Regulatory Matters

9 Months Ended

Sep. 30, 2022

Public Utilities Disclosure [Text Block]

Regulatory Matters

Montana Rate Review

On August 8, 2022, we filed a Montana electric and natural gas rate review with the Montana Public Service Commission (MPSC) requesting an annual increase to electric and natural gas utility rates of $171.0 million and $23.0 million, respectively, detailed as follows:


Requested Revenue Increase (in millions)
	Electric	Natural Gas
Base Rates	$91.8	$20.2
Power Cost & Credit Mechanism (PCCAM)(1)	$68.1	n/a
Property Tax (tracker true-up)(1)	$11.1	$2.8
Total	$171.0	$23.0

(1) These items are flow-through costs, which represent approximately 42% of the requested electric and natural gas revenue increase.

Our electric request is based on a return on equity of 10.60% with a forecasted 2022 rate base of $2.8 billion and a capital structure of 51.98% debt and 48.02% equity. Our natural gas request is based on a return on equity of 10.60% with a forecasted 2022 rate base of $575.3 million and a capital structure of 51.98% debt and 48.02% equity.

Within this rate review filing we requested an increase to the Power Cost and Credit Mechanism (PCCAM) base rate (PCCAM Base) of $68.1 million, as well as structural revisions to the PCCAM mechanism to provide customers with prices that better reflect the cost of services received. We also proposed to implement a revised electric only pilot for the Fixed Cost Recovery Mechanism (FCRM) beginning July 1, 2023, or alternatively to terminate the FCRM. Our rate review filing also includes proposals for more timely cost recovery beyond the test period, including critical reliability resources, such as the Yellowstone Generating Station, our Enhanced Wildfire Mitigation plan, and business technology maintenance costs.

On September 28, 2022, the MPSC approved the recommendations of the MPSC Staff for interim rates, subject to refund, which increased base electric rates $29.4 million, PCCAM Base rates $61.1 million, and base natural gas rates $1.7 million, effective October 1, 2022.

Montana Community Renewable Energy Projects (CREPs)

As further discussed in Note 3 - "Regulatory Matters" of our Annual Report on Form 10-K for the year ended December 31, 2021, we have been involved in litigation associated with our past progress towards meeting obligations to acquire renewable energy projects, as mandated by the recently repealed Montana CREP requirement. Although we had been granted waivers by the MPSC and the CREP requirement was subsequently repealed by the Montana legislature, on May 9, 2022, the Montana District Court imposed a $2.5 million penalty against us, payable to the Universal Low Income Assistance Fund in Montana, in connection with the petition filed by the Montana Environmental Information Center (MEIC) challenging the MPSC's decision granting our waiver requests from CREP compliance in 2015 and 2016. The expense associated with this penalty was accrued for within our second quarter 2022 results. We filed an appeal with the Montana Supreme Court.

Federal Energy Regulatory Commission (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 initiated a routine audit of NorthWestern Corporation for the period of January 1, 2018 to October 31, 2021 to evaluate our compliance with FERC accounting and financial reporting requirements. In May 2022, we received the final audit report from FERC and the resolution of the identified audit findings and recommendations did not have a material financial impact on our Financial Statements.