Policy analyst concerned about future Colstrip costs to NorthWestern customers

NorthWestern said Colstrip critically important, but should be included in a separate case

By: - April 21, 2023 2:55 pm

The Colstrip Power Plant in Colstrip, Montana (Photo by Darrell Ehrlick of the Daily Montanan).

NorthWestern Energy wants customers to pay higher bills now — 28% more for residential electric customers — but it’s going to be asking for plenty more dollars in the “not-too-distant future.”

First of all, it hasn’t factored in the costs of the aging Colstrip plant into people’s bills, unlike the other parties who share ownership, said a policy analyst.

On behalf of the Natural Resources Defense Council, Amanda Levin said that bill will be nearly $56 million sooner or later, based on data from the power company.

Utilities that plan for the future build the costs of taking an old facility offline and cleaning it up into customers’ bills ahead of time, Levin said.

Currently, though, she said NorthWestern isn’t doing so.

Levin, director of public policy for the NRDC, offered testimony this week on the final day of a hearing before the Montana Public Service Commission on the power utility’s application to increase rates and a proposed settlement.

In an email responding to the testimony, NorthWestern said it plans to operate Colstrip through its useful life, and it’s also looking at investing in carbon-free generation at or near Colstrip after the plant isn’t in use.

“How other states address costs related to decommissioning and remediation from generation facilities varies widely,” said spokesperson Jo Dee Black of NorthWestern Energy.

NorthWestern, the Montana Consumer Counsel, and some other parties negotiated the proposed settlement before the PSC, but most intervenors in the case haven’t signed onto the deal.

Under questioning by lawyer Chuck Magraw, Levin said she sees a “growing disconnect” between NorthWestern and changes in the energy space, from policy to new technologies to changing investor and customer preferences.

“The company is clearly having difficulty navigating this new terrain,” Levin said.

And while the negotiated settlement doesn’t include some of the most egregious proposals in NorthWestern’s original application, she said, it doesn’t address the problems at the root of the company’s challenges.

She said the status quo isn’t sustainable for NorthWestern or its customers, and she said the PSC could help.

“This commission has the opportunity in this docket to start taking steps today to address the process failures that put the future financial health of the utility and its customers at risk,” Levin said.

From August 2022, Levin said the settlement would put a 28% increase on residential electric customers and a 25% increase on small businesses. But she said NorthWestern doesn’t have support systems in place to help struggling customers.

Together, those factors — high increases plus “deficiencies” in managing energy efficiency and low-income assistance programs — “could be a catastrophe,” Levin said.

In general, Levin said she had concerns that NorthWestern’s poor planning was putting customers and the utility at risk and placing the PSC in a tough spot.

She pointed to more costs ahead, too.

NorthWestern has said it has spent a billion dollars on its electric and gas systems since the last rate case, and Levin said it estimated another $500 million spent in 2022.

The company hasn’t asked customers to fully pay for the Laurel plant, now called the Yellowstone County Generating Station, which Levin anticipates will be “highly contentious” in a future docket before the PSC.

The natural gas-fired power plant was recently estimated to be a $280 million facility.

Levin said future filings need to make sure commissioners and parties have all the information they need to make reasoned decisions about not only the plant itself, but other options NorthWestern considered.

The proposed settlement allows for some future cost recovery, she said, but it doesn’t ensure the PSC will have all the information it needs to make a good decision or allow for “informed participation” by intervenors.

“The stipulation contains no safeguards in this regard,” Levin said.

In developing its rates, Levin also said NorthWestern heavily weighs cost-of-service allocations, or what it costs to provide power to different types of customers. However, Levin said this is the first case where she hasn’t seen an “explicit acknowledgement” of a different set of principles.

She said they’re called the Bonbright principles, and they look to ensure rates are simple, stable and fair to all different consumers. She said she hasn’t been involved in many rate cases, but unlike parties in those other cases, NorthWestern hasn’t said it’s taking those values into account in this case.

She made several recommendations to the PSC about how to proceed.

She recommended a robust stakeholder process, which she said more than a dozen other states have undertaken to address evolving utility needs. She said results have included, among other benefits, support for “prudent capital investment.”

Colstrip, the Yellowstone generation station, and wildfire mitigation will remain concerns in the future, she said, and parties with diverse interests and the PSC would benefit from a process that engages many different groups.

“The issues raised in this docket are not going to disappear with this stipulation,” Levin said.

Under questioning by lawyer Thorvald Nelson, Levin acknowledged the PSC could approve the settlement and also request a stakeholder process at the same time.

She also acknowledged customer rates could go up even more if NorthWestern asked for remediation and decommissioning costs related to Colstrip. However, she said it’s a common regulatory practice to collect those costs along the way.

“You’re not avoiding them by not recovering them today. You’re just pushing them off,” Levin said.

She also said those costs should be part of a full rate case proceeding.

NorthWestern’s Black also said the evaluation of Colstrip should be part of a separate case. She said Colstrip is a critical for the company to provide reliable service to customers, especially when demand is highest, such as during the Arctic blast in December.

“NorthWestern Energy believes evaluation of these issues should be addressed in a different docket,” Black said in the email.

PSC President James Brown followed up on the line of questioning by Nelson. He said he wanted to know Levin’s recommendation related to Colstrip.

In response, she said the commission should require NorthWestern Energy to produce a full annual or biannual report with Colstrip costs, including depreciation and anticipated capital expenses.

Deadlines ahead

A full transcript of the hearing is expected to be available to parties within 14 days of the close of the hearing, and once it is, those who signed the settlement will have 20 days to file briefs.

Then non-settling parties will have 20 days to file responses. Subsequently, NorthWestern will have 14 days to file a reply.

Generally, she said NorthWestern needs to start recovering cleanup costs for Colstrip or risk having a “stranded asset” on its hands, or a plant that’s not running and is a financial liability on the books.

Brown wanted to know if the bottom line was another application for a rate increase in the future.

“Essentially, as I understand your testimony, you’re averring, or at least notifying the commission at this point, that NorthWestern Energy customers are looking at a possible rate increase at some time in the future in this regard as well,” Brown said.

Levin said it would be prudent to plan for all the costs associated with Colstrip.

The hearing concluded Tuesday.

After all the briefs are filed, over roughly the next couple months, the PSC staff will produce a recommendation, typically a proposed final order, according to PSC legal counsel.

Commissioners will then take up the matter at a public work session.

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Keila Szpaller
Keila Szpaller

Keila Szpaller is deputy editor of the Daily Montanan and covers education. Before joining States Newsroom Montana, she served as city editor of the Missoulian, the largest news outlet in western Montana.