Regulatory Matters

12 Months Ended

Dec. 31, 2021

(3) Regulatory Matters

Power Costs and Credits Adjustment Mechanism (PCCAM) - Montana

We track electric supply costs for our Montana electric utility, such as purchased power and fuel, against a forecast of costs approved by the MPSC. This forecast is referred to as the power costs and credits adjustment mechanism base (PCCAM Base). If our actual costs exceed the approved PCCAM Base revenues on an annual basis, we can recover 90% of the excess costs, with the non-recoverable 10% impacting net income. Our QF power purchase costs are recoverable through rates separate from the PCCAM Base. The MPSC reviews these costs annually, with NorthWestern receiving an automatic adjustment through interim rates, subject to refund, effective on October 1 of each year. During the twelve months ended December 31, 2021 we recognized $5.4 million of non-recoverable excess PCCAM supply costs, compared to $0.8 million of non-recoverable excess PCCAM supply costs for the twelve months ended December 31, 2020.

The current PCCAM Base, approved in 2019, no longer reflects an accurate current forecast of our fuel and power costs. In April 2021, we filed an application with the MPSC for approval to increase the PCCAM Base by approximately $17.0 million. On June 29, 2021, the MPSC approved interim rates reflecting our request, subject to refund. On August 2, 2021, the MCC filed a motion asking the MPSC to dismiss the application arguing that the MPSC issued a Final Order in 2018 prohibiting NorthWestern from requesting an update to the PCCAM Base, except in a general rate case. NorthWestern argued that the tariff, which the MPSC approved as implementing the Final Order, allows us to file an application outside of a general rate case. On October 5, 2021, the MPSC voted to grant the MCC’s motion to dismiss. The MPSC issued the final written order on December 2, 2021, dismissing our application. As of December 31, 2021, we had deferred revenue of approximately $8.2 million, which we expect to refund in 2022, associated with these interim rates, including interest.

Montana Community Renewable Energy Projects (CREPs)

We were required to acquire, as of December 31, 2020, approximately 65 MW of CREPs. While we made progress

towards meeting this obligation by acquiring approximately 50 MW of CREPs, we were unable to acquire the remaining MWs required for various reasons, including the fact that proposed projects fail to qualify as CREPs or do not meet the statutory cost cap. The MPSC granted us waivers for 2012 through 2016. The validity of the MPSC’s action as it related to waivers granted for 2015 and 2016 has been challenged legally and was fully briefed before the Montana Supreme Court.

On May 14, 2021, the Montana Governor signed a bill that eliminated the state's Renewable Portfolio Standard, including repeal of the CREP requirement. We notified the Montana Supreme Court of the repeal. We also dismissed our pending application filed with the MPSC for a waiver from full compliance for years 2017 through 2020.

On September 7, 2021, the Montana Supreme Court remanded the case challenging the 2015 and 2016 waivers to the District Court to determine whether the repeal of the CREP requirement made the petition moot. The matter has been fully briefed before the District Court. In that briefing, the Montana Environmental Information Center requested the District Court to amend its previous judgment and penalize us $2.5 million for failure to comply with the CREP requirement in 2015 and 2016. We responded to this request arguing that it was unlawful for the District Court to penalize us. We expect a decision from the District Court in the first half of 2022.

If the Montana Courts and/or MPSC determine that the repeal should not be applied retroactively and find that waivers

should not be granted, we could be liable for penalties. However, we do not believe any such penalties would be material.

FERC Financial Audit

We are subject to FERC’s jurisdiction and regulations with respect to rates for electric transmission service in interstate commerce and electricity sold at wholesale rates, the issuance of certain securities, and incurrence of certain long-term debt, among other things. The Division of Audits and Accounting in the Office of Enforcement of FERC has initiated a routine audit of NorthWestern Corporation for the period of January 1, 2018 to the present to evaluate our compliance with FERC accounting and financial reporting requirements. We have responded to several sets of data requests as part of the audit process. An audit report has not yet been received from FERC, but is expected during the first quarter of 2022. Management is unable to predict the outcome or timing of the final resolution of the audit.