The Montana Public Service Commission has expanded Northwestern Energy’s pending general rate case to include additional scrutiny of streetlight charges. Montana cities must become involved because their taxpayers in utility-owned streetlight districts are being overcharged. In Billings, some residents collectively pay $732,000 a year too much. Statewide, the figure runs into the millions.
Special Improvement Lighting & Maintenance Districts are created to pay for streetlight installation. When cities own the lights, district residents pay off that infrastructure cost over time. Once costs are recouped, bills go down. Then districts pay only for electricity, operating expense and maintenance.
In utility-owned streetlight districts, NWE installs the lights and contracts with cities for their operation. Since utility-owned lights are utility assets, that infrastructure cost is placed in the company’s rate base. The company is allotted an annual “rate of return” on undepreciated rate base, currently 7-plus percent overall—down from 11-plus percent% in the 1980s. Therefore, residents in NWE districts are charged for the recapture of that asset’s original cost, plus ROR, taxes, operating expenses, maintenance and electricity.
Original costs are supposed to be depreciated because utilities should only receive a return on unrecouped original cost. Unfortunately, that is not being done properly. In Billings, 119 Northwestern owned light districts, some dating back to the 1960s, should be fully depreciated, but are not. NWE is still charging them for infrastructure recapture and has actually increased fees 20 percent during the past 10 years. Hundreds of similar districts exist in other Montana cities.
Several Billings residents petitioned the PSC for a hearing on the issue. Northwestern fought the case for eight years, first claiming its streetlights were being leased to cities. That claim was debunked when evidence disclosed the utility booked zero revenue for streetlight “rent” in federal accounting documents and its contracts contained no lease language.
NWE then claimed its charges were fees for “service.” Complainants countered that overcharging was a “disservice,” citing Montana code 69-3-109, a law to curtail decades of abuses deployed to inflate utility asset value. Under it, utilities may place only an asset’s original cost into rate base and earn an allowed rate of return on the undepreciated part of that investment. Original infrastructure costs must be depreciated as the utility collects revenue. But, NWE admitted to depreciating streetlights, not based on revenue garnered, but on “useful life,” as much as 40 years. NWE doesn’t book streetlight ratebase by lighting district, but lumps ratebase from all districts together; muddying the rate-making process.
NWE plans to install LED lighting in utility-owned districts. We applaud the effort, but fear costs will be excessive for inferior yellow lighting, and that NorthWestern’s depreciation practices will make consumers pay for LEDs many times over.
NWE estimates average costs of around $558 per luminaire. Seattle can convert to LED luminaires for $125 per unit and pay for them in seven years under Seattle’s depreciation schedule. It’s based on when Seattle gets revenue to cover cost, rather than the 40-year useful life of fixtures.
As we’ve said for 10 years, LED’s will cut energy use by 50 to 75 percent, but energy charges only amount to 19 percent of my district’s total bill. Currently, charges for infrastructure, ROR and taxes run 80 percent of district costs. Unless fully-depreciated ratebase is written off, adding new infrastructure costs will offset much energy savings garnered from LEDs.
Hopefully, city councils will support us to protect their constituents. Here are changes the PSC should make to comply with §69-3-109:
• Each district accounting must be kept separately, as is done in city-owned SILMDs.
• The only item in NWE’s ownership charge must be the amount necessary to depreciate the original cost of lighting infrastructure.
• If justified, the allowed rate of return on depreciated original cost, and any taxes allocated to a lighting district, should be kept in separate accounts and billed separately so taxpayers can understand it.
• Utilities must book revenues received for depreciating original costs to reduce rate base within a month of being received.
• PSC must examine streetlight districts formed before 1998 to write-off remaining “original costs” that would have been fully depreciated under proper accounting and return overcharges to taxpayers.
Or cities could just avoid NorthWestern by converting utility-owned streetlights to city-owned (solar) LEDs.
Barsanti is an intervenor for streetlight customer class in NorthWestern Energy’s general rate case. He lives in Billings.