The price of power is going up for NorthWestern Energy customers following decisions this week by the Montana Public Service Commission.
Commissioners voted unanimously Tuesday to increase rates for the average homeowner by about $26.40 a year. The increase was approved after the utility said projected energy prices were higher than anticipated. The new rate starts July 1.
“This will actually affect the base recovery that NorthWestern was authorized to recover in its last rate case,” Lucas Hamilton, a PSC staff member, told commissioners. In other words, the rate increase becomes part of a new, and higher, starting amount from which any future adjustments are added.
There is a risk, should forward-market price curves not increase as NorthWestern suggested, the utility could end up “over-earning” because of the higher base rate, said Commissioner Tony O’Donnell, a Billings Republican. O’Donnell wondered if the higher-than-expected market prices NorthWestern pointed to were related to the COVID-19 pandemic and would subside as life normalizes.
“If we adjust this, we might be allowing them to over-earn after a period of time," O'Donnell said. "Of course, as Mr. Hamilton pointed out, we can always, you know, claw that back.”
There would be a chance for the Montana Consumer Counsel to argue against the increase, which was given interim status.
Commissioners also chose to put off for another year a new accounting method that assures NorthWestern’s fixed costs are recovered but that the utility isn't overpaid.
Those fixed costs are associated with things likes service, transmission and power plant expenses, which are fairly flat, unlike fuel costs which can vary. Residential customers would have been rebated $9.5 million this fall had the accounting method been in place, according to PSC analysts. The accounting method had been delayed a year at NorthWestern’s request at the start of the pandemic, which the utility argued was too unpredictable for trying a new accounting method.
This spring, NorthWestern asked the commission to put off the accounting method again, for another year, citing again the unknowns of the lingering pandemic. But PSC analysts said the pandemic didn’t create the unpredictability NorthWestern suggested. There were soft boundaries on conditions in which the fixed costs the accounting mechanism was expected to operate. During the pandemic, costs didn’t stray outside those limits. In other words, nothing happened at the electric meter that the accounting method couldn’t handle.
However, Commissioner Brad Johnson said the first year of the pandemic was so unusual it was hard to know how the new accounting method would work in the second year.
“From my perspective, Mr. Chairman, the sheer magnitude of the anomalies that were in place over this last year dictate that taking another year to implement this program would be prudent so that we can have, I think, a more accurate understanding of the impact of policy,” Johnson said.
There were changes in how NorthWestern customers consumed energy. Residential customers of NorthWestern consumed 27% more power than expected in 2020. Businesses consumed $10.5 million less power.
Last week, NorthWestern told the commission that the $9.5 million rebate consumers would have gotten wasn’t a loss for customers. The postponed accounting method had never been used before. Fixed costs were billed as they were normally, business as usual.
Two years ago, NorthWestern supported the different approach to covering fixed costs, as many utilities have in recent years. Fixed costs have been become harder to cover over the years as America consumes less energy. The expenses were so bound to the energy ratepayers actually consumed, that when those customers consumed less electricity the money collected for fixed costs fell too low. The solution offered up was “decoupling,” which meant coming up with a fixed cost price that consumers had to cover no matter how much energy they used.
Utilities liked the new approach because it assured fixed costs were covered. Conservationists like the approach because it ended a perverse incentive for utilities to encourage customers to use more energy and, in the process, generate more pollution related to power plants burning fossil fuels.