The Montana Public Service Commission (PSC) expanded Northwestern Energy’s (NWE’s) pending rate case to include scrutiny of streetlight charges. Montana cities must become involved because taxpayers in utility-owned streetlight districts are being overcharged millions.
Special Improvement Lighting and Maintenance Districts (SILMDs) are created to pay for streetlight installation. In city-owned districts, residents pay off infrastructure costs over time. Once costs are recouped, bills go down and districts pay only for electricity, operating expenses and maintenance.
In utility-owned streetlight districts, NWE installs the lights and contracts with cities for their operation. Since utility-owned lights are assets, their costs are placed in the company’s rate base. The company earns an annual “rate of return” (ROR) on their undepreciated rate base. Therefore, residents in NWE districts are charged for the asset’s original cost, ROR, taxes, operating expenses, maintenance and electricity.
Original costs are supposed to be depreciated because utilities should only receive a ROR on unrecouped original cost. Regrettably, that is not happening. Hundreds of Northwestern-owned lights in districts dating back to the 1960s should be fully depreciated, but aren’t. NWE is still charging them for infrastructure recapture and has actually increased fees 20 percent over the past 10 years.
Several Montanans petitioned the PSC for a hearing on the issue. Northwestern vehemently fought them for eight years, first claiming its streetlights were leased to cities. That claim was debunked when evidence disclosed the utility booked zero revenue for streetlight “rent” in accounting documents and its city contracts contained no lease language.
NWE then claimed its charges were fees for “service.” Complainants countered that overcharging was a disservice, citing Montana Codes §69-3-109, a law passed to curtail decades of abuses deployed to inflate utility asset value. Under §69-3-109, utilities may place only an asset’s original cost into rate base and earn an allowed ROR on the undepreciated portion of that investment. Original infrastructure costs must be depreciated as the utility collects revenue. Inopportunely, NWE admitted to depreciating streetlights, not based on revenue garnered, but on “useful life,” up to 40 years. NWE doesn’t book streetlight ratebase or revenue by district, but lumps that all together — muddying the rate-making process.
NWE plans to install LED lighting in utility-owned districts. We applaud the effort, but fear costs will be excessive for inferior yellow lighting, and that NorthWestern’s depreciation practices will make consumers pay for LEDs many times over.
NWE estimates costs of $558 per luminaire. Seattle converted to LEDs for $125/unit and will pay for them in seven years because Seattle books depreciation when revenue covers costs, rather than on 40-year “useful-fixture-life.”
LED’s will cut energy use by 50-75 percent, but energy charges amount to less than 20 percent of district bills. Charges for infrastructure, ROR and taxes run 80 percent of costs. Unless fully depreciated ratebase is written off, adding infrastructure costs will offset much savings garnered from LEDs.
To protect their constituents, hopefully city councils will support us and advocate these changes the PSC should make:
• Each SILMD’s accounting must be kept separately, as is done in city-owned SILMDs.
• The only figure in NWE’s ownership charge must be the amount necessary to depreciate the original cost of lighting infrastructure.
• Any allowed ROR on depreciated original cost, and taxes allocated to a lighting district, should be kept in separate accounts and billed separately to facilitate taxpayer understanding.
• Utilities must book revenues received for depreciating original costs to reduce rate base within a month of receipt.
• PSC must examine streetlight districts formed before 1998 to write-off “watered” “original costs” that should have been fully depreciated and return overcharges to taxpayers.
Or cities could just convert utility-owned streetlights to city-owned LEDs.