Consumer Counsel Asks PSC to Reverse Colstrip 4 Order

By MIKE DENNISON, Standard State Bureau - 12/02/2008

HELENA – A state consumer advocate is asking the Montana Public Service Commission to reverse last month's decision accepting NorthWestern's offer of 222 megawatts of Colstrip 4 power for its Montana customers, saying the electricity is way over-priced.

The Montana Consumer Counsel said accepting the price proposed by NorthWestern violated state law and saddles the company's 325,000 ratepayers with unreasonable long-term costs.

''The burdens that NorthWestern's proposal would impose on Montana consumers demonstrate that (Colstrip) … cannot be said to represent the least-cost means of meeting Montana's retail (electricity) base-load demand in the future," said Consumer Counsel Robert Nelson.

The PSC ruled on a 4-1 vote Nov. 13 that NorthWestern could put the power into its "rate base" at a $407 million price. The power will be dedicated to NorthWestern customers, who will pay rates based on that price.

NorthWestern purchased the power from two other companies for $187 million just last year. The company said the $407 million price is the "market value" of the power, based on an auction to sell the power to a third party.

The power is being generated by Colstrip 4, one of four coal-fired power plants in southeast Montana. It would supply one-fourth to one-third of the minimum power needs of NorthWestern's Montana customers.

The PSC decision will increase electric rates for NorthWestern customers in the short term, but the company says rates will be relatively cheaper in the long run, starting no later than 2015.

''Colstrip Unit 4 will benefit our customers over the years to come as a stable, regulated source of electricity in our portfolio," company spokeswoman Claudia Rapkoch said Tuesday.

Nelson last week formally asked the five-member PSC to reverse its Nov. 13 order. The panel may rule on his request as soon as next Tuesday.

In his written request, Nelson said the $407 million price isn't justified, for several reasons, and that the price shouldn't be any more than $240 million.

The price is based on an auction that occurred earlier this year, when energy prices were at record highs, Nelson said. The price of oil has since declined by almost two-thirds, he noted.

''If the commission were presented with a market collapse of comparable magnitude relative to the price of a contract proposed as a (electric) supply resource, there is little doubt that the commission would order renegotiation of the contract," he wrote.

Kim Beatty, a Helena attorney representing NorthWestern, replied Tuesday that Nelson offers "no new facts, laws or arguments," and therefore the request to reconsider the original order should be rejected.

Nelson is focusing on the short-term impact on rates, and ignoring how rate-basing the power will provide a stably priced, long-term source of electricity for consumers, she said.

There is dispute over how to calculate the rate impacts of the PSC decision to accept the power.

The PSC staff has said a typical residential electric customer of NorthWestern will see an increase of 2 percent to 4 percent, or $3 a month, starting next year.

The Consumer Counsel says the increase next year will average $15 a month for all customers. It says the overall price increase for electricity will be $60 million next year, divided by 325,000 customers.

The Consumer Counsel's calculations include some $32 million of tax losses it says NorthWestern will benefit from, without passing those on to ratepayers. The company says the tax losses belong to the corporation, and not ratepayers.