By Martin Kidston/Missoula Current

Customers of NorthWestern Energy will see their natural gas and electric rates increase this month due to a state law that allows the utility to pass a portion of its property taxes on to consumers – a point of frustration for members of the Montana Public Service Commission.

The PSC said it has no ability to consider the increase. Rather, it has mandated that a new line item appear on NorthWestern's utility bills, forcing it to disclose the amount of state property taxes customers will pay on its behalf.

“State property taxes now account for nearly 20 percent of some customers’ utility bills,” said PSC vice chairman Travis Kavulla, R-Great Falls. “The Montana tax system clearly is broken, as is Montana’s regulatory code, which allows utilities to automatically pass through these taxes without PSC approval.”

Last year, the PSC required NorthWestern to begin disclosing the taxes on its bills – a move that goes into effect this month. The practice replicates that already used by the telecommunications industry.

Chris Puyear, communications director for the PSC, said rates automatically increased on Jan. 1 to account for the pass-through taxes, and unless the PSC identifies “errors” in the utility’s calculations, the rate increases cannot be reversed.

“There's a specific provision in Montana statute that allows utilities to track annual changes in its property taxes,” Puyear said on Wednesday. “It allows them to flow those increases on to consumers. There's little the commission can do to stop this process.”

This year, NorthWestern projects it will collect an additional $19.2 million from consumers by increasing rates by 5.8 percent for electric delivery and 3.7 percent for natural gas, according to the PSC.

For the first time this year, Montana-Dakota Utilities is also tracking the charges. The utility projects it will collect an additional $813,586, with rates increasing by 2.2 percent for natural gas service and nearly 1 percent for electric service.

“The property taxes that the state Legislature has imposed on utilities have another name – an energy sales tax,” said PSC chairman Brad Johnson, R-East Helena. “For the first time, rather than being hidden, consumers will be able to see exactly what they're paying the tax man.”

Butch Larcombe, spokesman for NorthWestern, said the pass-through increase is limited to 60 percent of the total tax increase. This year, the utility saw its state taxes grow from $122 million to $136.2 million.

The $14 million increase was less than what the state had initially proposed.

“The PSC is implying that we're passing all the increase on to our customers, and that's not the case,” said Larcombe. “It's also important for people to realize that we work very hard to manage this tax liability. The original valuation would have put that bill at $163 million. We negotiated with them (the state) for months and got it down to a valuation that was fair.”

Larcombe said the average electrical bill will increase by around $2 a month while natural gas bills will increase by around $4.

The PSC will consider the utilities’ applications at two hearings scheduled this month. MDU will present to the PSC on Jan. 6 at 9 a.m. in Helena. A hearing for a similar tracking adjustment by NorthWestern is scheduled for Jan. 20 at 9 a.m., also in Helena.

“If it were an increase in a natural gas docket, we'd go through a full proceeding,” said Puyear. “Here, all the commission is able to do is check for errors, and they only have 45 days to complete it. It's a point of frustration for the consumer, a point of frustration for the commission, and it's something the Legislature needs to address.”

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