NorthWestern Gets First Base Rate Hike Since Reagan Era

by | Nov 4, 2015

The South Dakota Public Utilities Commission (PUC) voted on October 29 (Docket EL14-106) to allow NorthWestern Energy to raise its electric rates by 15.5 percent or $20.9 million – the first such increase in 34 years. A typical residential customer using an average of 750 kilowatt-hours (kWh) of energy each month will see an average monthly increase of about $16.41.

Sioux Falls-based NorthWestern Energy serves about 62,100 electric customers in its South Dakota territory. The utility stated that the “primary drivers” for the rate hike were the addition of the Aberdeen peaker plant to its generation fleet, federally-required environmental controls at three coal-fired generating plants,, the Yankton transmission project, and NorthWestern’s move to integrate with the Southwest Power Pool (SPP).

The company filed its request for a higher, 20.2 percent rate increase – or $26.5 million – with the PUC in December 2014. In the months following its application, NorthWestern Energy purchased Beethoven Wind, an 80-megawatt (MW) wind facility near Tripp, South Dakota. The cost of the purchase was then included in the rate case.

Prior to the wind farm purchase, NorthWestern Energy’s electric customers were obligated, as a result of federal regulations, to pay for the purchase of energy produced by Beethoven Wind via the Delivered Cost of Fuel on their electric bill, which is adjusted quarterly.

Parties to the case –including Toshiba America Business Solutions, Trail King Industries, Redfield Energy and Wal-Mart Stores – agreed that incorporating the wind farm purchase into base rates would save customers approximately $44 million over the next 20 years as compared to continuing to purchase the energy produced by it pursuant to the contracts.

The parties, all of them large business organizations, had intervened due to the anticipated size of the rate hike. Wal-Mart, for example, noted in its petition to intervene, “Wal-Mart is an electric customer of Northwestern and will be directly and substantially affected by the electric rates charged by Northwestern to [our] facilities. As a large commercial Northwestern customer [that] is heavily invested in energy efficiency and demand-side management technology, Wal-Mart has direct financial interests in all cost of service, rate design, and policy determinations to be considered and determined by the commission in these proceedings.”

The agreement fully described the negotiations from the starting point of $26.5 million in additional annual revenues requested by the company to the final figure of $20.9 million in additional annual revenues agreed to by all the parties. The rates will be effective January 1, 2016.

On July 1 of this year, as allowed by state law (Docket EL14-106), NorthWestern Energy implemented interim rates based on its initial request. Because the final rate increase is lower than the interim rate increase, the commission approved a plan for NorthWestern Energy to refund the difference to customers, plus 7 percent annual interest, no later than April 2016. The average residential customer rate refund will be approximately $54, which will appear as a credit on the bill. The actual refund will depend on the individual customers’ use.

“We commend the commission staff for their hard work throughout this process,” said NorthWestern Energy CEO Bob Rowe, noting that, “Rate cases are complex. The commission staff never lost sight of this proceeding’s importance to our customers now, and to our ability to continue investing in providing them great service in the future.”

PUC Chairman Chris Nelson focused on the reasons for the rate increase in his comments at the meeting. “It’s truly extraordinary to consider the capital investment NorthWestern has made in the last 34 years and the fact that the increase was kept as low as 15 percent,” he said. “It’s important to understand that much of this increase is the result of the company complying with federal mandates,” Nelson stated.

The rate increase by the commission imposes a moratorium prohibiting NorthWestern Energy from filing a request for an increase of base rates that would go into effect prior to July 1, 2018.While the recent docket is the first comprehensive rate case filed by the company with the PUC since 1981, NorthWestern Energy has implemented limited rate adjustments since then with commission approval.

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