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Clearing Up / Bearing Down

[May 3, 2019 / No. 1900]

Montana Regulators, Lawmakers and NWE Headed for Collision

SUMMARY: The Montana PSC's relationships with NorthWestern Energy and lawmakers in the state have deteriorated in recent years into deeper dysfunction and mistrust. Optimistic comments from legislators, regulators and the utility thinly veil rampant skepticism that the rifts can be repaired. Influential Republican lawmakers say it could be time to consider changing the Montana PSC from a publicly elected body to an appointed one.

The Montana PSC survived another legislative session unscathed, despite several lawmakers putting the commission in their crosshairs.

The legislators considered paring back the regulatory body's oversight authority, its budget, even commissioners' salaries during this year's whirlwind two-month session.

It is not the first time the commission has butted heads with legislators or NorthWestern Energy. However, the PSC's relationship with the two entities has grown increasingly antagonistic in recent years, to the point that some observers and participants wonder if the state's regulatory system is dysfunctional.

Allies of NorthWestern in the Montana Senate accuse environmental groups of intervening in cases before the PSC to slow down the process and create an opening for challenging decisions in court, adding more cost and time for the utility.

"We have people who intervene in that process whose principle purpose is to shut down coal mining and coal generation," Sen. Tom Richmond (R-Billings) said during a March committee hearing on his bill encouraging NorthWestern to buy more Colstrip capacity. One of Senate Bill 331's original incentives was to sideline the PSC, allowing NWE to saddle ratepayers with millions in associated costs to without a prudency review.

A couple days later, the committee considered adding an amendment changing the PSC from an elected to an appointed body.

"People are getting elected to be commissioners who have no grounding in [the] energy industry," committee chair Sen. Duane Ankney (R-Colstrip) said during the hearing. "They're not in the office every day."

At the earlier hearing, Ankney had asked PSC member Roger Koopman if he went into the commission's offices every day.

No, commissioners do not go in every day, but they do put in long work hours grappling with often complex and arcane details of different cases, Koopman told Clearing Up.

Koopman bristled at Ankney's line of questions—and the implication that PSC members have a cushy job.

"There's a war on the PSC up there [in the state Legislature], and the charge is being led by NorthWestern," Koopman said.

'The Montana Public Service Commission, or at least a majority of the commissioners, have lost their regulatory minds.'

Regulators and NorthWestern used to get along. As recently as 10 years ago, commissioners and legislators seemed intent on helping rebuild a regulated utility in the wake of the state's costly and messy experiment with deregulation. And NorthWestern Energy seemed determined to maintain good relations with regulators. For example, one of its top attorneys, Al Brogan, worked for the commission, and its CEO, Bob Rowe, served on the PSC during the company's rocky entry into the Montana market.

Things began to change after Republicans took over the five-member PSC, which is the only publicly elected utility regulatory body in the Northwest. One newly elected commissioner, Travis Kavulla, did not hesitate from butting heads with the utility over when he thought NWE had wasted money and left customers to pay the bill.

The utility "has been gambling with other people's money, taking big risks over the last decade that most businesses would not," Kavulla wrote in an opinion piece in the Billings Gazette in 2017 (CU No. 1814 [13]).

During his tenure on the commission, he repeatedly took the utility to task for, as he saw it, overpaying for its share of Colstrip Unit 4 and its dams, and other financial decisions that fell to ratepayers.

The relationship worsened as NWE faced greater scrutiny from an increasingly skeptical commission. The utility felt compelled to turn to legal courts, hoping to overturn what it characterized as unfair and misguided PSC rulings. That was the case following the commission's 2016 decision to reject NWE's request to recoup $8.2 million in power purchase costs incurred during an unscheduled outage at Colstrip (CU No. 1742 [11]) [D2013.5.33].

At the time, Koopman characterized the utility as "always defaulting to the ratepayer; we see that again and again."

The utility chafed at the PSC's decision, especially given that regulators in Oregon and Washington allowed Colstrip's other owners to pass along those costs to customers. NorthWestern appealed the decision, which it called "arbitrary and capricious" (CU No. 1752 [13]).

The dispute dragged on until late 2018, when a Montana District Court judge sided with the PSC and against NWE, which had asked the court to overturn the ruling (CU No. 1863 [10]) [DV16-1236].

