Rate Case Roundup: Montana
After requiring certain modifications to a settlement proffered in an LDC's rate case, the Montana Public Service Commission has agreed that the LDC, NorthWestern Energy (NWE), may increase its rates by $5.1 million on an annual basis.
The company had first proposed an increase of more than double that amount, or $10.9 million. The negotiating parties had stipulated to $5.725 million in additional revenues. While the commission deemed most provisions in the proposed rate agreement reasonable, it said it was not satisfied with those terms governing recognition in rates of the costs associated with the LDC's acquisition of several natural gas production fields between 2010 and 2013. Finding that the fields were "underperforming" when compared to the wholesale market in general, the commission ruled that ratepayers should not have to cover the cost premium related to purchasing supply from those fields.
The commission expounded that data provided by the company for 2015 showed that whereas consumers had to pay more than $21.77 million for gas procured from the subject fields, the equivalent quantity of natural gas obtained through the open market would have cost only about half as much, or a little more than $11 million. According to the commission, the figures for 2016 were even worse, revealing that customers were paying more than three times as much for NWE's own gas as they would have for the same volume of gas in the wholesale marketplace. The commission faulted the company for relying on "overly optimistic" and unrealistic forecasts of production versus natural gas price trends going forward when it entered into the acquisition arrangements for the fields.
At the same time, however, the commission conceded that NWE had pursued ownership of the fields in good faith. The commission therefore held that complete disallowance of the costs would be unnecessarily punitive for the LDC. Instead, the commission determined that a downward adjustment should be applied through which to mitigate the effects of the fields' declining production value. The commission set that adjustment at $1.4 million per year.
The commission stated that inasmuch as NWE's gas reserves are depleting at a rate of 5% to 6% a year, the required adjustment would assure that ratepayers are paying for only their fair share of the useful life left in the fields. The commission endorsed the ROE set forth in the stipulation. The settling parties had recommended a 9.55% ROE, which is less than the 9.8% ROE allowed in the company's last rate case. The commission remarked that the 9.55% value is reasonable when compared to current market conditions and the returns authorized other comparable energy utilities. Re NorthWestern Energy, Docket No. D2016.9.68, Order No. 7522g, July 20, 2017 (Mont.P.S.C.).