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Electricity rates are increasing for Montana Dakota Utility customers under settlement terms approved this week by the Public Service Commission.

Rates will increase about $135 a year for MDU residential electric customers, according to the utility. Overall, the increase is $9.3 million, about $2.5 million less than what MDU originally requested.

Most of the increase is already on customer bills. MDU was awarded an interim increase while its rate case was being heard.

Commissioners approved the request 3 to 1, with Randy Pinocci opposed and Bob Lake absent. MDU has about 26,000 electric customers in Montana.

“No one wants to see their rates go up, but when conditions clearly warrant it, the commission’s job is to take a sharp pencil to what is being proposed, and minimize those increases as much as possible,” said Commissioner Roger Koopman, of Bozeman. “That’s exactly what we did here, approving a stipulation that reduces the increase by almost one-third.”

The settlement was struck by the Montana Consumer Counsel, MDU and Denbury Onshore LLC, an oil and gas company. No other parties intervened in the matter. There was general agreement that MDU’s rate of return had been lower than the terms of their 2015 rate increase permitted. As part of the settlement, MDU agreed not to seek another rate change before June 2021.

The increase for all customer classes was $15.8% with exception of one class. Contract Services, Denbury’s class, was approved for a $10.4% increase, which was only slightly less than what MDU had proposed, although the oil and gas company had hoped for 4.4%.

Leading to the settlement, there were grumblings about MDU’s plan to shutter three coal-fired generation units during the next two years, starting with the Lewis and Clark Station near Sidney in 2020. MDU said it would close the Montana coal plant, plus two units in Mandan, N.D. and replace them with natural gas power plants and electricity bought on the open market. The electricity would cost customers half as much. The pivot would be in play by the time MDU was permitted to seek another review of its rates.

Two commissioners objected to MDU’s planned move away from coal power. Pinocci, of Great Falls, and Tony O’Donnell, of Billings, earlier questioned MDU’s reasoning for transitioning away from coal power.

Pinocci questioned whether natural gas and market power was as reliable as the Lewis and Clark Station. The Republican’s district includes Sidney and the Savage Mine, which supplies coal to the power plant. Lewis and Clark, a small power plant, has been in service 60 years.

O’Donnell questioned upgrades made to the MDU coal power plants just a few years ago to comply with federal mercury air toxins regulations. Customers paid for those improvements, which MDU at the time said would keep the power plants running for another five years.

MDU President Nicole Kivisto testified last month that without the upgrades, Lewis and Clark and the Heskett Power Plant units in Mandan would have closed earlier than 2020. So long as the power plants are running, there are going to be costs associated with them, she said. The decision to close the plants and find power elsewhere did take into account the costs associated with keeping the units running. Getting power elsewhere was still cheaper, she said.

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