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Commissioners approve large NorthWestern Energy rate hike

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NorthWestern Energy customers will see higher bills beginning in October, following a unanimous Tuesday vote by state utility regulators allowing the company to collect an extra $92.2 million for electricity and gas services.

The utility had sought an increase of $120.4 million, which analysts for the Public Service Commission concluded was unwarranted. Roughly half the money sought by the company was to cover unexpected costs incurred in the previous state fiscal year.

Senior Commissioner Brad Johnson remined others the rate increase was potentially temporary, an upfront compensation intended to hold NorthWestern over while it makes a months-long case for a larger and more permanent $170 million increase in rates.

If the final bill comes in lower than the $92.2 million approved by the commission Tuesday, then a year from now NorthWestern customers would receive a rebate, plus interest for what the utility had collected, Johnson said.

“It's important to point out that if in fact, at the conclusion of the rate case, this interim rate increase turns out to represent an over collection, that over collection will be refunded to the ratepayers with interest. So, there is that level of protection attached to this decision,” Johnson said.

The PSC regulates monopolies, more specifically the state’s largest utilities NorthWestern Energy and MDU. In that capacity, the PSC affects the household budgets of more than 400,000 Montana utility customers, some drawing electricity and natural gas from the same monopoly.

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Customers of monopolies are legally recognized as “captive,” meaning they lack the free-market choice of shopping around for a better deal. This is one of the few scenarios in which the government directly determines the prices consumers pay. The PSC is a five-member elected commission. Republicans currently hold all five seats. 

If the final rate increase wound up being less than what NorthWestern said it had to have, it wouldn’t be the first time. In 2019, the PSC agreed to an interim rate increase that turned out to be less than what NorthWestern agreed to in settlement.

But this time around, the permanent increase sought by NorthWestern is significantly larger than what commissioners are greenlighting up front. Considering this, under the interim rate increase approved by commissioners Tuesday, a NorthWestern Energy electric customer using 750 kilowatt hours a month will pay $134.28 more from October 2022 through September 2023.

A gas customer will see an increase in base rates of $5.76 a year. It’s important to note that gas rates are adjusted monthly to accommodate market fluctuations. A base rate increase may be small, but the monthly adjustments for market fluctuations can be as much as 40% higher than prices for the same month in the prior year, particularly in winter months when furnaces click on.

The permanent rates sought by the utility would increase electric rates about $273 a year for customers consuming 750 kilowatt hours per month. Base rates for natural gas rates would increase $90.84 a year for customers consuming 65 therms a month.

PSC analyst Gary Duncan told commissioners that NorthWestern has been paying more for power from third parties than it has been able to charge customers. Unlike natural gas prices, which are adjusted monthly to reflect market prices, electricity rates are set during general rate cases and remain unadjusted until the utility requests another general rate case, usually years later.

One of the rate increases denied to NorthWestern on Tuesday was for taxes. The utility is allowed to adjust customer rates for taxes at the beginning of the year. Commissioners concluded there was no need to add the tax increase onto bills three months earlier than expected.

NorthWestern Energy customers will see higher bills, starting Sunday.

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