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NorthWesterns Property Taxes Explained

Oct 18, 2016 |

NorthWestern Energy’s Montana property tax bill will increase 10% for 2016 over 2015, and 35% over 2014.  Local taxing authorities will receive larger checks from NorthWestern than did just last year, and much larger than the year before.  NorthWestern already paid about 34% of all centrally assessed property taxes in Montana.  That percent will likely increase.

NorthWestern’s tax payments are important to local governments.  At the same time, property taxes are a much larger part of our Montana customers’ bills than is true for our customers in South Dakota or Nebraska, and larger than for customers of most other utilities as well.  Indeed, the Montana PSC has directed that we specifically disclose to our customers the amount of property taxes included in bills.

NorthWestern Energy invests significantly in critical electric and natural gas infrastructure dedicated by law to serving our customers across Montana.  As a result of our ongoing investment in Montana, we understand that our property taxes will increase.  However, the rate of the increase and the level of taxes proposed places an increasing burden on our customers and limits our ability to spend those funds on maintaining and improving safe, reliable and affordable service for our customers.

Under the Montana Department of Revenue’s initial valuation, NorthWestern’s centrally assessed Montana tax bill would have increased from $121.9 million paid in 2015 by 34% to $163.4 million for 2016.  This would have been a dramatic impact on our customers and on our ability to invest in serving them. While working diligently with MDOR to avoid protests has been our practice for almost a decade, we were prepared to do so had we been unsuccessful in our negotiations. We agreed to a $134 million bill, about a 10 percent increase over the $122 million we paid last year and a 35% increase over 2014.  

Every business (and governments, nonprofits and families too) has to operate according to a budget that reflects all income, investments and expenses.  As a regulated utility, the prices we charge are limited to the cost of providing service.  Therefore, we have worked to manage our tax burden for the benefit of our customers.  Here’s why:

  • As our Montana tax bill has increased, the portion of our customers’ bills representing property taxes has also increased. It is currently 11.5 percent, among the highest in the region. In contrast, property taxes represent about 2 percent of a South Dakota bill.
  • NorthWestern’s 2015 property taxes as a percentage of utility plant were the highest among our utility peer group at 3.9 percent.
  • NorthWestern’s 2015 property taxes as a percentage of employee salary and wages were the highest among our utility peer group at 97.1 percent.Given the MDOR’s initial valuation, they would be nearly 2.6 times the 2015 peer average (113.8 percent as compared to peer average of 43.3 percent).
  • Like every business, taxes are included in the cost of goods sold to customers. Between regulatory rate reviews, only 60% of incremental property tax increases are included in customer bills. Since 2010, the company has absorbed about $21 million in higher property taxes through careful budgeting and offsetting other expenditures.
  • Because NorthWestern is responsible for operating and maintaining the critical energy infrastructure across Montana, we are the largest centrally assessed property tax payer in Montana.NorthWestern paid $122 million in Montana property taxes for 2015.This was 34 percent of all centrally assessed taxes paid.The second largest was BNSF’s $27 million, which was 7 percent.

We value our partnership with schools and local government agencies. They serve the same people we do.  Our employees live in our communities, send their children to school and contribute to healthy communities. The property taxes we pay are a significant part of the funding for our schools, fire departments, law enforcement agencies and many other vital services.  While we regret the fact that the timing of these discussions often present a budgeting issue for these services, we are pleased to have avoided a protest this year.  However, we hope that in the future we can find solutions that provide a more stable, predictable and fair valuation methodology.

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