Starting Monday, the proposed rate hike will be heard before the Public Service Commission, which must decide whether to approve it.
The chief legal advocate for utility consumers, the Montana Consumer Counsel, will argue for approval of the 2 percent increase, saying it benefits both the consumer and the company.
Yet a partner in two independent power plants that are both a buyer and seller of NorthWestern electricity says the full increase isn't needed, and that neither the company nor the Consumer Counsel has properly documented any such need.
Owen Orndorff, a Boise attorney and partner in the plants at Billings and Colstrip, also says NorthWestern is using all of its earnings to pay dividends to its owners, rather than reinvesting in the Montana utility.
The practice is weakening a company that emerged from bankruptcy less than four years ago, and should be restricted by the PSC, he argues.
“The commission isn't imposing any limitations on what the management sucks out of Montana in the way of dividends (paid to shareholders),” Orndorff says. “We have a keen interest that ought to be near and dear to the heart of every Montana business, and that is not to have another (NorthWestern) bankruptcy.”
The five-member PSC, which regulates utilities in Montana, will have questions of its own about the proposed rate increase.
“The question is, do they really need the money to maintain the utility?” says Commissioner Brad Molnar, R-Laurel. “I'm having a little trouble understanding that, and hopefully in the hearing we'll be able to answer those questions.”
Company officials say Orndorff's claims are off-base and that the increase is justified.
“The benefits are a step in the right direction for our company, so we can provide safe and reliable service,” says Pat Corcoran, vice president of government and regulatory affairs.
The increase has been in effect since Jan. 1 on a temporary basis. If the PSC decides against the hike, rates would be rolled back.
Corcoran says the increase already has helped improve the company's credit rating, which will make it cheaper to borrow money and invest in needed new plants and other equipment: “Those (ratings) provide direct benefits to our customers as well.”
NorthWestern initially asked for a $42 million annual rate increase for delivering electricity and natural gas to its 320,000 Montana customers. Those rates are separate from the cost of the actual power and gas, which NorthWestern buys on the open market and then charges to customers.
NorthWestern hasn't increased its delivery rates in nearly eight years.
After negotiating with the Consumer Counsel, NorthWestern in December agreed to the proposed $15 million increase. The negotiated deal also includes some low-cost power that NorthWestern has promised customers for the next six-and-a-half years.
For the average customer, the deal would mean an increase of $18 a year for electricity users and $25 for natural gas users. NorthWestern rates for electricity already are among the highest in the region of any major utility.
While the increase appears minimal, Orndorff argues it could and should be even lower.
He says the agreement does not list NorthWestern's “rate base” or authorized profit rate, which are usually part of a rate decision. Without those numbers, it's difficult to say whether the increase is justified, Orndorff says.
He says the more defensible annual rate increase is $4 million to $5 million, which he believes is a 14 percent return on NorthWestern's true equity.
The PSC also should limit company dividends to 50 percent of overall earnings, Orndorff says. Dividends are paid to NorthWestern shareholders, many of whom are large institutional investors and mutual funds. A dozen large holders own about half the company's stock.
Brian Bird, chief financial officer for NorthWestern, says restricting dividends would “clearly be harmful” to the company, reducing the potential return and value of the stock.
“At the very least, it would reduce the universe of capital sources available to NorthWestern Energy, resulting in lost opportunities in the capital markets,” he said in testimony filed last month.
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