HELENA — NorthWestern Energy’s proposal to pay $900 million for 11 hydroelectric dams – and charge the cost to its Montana ratepayers – goes under the microscope this week, as state regulators kick off a week-long hearing on the plan.

Starting Tuesday at the state Capitol, the five-member Public Service Commission will question company executives, consumer advocates and others, as it delves into whether to approve the NorthWestern proposal.

“The core question that we have to answer is … is the purchase in the public interest?” says PSC Chairman Bill Gallagher, R-Helena. “That is defined in law as whether the benefits outweigh the risks.”

The hearing is expected to run at least through the end of the week, but the PSC won’t make a final decision until late summer or early fall.

NorthWestern, which serves about 340,000 electric customers in Montana, arranged last September to buy the 11 hydroelectric dams and one storage dam from PPL Montana, which bought the same western Montana dams 15 years ago from NorthWestern’s corporate predecessor, Montana Power Co.

That prior sale came in the wake of Montana’s notorious 1997 utility-deregulation law, seen by many as a political and economic blunder that led to the breakup and bankruptcy of Montana Power, wiping out the savings of hundreds of shareholders, and the loss of dedicated, cheap power from those plants.

NorthWestern’s proposal would fold those plants back into the utility, reclaiming that power exclusively for Montana consumers for decades to come.

But that rebuilding of the utility comes at a cost. NorthWestern documents filed with the PSC show that approving the purchase will raise per-kilowatt-hour (kWh) electric rates by 6.6 percent – and that’s on top of an interim 6.5 percent increase that went into effect last week.

If the PSC approves the purchase as proposed by NorthWestern, customers will be paying 11 cents per kWh – nearly the highest rate of any major electric utility in the region.

Montana’s Consumer Counsel, the state office that represents consumers in cases before the PSC, says the deal proposed by NorthWestern ensures risk-free profits for the company – and places all the risk on the backs of consumers.

It will argue the PSC should place conditions on any approval that shift some of that risk back to the company.

For example, the Consumer Counsel notes that NorthWestern has estimated relatively low future maintenance costs for the dams, but that full PSC approval means if those costs turn out to be higher, consumers will pay for them through higher rates.

The Consumer Counsel says the PSC should require the company to pay for any maintenance costs that exceed its estimates.

A blanket approval “allows (NorthWestern) to avoid risks that are normal risks that businesses take on when making decisions,” says Consumer Counsel Robert Nelson. “That, in my mind, requires pretty close scrutiny by the commission.”

NorthWestern officials say the purchase is a good deal for consumers, the company and the state’s economy, promising a steady supply of clean, affordable power and insulating customers from the whims of power markets.

They also say while the purchase will increase electric rates for now, those rates will be stable for many years and eventually should be lower than the market – which is where the company now must purchase at least half the power it needs to supply customers.

“It’s a small price to pay in the short term for a very good long-term benefit,” says company spokeswoman Claudia Rapkoch. “It’s imperative that we have this as part of our supply.

“Our customers want us to have clean, reliable and affordable energy. And this, in our opinion, is our best opportunity to do that.”

NorthWestern officials also say the $900 million price is not negotiable, and if the PSC imposes conditions that don’t allow the company to recover most or all of those costs in rates, NorthWestern will walk away from the deal.

Nelson, the Consumer Counsel, says while consumers may see lower costs in the long run, that may not occur for decades – and, in the meantime, NorthWestern profits regardless, earning its regulated rate-of-return on the purchase.

While the hearing will be dominated by expert testimony about the financial ins and outs of the deal, the PSC says it also will consider public testimony and comments, which have been running in favor of approving the purchase.

Still, commissioners say their main job is to scrutinize the deal dispassionately.

“What we really have here is an historic opportunity to return the dams to Montana ownership and dedicating all of the power to Montana use,” says Commissioner Roger Koopman, R-Bozeman, whose district includes NorthWestern Energy’s Montana headquarters in Butte. “But the public needs to understand that our job is to open up every aspect of this and take a very sober-minded and sharp-penciled approach to evaluating NorthWestern’s proposal. …

“At the end of the day, we have to answer the question: Do the benefits outweigh the risks?”

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