NorthWestern Energy’s proposed purchase of 12 hydro-electric dams in Montana could impose up to $800 million of excess costs on electric ratepayers the next 15 years, unless more risk is shifted to the company, a consumer expert says.
John Wilson, an economist hired by the Montana Consumer Counsel to analyze the deal, said claims by NorthWestern that the purchase benefits customers are based on assumptions that may not come true, such as future “carbon taxes” and lower maintenance costs.
If those assumptions are false — and Wilson said that’s entirely possible — customers will pay $600 million to $800 million more for electricity than if NorthWestern acquired it from a source other than buying the dams, he said.
“This cost increase amounts to approximately $600 to $800 for every man, woman and child in Montana, and it is money that will be extracted from the state’s economy — not money that will be recirculated within Montana,” he wrote.
Allowing NorthWestern to fold the entire purchase cost into rates “is a great profit opportunity for the company, as Montana consumers will be required to compensate (the company) for these costs … regardless of whether the acquisition turns out to be good deal for ratepayers,” he added.
Wilson, in written testimony submitted to the state Public Service Commission last Friday, said the costs for ratepayers could be lowered if NorthWestern accepts more risk, and he made several suggestions.
A NorthWestern spokeswoman, however, said Friday the company stands by its analysis, which compared the costs of power from the dams to long-term costs of buying power on the open market.
“We believe our assumptions are as well put-together as they could possibly be,” said Claudia Rapkoch. “Over the long term, this (purchase) is definitely in the best interests of our customers.”
Rapkoch said while market prices may look good now, relying on them long-term has not been a good strategy.
Another expert in the case also disputed Wilson’s conclusions, saying NorthWestern’s assumptions make sense, including the carbon tax, and that ratepayers would get a good, affordable long-term source of electricity by paying for the
$900 million proposed dam purchase.
“One would have to take rather extreme and untenable assumptions to make the hydro purchase appear to not be the preferred (electricity supply),” said Tom Power, a retired University of Montana economics professor representing a Missoula low-income group and an environmental group.
NorthWestern, the state’s largest electric utility with 330,000 customers, announced last September it had agreed to pay $900 million to buy the 12 dams from PPL Montana.
PPL Montana bought the dams on the Missouri, Madison, Clark Fork and Flathead rivers and West Rosebud Creek in 1999 from NorthWestern’s corporate predecessor, Montana Power Co. Now it wants to sell them back.
NorthWestern is asking the PSC, which regulates utilities in Montana, to approve the purchase and fold its cost into customers’ rates.
The PSC plans to decide the issue by fall, after considering testimony by NorthWestern and other parties, such as the Consumer Counsel.
NorthWestern says owning the dams will increase customer rates about 4.2 percent, but will benefit customers over the long term by providing a reliable source of electricity not subject to the whims of the marketplace.
Wilson and another expert hired by the Consumer Counsel, a state office that represents consumers in rate cases before the PSC, said the increase may actually be higher.
Yet Wilson spent most of his testimony arguing NorthWestern used an “unreasonably biased” analysis to claim that power from the purchased dams would be a better deal for ratepayers than power purchased on the open market.
NorthWestern’s analysis assumes a carbon tax, starting in 2021, would increase the cost of power bought on the market (but not carbon-free, hydroelectric power from the dams), he said.
Wilson said if the PSC accepts NorthWestern’s proposal, it essentially would be locking in a carbon tax on NorthWestern consumers — even if a carbon tax isn’t imposed by the government.
He also said even without the carbon-tax assumption, NorthWestern ratepayers are being asked to pay an additional $400 million the next eight years, with the promise that only future ratepayers will benefit.
Wilson said the PSC could level the playing field by lowering NorthWestern’s revenue by the amount of predicted carbon tax — and adding it back in only if the tax actually occurs.
Power, the UM economics professor, argued the carbon-tax assumption by NorthWestern is similar to what many utilities are using as they evaluate the future cost of power. If anything, it’s conservative, he said.
“NorthWestern appropriately … took a long-term view of the costs and benefits associated with the hydro purchase,” Power wrote.