NorthWestern Pitches Utility Regulators on ‘Reliability Rider’

The utility is asking the Public Service Commission for a “new regulatory mechanism” to recover gas plant construction costs.

By Amanda Eggert, Montana Free Press
Powerlines. Beacon File Photo

NorthWestern Energy is pitching Montana’s utility regulating board on a new mechanism to recover costs associated with building power plants. 

NorthWestern, an investor-owned utility that serves approximately 400,000 Montana households, has crafted a “reliability rider” that it describes as a “more efficient regulatory alternative” to a rate case process. It says other states have implemented similar cost-recovery mechanisms and describes it as part of the company’s effort to secure “reliable, safe energy service” for its customers.

Critics of the proposal say the utility is trying to do an “end run” around a preapproval statute that a Missoula judge struck down earlier this year and “burying” the proposal in a rate review docket that tops 4,000 pages. They argue it’s more appropriate for NorthWestern to pursue the change it’s seeking through other processes, such as rulemaking.

The reliability rider is currently incorporated in the proposal NorthWestern submitted to the Public Service Commission this July seeking a change in its rate structure that would raise the average 750-kilowatt-hour-per-month residential customer’s power bills by about 25%. As proposed, the reliability rider would allow NorthWestern, the state’s largest monopoly utility, to recover costs associated with expensive new power generation outside of a lengthy PSC-administered rate review process.

In an email to Montana Free Press, NorthWestern Energy spokesperson Jo Dee Black said the reliability rider will authorize the company to “allow investments in new electric assets critical for reliability” on “an interim, and refundable, basis between rate reviews.” She added that it will help NorthWestern reduce the “regulatory lag” between a new power plant coming online and the next rate review. Rate review is a utility-initiated process in which the PSC evaluates a monopoly utility company’s financial statements and approves, rejects or modifies changes to the formulas that underpin the company’s rates.

“Customers are served best by energy companies capable of efficiently funding the significant capital expenditures needed to maintain, expand, and modernize the critical infrastructure to meet those customers’ energy needs,” Black said.

Energy attorney Monica Tranel, who’s representing 350 Montana in PSC filings about the reliability rider, said the measure appears to be an attempt to repackage the preapproval statute Missoula County District Court Judge Jason Marks struck down earlier this year based on his finding that it conferred an “exclusive and lucrative financial benefit only on NorthWestern Energy.”

“We view this as an end-run around the unconstitutional preapproval statute,” Tranel said. “There is a way to adopt new rules, and this is not it.”

Four months after Marks’ ruling, NorthWestern withdrew its application for preapproval of the Laurel gas plant, citing escalating labor and material costs and the need to start construction faster than the preapproval process would allow for.

Tranel said she also has concerns about NorthWestern’s appetite to refund customers any overcharges associated with plant construction should the commission approve the reliability rider.

Jeff Smith, co-chair of climate action group 350 Montana, said the reliability rider NorthWestern is seeking is reminiscent of other cost-recovery “boondoggles,” including a $247 million charge that NorthWestern incorporated into the purchase price of Unit 4 of Colstrip’s coal-fired power plant in 2007 as part of an anticipated federal carbon tax. That tax never came to fruition, but NorthWestern didn’t refund it in customer rates, and the commission was unable to require it to because the preapproval statute (which was still in effect at the time) precluded the commission from revising rates on the basis of “contrary findings.”

“Now we have this same company wanting to change the rate-case process to recreate these same corrupt conditions,” Smith wrote in an email to MTFP. “This company doesn’t like scrutiny. It doesn’t want outside experts coming into the PSC’s rate case offering facts and figures that might help the regulators — the PSC — do its job, which is to look out for the people of Montana. NorthWestern wants an even faster return on investment and even larger profit with even less oversight.”

Smith said he’s also troubled by the prospect that the reliability rider will be used to build gas plants that will emit more methane, a potent greenhouse gas, into the atmosphere. He added that incorporating more gas plants into its portfolio will subject NorthWestern’s customers to volatility in the fossil fuel market.

PSC staff attorney Lucas Hamilton said the commission has not yet discussed the reliability rider and probably won’t until the rate case hearing, which is currently slated for April. The commission generally doesn’t evaluate the merits of a party’s position until it has a full record to consider, Hamilton said in an email to MTFP.

Details about the reliability rider are included in testimony NorthWestern Energy submitted as part of its rate case filing earlier this year. In that document, NorthWestern Director of Regulatory Affairs Cynthia Fang describes the rider as an attempt to ensure “more timely recovery” of new generation facility expenses and requests approval to apply it to cost recovery of the Yellowstone County Generation Station, the gas plant NorthWestern is building in Laurel.

Tranel attempted to depose Fang to learn more about the rider on her client’s behalf, but NorthWestern declined to make her available for the Oct. 19 deposition. In response, 350 Montana has asked the commission to either require NorthWestern to comply with the deposition or strike Fang’s testimony from the record. 

NorthWestern announced its plans to build the 175-megawatt gas plant in May 2021. At the time, it estimated that land, construction costs, property taxes and capitalized interest incurred during construction would top $286 million. The gas plant was included in NorthWestern’s three-part electricity-procurement plan, which also included the state’s first utility-scale battery storage project and another 100 megawatts of energy from primarily hydroelectric sources. 

Permitting and construction of the plant is the source of two active lawsuits. Last October, the Montana Environmental Information Center and Sierra Club challenged state-issued air quality permits for the Yellowstone County Generation Station (formerly the Laurel Generating Station), citing noise, air quality and climate change concerns. The court heard oral arguments on that lawsuit, which centers Montana Environmental Policy Act claims, in May. Earthjustice attorney Jenny Harbine, who’s representing the environmental groups in the lawsuit, said she anticipates a ruling will come down from Yellowstone County judge Michael Moses soon.

Last week MEIC, Northern Plains Resource Council, and the Thiel Road Coalition, which represents residents living near the plant, filed a lawsuit asking Moses to place zoning authority unambiguously under the city of Laurel’s jurisdiction. Neither the city nor Yellowstone County has claimed final ownership over the decision to approve or reject required zoning changes. MEIC argues the lack of a clear authority has left concerned residents without an avenue to petition with concerns.

Harbine told MTFP that NorthWestern’s application for the reliability rider is premature given that Moses could halt plant construction if her plaintiffs are successful in their lawsuit.
“The future of the plant is too uncertain at this point,” Harbine said. “It’s far from a done deal.”