” he said. “There’s nothing surprising or unusually complicated about the mechanics of NorthWestern’s scheme here. The only thing that is surprising is how obvious the ploy is.”
PSC staff expressed frustration that NorthWestern had not outlined how their proposed changes would impact customer bills. PSC Executive Director Alana Lake told MTFP on Wednesday that she anticipates that filing would be available by the time the commission reviews the final order her staff is preparing.
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