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Rate increase questioned, Montana PSC grills MDU over double-digit rate increase for state’s share of upgrades to three-state system

GLENDIVE, MONT. -- Montana Dakota Utilities has scaled back a 21.1 percent electricity rate increase it had been requesting in Montana, but that didn't stem the tide of questions the company faced at a public hearing that started Tuesday in Glendive.

GLENDIVE, MONT. - Montana Dakota Utilities has scaled back a 21.1 percent electricity rate increase it had been requesting in Montana, but that didn’t stem the tide of questions the company faced at a public hearing that started Tuesday in Glendive.

While the rate increases are for Montana customers, MDU has an integrated electric system that is serving customers in a three-state area that includes western North Dakota and South Dakota.

In North Dakota, they’ve been collecting costs for these upgrades via trackers and riders so there has not been a public hearing process per se. This makes the Montana public hearings an important arena for public engagement about the requested rate increase that would cover the three states.

The company does plan to file for a rate increase in North Dakota no later than Sept. 30 after a recent settlement with North Dakota advocacy staff. And they have also recently filed for a rate increase in South Dakota.

The company’s original proposal to the Montana Public Service Commission sought to recover $11.4 million annually in costs, but two Montana advocacy groups both said justifiable recovery costs were more like $2 or $3 million.

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Montana Public Service Commissioner of District 1 and Chairman Travis Kuvalla said it was not only the largest rate increase he can recall, but the largest gap he’s ever seen between the company request and what advocacy groups say is fair.

The settlement between the company and the advocacy groups was filed one day before the hearing. It is still calling for a double-digit increase of 13.3 percent, but this will be phased in over two years instead of one. The first increase, effective April 1, raises overall rates by 5.4 percent. The second, effective April 1, 2017, raises it 7.9 percent.

The settlement also allocates costs differently than the original proposal. The residential rate would rise an overall 9 percent. That translates to $2.28 per month on an average customer’s monthly bill beginning April 1. The 2017 increase would raise that average bill an additional $4.10, for a total $6.38 over the two-year period.

The original request would have put the increase at a total $14.80 a month or $178 a year starting in 2016.

MDU officials insisted in their sworn testimony that the 13.3 percent rate increase is necessary to cover the costs of meeting EPA standards for clean air, growing consumer demands in the region and upgrades to transmission lines.

Commissioner Roger Koopman asked whether MDU had perhaps jumped the gun on some of the compliance upgrades, which address mercury and other toxins in the air. Maybe, he suggested, legal challenges will win out against those measures after all.

Nicole Kivisto, president and CEO of MDU disagreed, however. Not only does she believe the challenges are unlikely to prevail, but the company has to look at the bigger picture.

“As a utility, we have to continue on a path to compliance,” she said. “If the legal challenges haven’t held up and we are at the compliance stage and we’re not compliant, then we’d have to shut down the facility. I think you’d have more serious ramifications for our customers at that point.”

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Those ramifications would include greater costs, Kivisto said.

“No question, you are in a difficult position as a company,” Koopman acknowledged.

Kuvalla wanted to know about the modeling that had projected a 4.7 percent growth in sales, but which has lately been scaled back to 3.1 percent.

Some of the units constructed by MDU to meet those projections are operating very little, Kuvalla said. A unit in Glendive is operating less than 2 percent of the time, while one in Miles City is now being projected to operate only one hour out of 8,760 in a year.

“When you own all this capacity and you are barely operating at all, why did you need to build another plant that itself will operate only a couple percent at a time?” he asked.

Kivisto said there are multiple drivers causing that situation, but chiefly it is because the company has to design the system for peak capacity. Loads have been extremely volatile at times. Another factor that dropped the projection is that some projects, such as the Keystone pipeline, did not come to fruition after all.

There were several questions, too, digging into whether it was wise for the company to ignore the Clean Power Plan in its compliance upgrades. Would it not be more cost effective to have addressed those too?

Most of those questions, however, evaporated once it was announced during the hearing that the Supreme Court has stayed implementation of that, and there was general applause as well.

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Kuvalla’s question about the necessity of certain upgrades was revisited late in the hearing in connection with two gas engines built between Sidney and Williston. Those, too, are being used only 2 percent of the time, Kuvalla pointed out while questioning Darcy Neigum, director of Electrical Systems Operations and Planning for MDU, and the cost of the $43 million units for MDU’s Montana electrical customers is a collective $9 million.

Kuvalla asked Neigum to locate the arguments justifying construction of the units, because what he was looking at, in his opinion, didn’t justify them.

The hearing, being late in the day, concluded on that note. Neigum said he would find the material for Kuvalla for Wednesday’s hearing, which was to shift toward questions about the fair allocation of costs to the various consumers of MDU’s power.

Kuvalla has said after the hearing he wants to be certain residents are not shouldering the burden for power needs demanded by the oil and gas industry, and suggested that the RICE units were primarily serving that need.

“If these things are basically being built for them, then how should their cost be allocated?” Kuvalla asked. “These RICE units are expected to run less than 2 percent of the time. Would it have been more cost effective instead to expect certain customers to reduce consumption during particular time periods?”

All the testimony will be taken under advisement and worked on in upcoming work sessions before a final decision on the requested rate increase is made.

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