The proposed settlement of NorthWestern's Montana rate case also includes a promise from the company to provide 21 megawatts of electricity from its Colstrip plant at below-market rates for consumers for six-and-a-half years.
“I think Montana ratepayers come out ahead in the settlement,” said Montana Consumer Counsel Bob Nelson, whose office negotiated the proposal. “While there is a rate increase, it's about a third of the requested amount, and it will be offset (further) in the future.”
“There is a lot of give-and-take (in the settlement talks), and we felt this was a good result for consumers and a good result for the company,” she said.
The result, however, is not yet final.
The state Public Service Commission, which regulates utilities, must review the settlement and decide whether to grant final approval.
The PSC is expected to meet next week and set a schedule for testimony and hearings on the proposal, giving other parties a chance to comment on its merits - or oppose it. Those parties include industrial consumers, low-income groups and the owners of independent power plants that sell electricity that NorthWestern provides to its customers.
A final hearing before the PSC probably won't be until February or March.
In July, NorthWestern filed for a $42 million annual increase in its rates for delivering electricity and natural gas to 320,000 customers in Montana.
The company and the Consumer Counsel, a state office representing consumers in rates cases before the PSC, began settlement discussions in October.
They filed their proposed agreement late Friday with the PSC. Its highlights include:
A $10 million annual increase in electric rates, or less than one-third of what was requested in July. The increase would be slightly less than 2 percent, or about $18 a year for the average homeowner.
A $5 million annual increase in natural gas rates, or about half what had been sought originally. This increase also would be just under 2 percent, or about $25 a year for the average homeowner.
n The rates would take effect Jan. 1 on an interim basis, while the PSC determines whether it will approve the agreement.
n The “rate design,” or which type of customers pay what part of the increase, is yet to be determined. However, officials said most customers would see similar levels of increase.
n NorthWestern will provide to customers 21 megawatts of electricity from its share of the Colstrip 4 coal-fired power plant at a price that is $19 per megawatt-hour less than regional market prices for the next six-and-a-half years.
The 21 megawatts represents 2 percent to 3 percent of the total electricity sold to customers. NorthWestern buys most of the electricity it sells to customers on contract from third parties, and has very little power production it actually owns.
n NorthWestern will reduce its “rate base” by $19.4 million in each of the next two years. That will lower the future value of its property upon which rates are calculated. Nelson said this rate-base reduction will mean a future offset of rates, when the company files for a new rate adjustment in 2009.
Nelson said he believes the company agreed to a much smaller rate increase because it wants to avoid a potentially lengthy, contentious battle before the PSC over its $42 million increase request.
“There were a lot of disagreements over what they had filed, for supporting the rate increase (they'd requested),” he said. “Everyone just wanted to focus on different things, rather than going through a rate hearing.”
The agreement will result in stable rates over the long term and allow the company to make needed investments in its plants, Nelson said.
While market prices for the actual electricity and natural gas have risen in recent years, the rate increase in the agreement would be the first in seven years for the company's cost of delivering power. The delivery cost is about 40 percent of the overall electric and natural gas bill.
NorthWestern residential electric customers are still paying among the highest overall rates for any major utility in the region.
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