The PSC's controversial symmetry ruling in 2017 evoked a new wave of ire from the utility (CU No. 1814 [13]). The decision would have all but forced NWE to turn to market purchases to meet demand. The utility already is more exposed to market price fluctuations than any other utility in the region. That exposure is frequently cited by NWE executives when justifying particular decisions or policies, and it seems to be a deep-seated insecurity that pervades the company's strategic and tactical thinking.

The public reaction from NWE representatives at the time seemed to be a mix of frustration and insecurity. During testimony before legislators, a utility employee said the PSC members were behaving like "children in need of discipline by a parent."

"The Montana Public Service Commission, or at least a majority of the commissioners, have lost their regulatory minds," David Hoffman, NorthWestern's government affairs director, told lawmakers. "They're destroying existing law and they're out of control."

NWE's long simmering frustration seemed to come out in the last legislative session, when Ankney, Richmond and other Republican allies took aim at the commission (CU No. 1894 [12]).

The PSC's relationship with "both regulated utilities and the legislature has deteriorated over the last eight years or so," Richmond said. "What I hear is a lot of frustration from regulated utilities about the PSC."

One bill proposed to cut commissioners' salaries.

"I definitely took it as a warning or a threat from legislators who want to see us do things differently," Koopman said. "We can't be a political football and still do our job."

However, Commissioner Bob Lake said he did not see the salary cut proposal as a warning shot. "Sometimes things come into the Legislature that don't really make sense," he told Clearing Up in a March interview.

Lake also publicly endorsed SB 331, along with two fellow commissioners—Brad Johnson and Randy Pinocci.

Despite that support, Ankney, Richmond and likeminded Republican lawmakers are suspicious of the PSC. As they see it, environmental advocacy groups, which, they say, are funded by outside money, are exploiting the PSC to push political goals with no regard for Montanans' well being.

"Hijacking" is the term Richmond used to describe it.

"I'm not looking for a fight with the PSC, but I am sensitive to what I see as a war on a regulated utility," he said.

The picture he and others paint, though, does not match reality. Agree or disagree with energy policies pursued by the Sierra Club, Renewable Northwest and similar groups, they earnestly believe they are acting for the public good, just as much as coal-industry supporters such as Ankney and Richmond do.

For now, though, those groups' ability to intervene has spurred unease and pushback from NWE and its allies in the state house and has further eroded their faith in the PSC.

NorthWestern "respects and follows the procedures for regulated utilities and while intervenors have an important role in that process.

"Intervenors have an important role" in PSC proceedings, but "recently, well-funded special interest groups with agendas that have nothing to do with the interests of Montana customers have been granted intervenor status," NorthWestern Energy spokeswoman Jo Dee Black told Clearing Up. "We believe they manipulate Montana's process, strain the Montana Public Service Commissions' limited resources and delay rulings. Montana customers do not benefit from the actions of these intervenors."

Black acknowledged that NWE has clashed with "specific members" of the PSC "who have had philosophical disagreements with a regulated utility paradigm.

"However, NorthWestern Energy believes that its relationship with a majority of the Montana Public Service Commission continues to be productive and fair," she said.

Ankney and others already are recruiting candidates for upcoming PSC elections. The 2020 election will include three commission seats. Two seats belong to incumbents—Lake and Koopman—who have to retire due to term limits. The third seat is occupied by Tony O'Donnell, who was elected to his first term in 2016.

"I don't think that the average Montanan understands the importance of electing good Public Service Commission members," Ankney said.

For now, Republican lawmakers do not sound enthusiastic about making the PSC an appointed body, but they said it is an option to consider in 2021, the next time Montana's Legislature meets.

"I'm a Republican. If you have a Republican governor, then it sounds like a helluva good idea," Ankney said. "But, no, I think it merits consideration."

The Legislature's interest in changing how the PSC operates is growing, he said. "I think by next session you will see some major policy bills to restructure the Public Service Commission." [Dan Catchpole]

Bearing Down is excerpted from NewsData's Clearing Up publication. If you aren't a current subscriber, see for yourself how NewsData reporters put events in an accurate and meaningful context -- request a sample of Clearing Up.

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