NorthWestern ratepayers won’t get $9.1M rebate despite excess payments

HELENA (Daily Montanan) - NorthWestern Energy’s residential customers aren’t going to get a $9.1 million rebate — despite an attempt by Montana Public Service Commissioner Tony O’Donnell to find a way to reimburse them “excess” payments in 2020.

But the idea that the utility should return that money to ratepayers, $2.72 a month of an average $90.91 bill, was a “novel” one given the order that was in place, according to PSC staff attorney Zachary Rogala.

At issue Tuesday was when to implement a pilot plan with a new method of recovering costs for the monopoly utility. Last year, the commission delayed implementing the pilot because of COVID-19 uncertainty.

Had the program been in place, customers would have received a $9.5 million rebate, and O’Donnell’s motion was an attempt to recover some of that money for the ratepayer.

However, this year, NorthWestern Energy asked for another delay given the pandemic’s effects on energy use and “continued uncertainty.” In a 3-2 vote Tuesday, the Commission voted to postpone the pilot one more year; Chairman James Brown and Commissioner O’Donnell opposed the motion.

The new method of cost recovery is intended to promote energy efficiency by the monopoly utility.

PSC staff had recommended a July 1, 2021, implementation date as outlined in a previous order from the Commission. In a memo, staff said the delay already has hurt residential customers during the coronavirus pandemic.

“Delaying the pilot was, in the end, beneficial to NorthWestern and detrimental to customers,” read the memo.

Commissioner Jennifer Fielder, who voted in the majority, said the pandemic created “a true anomaly,” and she believes it’s important to collect more information on energy use before implementing the new formula, the Fixed Cost Recovery Mechanism, or FCRM. 

“I tend to agree with staff on a number of points,” Fielder said. “I just disagree that 2020 was anywhere near a normal year.”

Last year, the pandemic closed many businesses and sent people home. The PSC staff memo said residential use in 2020 increased 4.3 percent over 2017 compared to a 3.4 percent expected increase, citing an affidavit from an energy utility manager. The memo also said the other subset of non-residential customer in the pilot decreased use by 1.8 percent compared to an expected 0.5 percent decrease.

“These shifts in load would have had corresponding impacts to NorthWestern’s revenue,” the staff memo said. “Specifically, based on shadow accountings for the year, NorthWestern would have been required to rebate approximately $9.5 million to residential customers, and surcharge $0.5 million to GS-1 Secondary Non-Demand customers.”

The idea for the pilot arose before the pandemic, and the Public Service Commission had approved it for a July 1, 2020, start, the staff memo said. The memo notes the change in method is a common practice that aims to economize energy consumption by “severing the tie” between actual consumption and revenue.

The Human Resource Council, District IX, and Natural Resources Defense Council recommended the new formula in NorthWestern Energy’s 2019 electric rate case, according to their filing with the PSC. The HRC and NRDC argued the formula would “reorient” NorthWestern “towards its customers,” and that residential ratepayers had overpaid $9.5 million last year.

“Absent a mechanism like an FCRM, utilities have an incentive to sell more electricity or natural gas in order to recover in excess of what the Commission has authorized them to recover and see windfall profit,” the parties argued in their filing. “Under traditional rate regulation, NWE is disincentivized from acquiring energy efficiency, which if it were acquired would lower customers’ bills.”

At a hearing last week, though, a NorthWestern Energy representative argued for another delay and told commissioners the pandemic had “fundamentally shifted” energy use. In its filing, the utility said it would have lost $20 million had the pilot been in effect starting July 2020 with a drop in revenue from customers not covered in the pilot, plus the rebate to residential customers.

The utility also pointed out that opposition to a delay came from the advocacy organizations, not the Montana Consumer Counsel.

“Notably, the actual consumer advocate, the Montana Consumer Counsel, did not oppose NorthWestern’s request,” the company said.

At the meeting this week, O’Donnell tried to negotiate a deal to return the $9.1 million “excess” to customers, but no one seconded his motion. If the company wanted to delay implementation, it should do so only if it voluntarily agreed to grant a refund to residential customers, he argued; if it agreed the pilot could start on July 1 as planned, it could keep that money.

“This would permit the utility to make a business decision regarding its operations,” O’Donnell said.

PSC staff lawyer Rogala, though, said the order the Commission approved earlier did not include the typical conclusions of law that would allow an opportunity to address overages. However, he suggested the Commission could instate relief provisions going forward to not find itself in the same position in 2022.

None of the commissioners made a move to amend the motion, and Commissioner Randy Pinocci called the question. Pinocci, Fielder and Vice Chair Brad Johnson approved Johnson’s motion to approve the delay of one year that NorthWestern had requested.

“I just think that it is prudent for us to say let’s wait and implement this based on a year that gives us data and experience that is less exceptional,” Johnson said.