What NorthWestern’s major infrastructure upgrade project means for utility rates

A worker contracted by NorthWestern Energy replaces underground electric cables in Helena

A worker contracted by NorthWestern Energy replaces underground electric cables in Helena

NorthWestern Energy is rolling out the major phase of a seven-year, $375 million infrastructure upgrade project this year, and it has already led to an increase in some utility rates with more potentially on the way.

NorthWestern’s Distribution System Infrastructure Project (DSIP) started in 2011, but the first two years were mostly preparatory. This year, NorthWestern employees and contract crews will be working across the state replacing electric poles and underground gas and electric lines, installing new meters and other technologies, and trimming lots of trees. $66 million will be spent on the project this year alone.

“This is the work that we believe is needed to be done to avoid potentially greater costs down the road,” said NorthWestern CEO Bob Rowe. Much of the infrastructure being replaced was installed in the 1970s and has reached the end of it’s useful life. Rowe said the company is trying to get ahead of problems which would lead to a less reliable grid in the future.
In a press release, NorthWestern Energy spokesman Butch Larcombe said:

Some of the work will involve our customers. More importantly, customers will be asked, via the PSC rate process, to pick up some of the tab for the work. 

As Lee Newspapers Reporter Mike Dennison writes, The Montana Public Service Commission recently adopted higher natural gas rates, to help pay for the DSIP project. Dennison writes that increase is actually lower than a 5.4 percent temporary increase approved last year–but is 4.6 percent higher than the gas rate before the temporary increase was approved. It’s the first permanent gas rate increase for NorthWestern since 2008.

NorthWestern CEO Rowe said the utility will not be seeking higher electric rates this year but may ask the PSC to increase rates in 2014. PSC Chairman Bill Gallagher believes that would be a reasonable request.

“Because the system is aging quickly,” Gallagher said, “It’s necessary at this juncture, I believe, to go in and put some money into repair and upgrade of that system.”

The Montana Consumer Counsel represents ratepayer interests in these discussions with the PSC. Rate Analyst Paul Shulz said the counsel could not comment specifically on potential electric rate increases, as NorthWestern has not formally filed for those increases yet. He says when and if that happens, the group will be looking closely at the proposal.

“Are they doing what they need to do to maintain the system or are they ‘gold plating it?’ Are they going beyond what’s necessary?” Shulz asked. “Are there costs in there that should be born by NorthWestern shareholders, for example, and not rate payers?”

He said it is too soon to answer those questions.

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