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Property Taxes are Major Component in Montana Utility Bills

Dec 01, 2015 |

The Montana Public Service Commission has instituted an inquiry into how the Montana Department of Revenue determined the taxable value of NorthWestern Energy after it acquired the hydroelectric facilities previously owned by PPL Montana.  In Montana, public utilities are “centrally assessed,” and hit with a significantly higher property tax rate than applies to other property tax payers.  A high property tax rate, combined with a high assessed value from the Montana Department of Revenue, translates into a very high property tax burden for NorthWestern and its customers in the State of Montana.

Montanans are very proud of the fact that we don’t have a sales tax. But, essential services from local government, and the cost of educating our children, have to be adequately funded somehow and that somehow is primarily through property taxes. We all pay those taxes either through our rent or with our mortgage payments, and through the cost of goods sold at local businesses.  We also pay them through our monthly utility bills. Taxes are a cost of doing business and they’ve been a part of our rate structure since…forever.

Other utilities have property taxes embedded in their rates too.  Looking at utilities outside of Montana most customers pay on average 1 – 3% of their total bill in property taxes. In Montana, more than 10% of a total NorthWestern Energy bill goes to pay property taxes.  Our customers are sometimes annoyed when they read about our rates in comparison to other utilities in our region without realizing the difference the amount of imbedded taxes can make in a total bill on a state-by-state or even a utility- by-utility basis since rural electric cooperatives are taxed differently than investor owned utilities.  

We are by far the state’s largest taxpayer. Last year, we paid about $100 million in property taxes.  This year, after buying the dams, our property tax bill will increase to $122 million.  It could have been worse – much worse.  The Montana Department of Revenue was going to hit us with a $145 million property tax bill.  We challenged that assessment, and after working with the Department, succeeded in reducing the tax bill to $122 million.  Although that is about $5 million more than we budgeted when we acquired the hydros, it is much less than the original $145 million contemplated by the Department. 

Because taxes have a way of being unpredictable and involve high dollar amounts, we were granted the ability to use a tax tracker for years in between rate cases. The tax tracker allows us to collect 60% of the increase in rates while we cover the remaining 40%.  

We are a responsible corporate citizen in Montana, and certainly agree with the Commission that customers need to better understand how Montana’s tax structure affects their monthly bill. Here’s a link to the information that we provided to the PSC in preparation for the roundtable on December 7. 

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