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Learn the Facts: NorthWestern's Temporary Supply Rate Increase in Montana Explained

Jan 22, 2015 |

By John Hines, Vice President – Energy Supply

Lately, there has been discussion about one portion of your overall bill – the cost of providing electricity itself.  Over the past six months our electric supply costs have been declining.  In fact, even with the bill increase that will take effect in July the average total electric bill will still be lower than it was in January.

 “Tracking” costs that move up and down

In Montana, NorthWestern recently received approval for a temporary increase (in what’s called an “electric supply tracker,” because it tracks changes in cost for electric supply) because our current energy supply rates didn’t collect enough to cover our actual costs.  This is the result of two main causes:  the cost of purchasing power from the market was greater than the forecast of market prices, and we were replacing a portion of the generation that we would’ve normally received from our ownership interest in Colstrip.  To be clear, both of these increases were actual costs tied to market purchases, with no profit to NorthWestern. After several years of very little difference in the actual versus estimated costs, we understand why you may be surprised by this change.

The electric supply tracker adjusts supply rates on a monthly basis using a standard mathematical calculation that takes into account estimated future electricity supply costs over a 12-month period.  These costs are then trued up every year at the end of June. 

Because of how this tracker works – it’s been seeing future market purchases that are less than what we were actually paying for these purchases, a difference or under-collection of actual costs occurred.  The difference, in this case, was significant enough that it resulted in collecting less money from customers than what we paid to electricity suppliers to buy power for customers.  Several years ago, we were in a similar predicament but in reverse.  We had much higher priced future contracts that resulted in a significant over-collection in rates and NorthWestern trued-up the difference by lowering supply prices the following year (basically paying customers back, with interest).  When under- or over-collections occur they are rolled into the line item called “deferred supply costs” for a one year period of time.  This may be more than you want to know, but it affects your bill, and is important.

This July, a typical customer using 750 kilowatt hours a month will go from a 27-cent deferred supply credit to a $4.03 charge to help make up this difference, which will remain in place pending a final decision on the case next spring, and until we true up our next tracker in June, 2015.  The tracker is not related to the proposed hydroelectric purchase. 

What’s up at Colstrip?

We’ve also heard the criticism over the extended outage of Colstrip 4.  We’re a minority owner (30-percent) in the plant and receive our share of the power generation equally from both units 3 and 4.  When we dedicated this asset to serve our customers in 2009, we estimated that it would be available 86 percent of the time.  This outage was caused by contractor error performing scheduled maintenance.  It was not caused by the age of the plant.  Although it first came on-line in 1986, Colstrip 4 is the newest large coal plant in the western U.S.   Even with the outage, it’s been available 82 percent of time since 2009 and is relatively predictable.   As a point of comparison, wind generation is typically available about 40-percent of the time and must be backed up by other generation, typically natural gas, for reliability since the resource availability is somewhat unpredictable.

They are all excellent resources. We own coal, natural gas and wind power generation and that’s the point.  We are building a diverse set of resources that will operate well together to meet your needs. 

Market prices are unstable

Energy supply markets are frequently unpredictable or volatile.  The most recent “supply tracker” adjustment highlights that as long as we rely so much on the market, customer rates will be unstable and unpredictable. That’s why we’re actively planning for the future by trying to secure, on your behalf, the hydroelectric facilities from PPL Montana.  It’s the best way to secure a stable, affordable source of electricity for years to come, and we’ll be here to deliver it to you safely, reliably and with pride.  These hydroelectric facilities, along with our wind, coal, and natural gas generation will provide you with a mix of benefits which in total will provide you the lowest cost, reliable, and stably priced supply of electricity.

We realize this is a lot of information.  Contact us with any questions.  You can email us at news2@northwestern.com.  We have some exciting things in the works to help you better manage your bill, learn about outages when they occur, and have more options to communicate with us. Please let us know what you think and what you’d like to see us provide better or differently than we do today!

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