NorthWestern Energy Homepage
NWE Contact Bar, in Montana dial 1-888-467-2669, in South Dakota or Nebraska dial 1-800-245-6977
small brandNorthWestern Energy Blog


The LRAM Explained

Oct 23, 2015 |

To explain what the LRAM is, we first have to define it. It’s an acronym that stands for Lost Revenue Adjustment Mechanism. It is, in short, an accounting mechanism that allows the company to recover the fixed cost of operating our utility systems when customers use less energy as a result of energy conservation.  Fixed costs are the costs of things like meters, power lines, distribution mains, and generating facilities that must be paid regardless of how much electricity or gas our customers use.

The Montana Public Service Commission and the Montana Consumer Counsel like volumetric billing structures, where nearly everything is billed on either a per kilowatt hour or per therm basis. However, the majority of the expenses that we control are fixed costs. In other words, the cost of maintaining the transmission and distribution doesn’t change depending on the amount energy used by customers.

When customer bills are based on usage, and when customers use less energy, we’re not recovering the full cost of providing electric and gas service to them.  We work very hard to manage the costs that we control and there isn’t any slack in the system. Running at a deficit isn’t an acceptable option.  The volumetric rate structures preferred by our regulators is not well suited to promoting energy conservation. The LRAM was intended to fix that.

We are required to purchase energy conservation from customers, which is normally done through various rebate and incentive programs. It’s an important part of our overall energy supply mix. We recover the cost of the programs through the annual tracker filing that reviews the prudency of all of our energy supply costs.  But when energy sales decline under a volumetric billing structure, we lose a  piece of revenue that is needed to maintain the delivery system.  That benefits no one, customer or company over the long-term. Losing the LRAM is a real loss to NorthWestern of about $12.5 million that in the short-term will be absorbed through cost-cuts throughout the Montana utility. 

We’ve seen variances of this same issue crop up in other settings recently, such as net-metering. Other states, including our neighbors in Idaho have worked through this issue to the benefit of all stakeholders and we can do the same here. We only ask for fair treatment that converts an outdated volumetric billing structure to a modern one without unfairly penalizing us or the delivery system in the process.

Guidelines for Posting

We provide this online forum for customers to exchange ideas and opinions with us about a variety of issues and/or topics of interest. Constructive criticism, critical thinking and diverse opinions are welcome.  Profanity, name-calling, threating language or troll-like behavior is not.  Moderators will monitor comments to maintain the civility of this forum.  All Email addresses, if provided,  will be kept hidden from public view.  

If your comment isn't appearing online, perhaps:

  1. Your comment is in really poor taste (see above).
  2. Your comment had nothing to do with the issue being discussed in the post (i.e. trying to hijack the discussion).
  3. You did not provide the required name and email, used an alias or pretended to be someone that your aren’t.We keep your emails hidden, but we use our real names on this forum and we expect everyone else to do the same.
  4. Your comment is intended to sell or promote a product, service or company.
  5. You used real or implied profanity.(i.e. @#$^).
  6. Moderators haven’t yet reviewed comments for placement.We strive for timeliness, but comments made outside of normal business hours (i.e. nights, weekends and holidays) may not appear until the following business day.
  7. You included an attachment in your comment.We delete those immediately.
Contact Us | Terms of use | Glossary | PO Terms & Conditions | EEO | ©2016 NorthWestern Energy. All rights reserved.