By David Schlissel, IEEFA

April 15, 2021 (IEEFA)—A measure being considered in the Montana Legislature (Senate Bill 379) would grossly and unfairly enrich NorthWestern Energy with the creation of an effective tax on the company’s customers for 20 years or longer—a tax that would be based on a fictional company investment of almost $700 million.

Traditionally, consumers pay for the annual depreciation on investments that a utility actually makes in generating, transmission and distribution facilities. The payments effectively return money that the utility has invested in its facilities over a certain number of years. 

At the same time, under traditional ratemaking, each year consumers pay a utility profit (a “return”) on the company’s actual investments in its power plant, although this profit declines over time as the investment is depreciated. But, as with depreciation, the profit is based on investments that a utility actually makes.

Under SB 379, however, the Montana Public Service Commission’s regulation of Colstrip 4 wouldn’t work this way. Consumers wouldn’t pay depreciation and the return based on how much NorthWestern Energy actually paid for the shares of Colstrip 4 currently held by the unit’s other owners. Instead, the measure would require the PSC to allow NorthWestern to charge its customers for any new megawatts (MW) of Colstrip 4 it acquires from the other owners at the current net book value of the company’s 222 megawatts of the unit.

According to the Montana PSC staff, this would allow NorthWestern to value the new Colstrip 4 capacity at approximately $1.34 million per megawatt, or roughly $700 million for the 518 MW of the unit not owned by the company— even if it didn’t pay anywhere near this much for the new capacity. 

The PSC staff estimates that Montana’s consumers would pay at least an additional $1.36 billion over the plant’s remaining 21-year operating life, or about $3,500 per customer, just for the depreciation and profit on its acquisition of the remaining 518 MW of Colstrip. And under SB 379, NorthWestern’s customers would still have to pay even if Colstrip 4 is permanently shut down in the near future.

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