- May 7, 2024
- by Jesse Feinberg
We read through NorthWestern Energy’s 2023 annual report so you don’t have to. Below are our key takeaways for industrial customers of NorthWestern Energy (NWE).
NorthWestern electricity rates in Montana went up 23% in just six months
Successive rate hikes in 2023 and 2024 ended a decade of electricity rate stability for NorthWestern Energy’s Montana customers. EIA data shows that the average cost of electricity for NWE industrial customers varied by less than one cent per kilowatt-hour (kWh) between 2013 and 2022. But the Montana Public Service Commission (MPSC) approved rate hikes of 0.71¢ and 0.83¢ in October 2023 and April 2024, respectively.
To be specific, from a September 2023 industrial customer rate of 6.71¢ per kilowatt-hour (kWh), these rate hikes pushed industrial rates up to 8.25¢ per kWh. That’s a 23% increase in just a six month period.
This rate increase means higher operating costs for NWE’s industrial customers
For an industrial site consuming 10,000,000 kWh annually, this 1.54¢ rate increase (from September 2023 to April 2024) amounts to an extra $154,100 in annual operating expense.
However, it’s worth noting that because the second rate increase was so recent (effective as of April 1, 2024), customers may not even have noticed it yet on their monthly NWE bills.
Why rates went up
The specific cause of the recent rate hikes were increases to the Power Costs and Credits Adjustment Mechanism (PCCAM), a component of Montana electricity tariffs that allows NWE to recover energy supply costs.
Why have NWE’s energy supply costs recently increased? High fuel price volatility (especially for natural gas) plus growing regional power demand has pushed up prices for electricity procured from neighboring utilities and power generators via the transmission system.
In the past, NWE controlled its own destiny and would not have been as affected by trends outside its service territory. But that is no longer the case. As NWE’s 2023 annual report explains, “In the past, Montana had been a net exporter of electric generation…[but now] we are predominantly an net importer, especially during peak demand.”
What happened? Even as demand has gone up, NWE has retired a significant amount of generation. Specifically, “This includes,” according to NWE, “Colstrip Units 1 and 2, representing 614 MWs of generation on a capacity basis, which ceased operations in January 2020.”
Why rate increases won’t slow down
These rate increases are probably just the beginning. While a short-term decline in natural gas prices seems like an optimistic sign for electricity consumers, there’s ample reason to believe that rates are not coming down any time soon – and are more likely to continue going up.
NWE observes their exposure to market purchases of electricity in their 2023 annual report:
[The] accredited capacity of our Montana portfolio of owned and long-term contracted electric generation resources covers 75 percent of our recent peak electric requirements, with remaining needs, including additional reserve margin, served through market purchases.
NWE then goes on to suggest future rate increases are coming:
In the past, Montana had been a net exporter of electric generation… However, that situation in Montana has changed and we are predominantly a net importer, especially during peak demand. A significant number of base-load generation facilities, which may also serve to meet peak requirements, in the state and region have been retired or are scheduled to be retired in the next five to ten years…There can be no assurance that there will be available counterparties to contract with to serve our customers’ needs, or that these counterparties will fulfill their obligations to us. There is also no assurance that the transmission capacity required to import market purchases will be available on transmission systems owned by us or by third parties…As rising demand and declining generation continue to increase NWE’s exposure to commodity electricity markets, NWE will inevitably move to recover these costs through rate increases.
What this means for Montana companies that use a lot of electricity
Large electricity consumers can protect their finances from these electricity price hikes with on-site solar. On-site solar economics are especially attractive right now due to these higher utility prices and declining solar costs. Nokomis Energy can help large electricity users take advantage of on-site solar to reduce their exposure to further energy rate hikes, and lower and stabilize their energy costs for years to come.
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Nokomis Energy is a clean energy developer focused on the Upper Midwest and Mountain West regions. Our mission is to identify opportunities to create clean, low-cost energy projects for our customers. We work directly with our customers and partners to implement and build clean energy solutions that work for your specific needs.