PSC signs off on NorthWestern Energy restructuring plan

Montana’s largest utility company has garnered approval from the state’s utility board to restructure its multi-state operation. 

Last June, NorthWestern Energy asked regulators to separate its operations in Montana from its business in South Dakota and Nebraska, asserting that the restructuring will insulate Montana ratepayers and provide Montana regulators with a more focused look at relevant operations.

The Federal Energy Regulatory Commission and utility regulators in Nebraska and South Dakota signed off on NorthWestern’s plans last year. Approval from the Montana Public Service Commission, which regulates investor-owned utility companies to balance their financial health with the interests of captive ratepayers, was the final hurdle before NorthWestern. On Feb. 21, the PSC unanimously approved the agreement NorthWestern had reached with organizations that have a stake in the company’s operations and financial structure.

Per the agreement, NorthWestern’s utility operations in Montana will become separate, wholly owned subsidiaries of a newly formed holding company, NorthWestern Energy Group, Inc. The Montana segment of the company — which makes up the bulk of NorthWestern’s operations — will be managed by NorthWestern Corporation. The company’s electricity and natural gas operations in South Dakota and Nebraska will be run by another newly formed subsidiary, NorthWestern Energy Prairies Corporation.

In its June 2022 application, the South Dakota-based company said the reorganization will not harm customers and NorthWestern “will continue to provide the same services at the same rates.” It also says its plan will “serve the public interest by increasing the protections afforded to Montana public utility customers by isolating and insulating the Montana public utility in its own corporate entity, separate and distinct from NorthWestern’s other utility operations.”

NorthWestern spokesperson Jo Dee Black told Montana Free Press in January that the kind of corporate structure NorthWestern will create is considered a best practice for companies working in the public energy industry. She noted that other regulated utility companies in the state have undergone similar restructuring. That includes MDU Resources Group, which provides electricity and natural gas service in a four-state area under one subsidiary (Montana-Dakota Utilities) and construction services under another subsidiary (Knife River Construction). 

The commission’s decision also effectively dissolves a 2004 agreement between the company and the Montana Consumer Counsel designed to protect Montana ratepayers from undue risk following the company’s Chapter 11 –– reorganization — bankruptcy in 2003. 

“NorthWestern has demonstrated from its actions and commitments that it is a much different company than the one that encountered financial difficulties 20 years ago,” NorthWestern attorney Timothy Olsen wrote in the company’s application.

The PSC had scheduled a full-day hearing on Jan. 11 to discuss the restructuring application, but canceled it after NorthWestern reached an agreement with intervening parties that had proposed revised or additional measures to protect NorthWestern’s customers. 

The Montana Consumer Counsel, for example, had asked for limitations on the disposal or transfer of assets over $5 million, restrictions on dividend payouts, and the formation of a “special purpose entity” with an independent director capable of vetoing any bankruptcy decisions. Such restrictions are front-of-mind for energy industry hawks who witnessed the late 1990s deregulation debacle that contributed to the bankruptcy of a nearly 90-year-old company, Montana Power. That foray into utility deregulation left a sour taste in Montanans’ mouths.

Some, but not all, of MCC’s requests are included in the final settlement. 

Per the agreement and PSC order, the Montana utility portion of the business will not be able to issue dividends to shareholders if its equity falls below 40% of its total capital structure, a move to encourage fiscal prudence and ensure the company is servicing debt before funneling cash to shareholders in the form of dividends. The merger, sale, transfer or consolidation of the Montana utility business requires prior approval from the PSC, per the agreement, and the PSC will have access to the Montana utility’s books and credit ratings. 

The order also requires NorthWestern to develop a cost allocation model to encourage transparency and ensure that the public utility piece of the company’s business is not unfairly subsidizing non-regulated affiliate operations. NorthWestern is required to submit its first cost allocation model to the commission by early June.

The agreement also specifies that NorthWestern won’t be able to roll costs associated with the corporate restructuring into its customers’ rates. Those costs include legal and consulting fees, the reissuance of stock certificates and the production and distribution of material related to the name change.

When the restructuring application came before the South Dakota Public Utilities Commission in August, an attorney for NorthWestern told regulators that the Prairies Corporation and NorthWestern Corporation would be overseen by the existing executive team, and she anticipated the split would be “completely invisible to our regulators and customers.”