I just had a chance to watch the MT PSC's meeting from last week. It was a long and complicated meeting, but here is the outcome as I heard it:
Decoupling is approved on the Electric Side only
Inverted Block Rates are approved for both electricity and natural gas
It is important to keep in mind that these are pilot proposals, with a (i believe) 4 year time horizon. The PSC should have an Order out in mid-December, which will clarify a number of the procedural issues around implementation.
A previous post on the topic, implied that the splits for inverted block rate groups would apply to all consumption by the individual. Based on what i heard, this is not the case. All customer would get the benefit of the the reduced rate for their first 350 kWh.
Please, by all means, comment if i got the decision of the meeting wrong. I had been waiting for Mike Dennison, Charles S. Johnson or frankly anybody to write up the meeting, but alas...
The MT PSC has scheduled a work session on NorthWestern Energy's general rate case for tomorrow at 1:00 pm. The, ah, lame duck PSC has a chance to approve some very significant policy proposals, and in my opinion, steer Montana energy policy in a positive direction. The PSC streams live, with a link on their main page.
In that context I like the spin that Senator elect Caffero and Human Resources Council District XI executive director Jim Morton, put on it in today's Missoulian.
"Furthermore, the two measures would create a more customer-focused utility. NorthWestern Energy is poised to move from a simple energy utility trying to sell as much power as possible to a full-service energy company focused on providing its customers a range of products, from electricity to energy efficiency.
Montanans can have a utility that doesn't have to sell us a kilowatt-hour of electricity rather than an equal amount of efficiency to recover its costs and turn a profit. We can adopt a more rational energy policy that protects our health and environment and lowers our energy bills."
I had previously posted about how SMG&T was having trouble with understanding its obligations upon reserving transmission (see the inaugural post). Yesterday the FERC resolved the situation (at least until NWMT appeals), in favor of SMG&T.
The FERC's decision is available here. FERC's rational is, and even in context of the topic, technical. Basically, NWMT did not have SMG&T execute the correct contract for the type of transmission service that they secured.
I am a little disappointed. SMG&T had held some valuable transmission capacity for a long-time, and the FERC's decision did not penalize them for not doing better due diligence. Gaelectric and Naturener, and other wind developers might have been able to get projects moving without the request in the way.
I watched with interest the exchange between Commissioner Molnar and PSC staff over NorthWestern Energy's request for interim rate relief on Mill Creek. The exchange starts 28 minutes into the PSC's stream which is archived here. Commissioner Molnar's comments, and his vote against the request, demonstrate that he is opposed to NorthWestern Energy using the plant to meet their balancing needs. Permanent rates for the facility could be in jeopardy with a new PSC majority....
Senator Tester has an Op-Ed out defending the MT RPS standard and discussing his role in its passing.
The Great Falls Tribune offers Tim Gregori an opportunity to explain why public power is not dead, and in his continuing nepotism he cites his own work, and not that of actually successful public power (ie: Flathead Electric).
Someone has filed an interconnection request for 125 MW of wind NE of Greycliff Montana in Sweet Grass County Montana.
You would be excused for not knowing what a triannual market power study is, and how important it is to Montana consumers. At its most basic level, this is the analysis completed by each utility and wholesale power provider to demonstrate to the Federal Energy Regulatory Commission that they do not have monopoly power and should not have the price they sell power for be regulated by the FERC.
NorthWestern Energy filed their triannual market power study in June of this year. Given that NorthWestern Energy owns very little generation assets the exercise is more of a formality. But PPL (Pennsylvania Power and Light, who acquired the majority of Montana's Powers Hydro after deregulation) disagrees in some assumptions of the study, and has filed a limited protest of NorthWestern Energy's study.
The third page of the protest demonstrates what PPL is after:
"Not completely scaling down the generation located in the NorthWestern BAA results in the SIL being understated for each of the four season. Because PPL Companies and other generators located in NorthWestern's BAA may rely on NorthWestern's SIL in their own market power analyses, NorthWestern's Revised SIL Study must provide an accurate accounting of the import capacity into the NorthWestern BAA. (p.3, emphasis added)"
A little interpretation is in order. First, SIL is Simultaneous Import Limits, and it expresses the amount of electricity that can be imported into Montana. PPL has a lot to be concerned about. All else constant, the lower the SIL value is, the more likely PPL the FERC is to believe that PPL has market power and regulate the price they sell energy for.
Of course, we have been here before, and I do not think that I stand alone in the Montana Energy community in thinking that PPL has monopoly power and has used it in the past to gouge Montana Consumers for millions. Hopefully this batch of Public Service Commissioners will be bold enough to get involved and protect rate payers.
This post is not intended as an editorial for the Governor to take a specific action in regard to a specific commissioner (ex A, ex B). It is just an observation that the rules for removal of Public Service Commissioners differ than those of other elected offices, and may afford the Governor a right.
Removal or suspension of commissioner. If a commissioner fails to perform the commissioner's duties as provided in this title, the commissioner may be removed from office as provided by 45-7-401. Upon complaint made and good cause shown, the governor may suspend any commissioner, and if, in the governor's judgment the exigencies of the case require, the governor may appoint temporarily some competent person to perform the duties of the suspended commissioner during the period of the suspension.
I would be interested in the analysis of inquiring legal minds, and if any such precedent exists, but my read of the statute is that the Governor has the right to suspend a Commissioner.
On Tuesday, it was reported that the City of Great Falls is interested in getting out of the wholesale power business and asked NorthWestern Energy if they would consider acquiring their customers. NorthWestern Energy responded with excitement, and has sent a response letter requesting load data and contractual commitments. The Billings Gazette has a permanent archive of the story here. And the Great Falls Tribune editorialized today that restraint is needed on the Electric City's behalf.
A couple observations on the proposed transaction come to mind.
At the highest level, this seams like a good idea. There are certainly economies of scale in the wholesale power business, and the Electric City's current companions (SMG&T) have not figured those out.
NorthWestern Energy should be interested, and could probably be persuaded to pay for the rights to these customers. Think some discount of their authorized rate of return x the quantity of expected annual sales.
The deal is not insignificant, as Electric City has a total demand of about 250,000 MWh. This is about 5% of NorthWestern Energy's total load.
I look forward to folks posting observations on the deal, especially those of Mr. Kavulla.
With the election press focus, I missed this important announcement from BPA. BPA will continue providing 320 MW of firm power to Alcoa for another year, at $34.60 MWh.
BPA extends service to Alcoa Decision could keep 500 jobs in region
Portland, Ore 10/29/2010. - The Bonneville Power Administration will meet Alcoa’s request to continue providing wholesale power to the company’s Intalco plant in Ferndale, Wash., for another 12 months under an existing contract that otherwise could have ended May 2011. Service will now continue through May 2012. Under the contract, BPA is providing 320 average megawatts of firm power to the plant at the agency’s Industrial Firm Power rate, which currently is $34.60 per megawatt-hour.
Alcoa had asked BPA to extend service in September, saying the power sale will allow the company a chance to continue operating and save about 500 jobs.
“We considered the request very carefully to make sure that, in addition to helping the plant continue operations, the power sale made good business sense for our other ratepayers,” said BPA Administrator Steve Wright. “It was important to assure that the net benefits from serving Alcoa exceeded the cost of service.”
Under the Northwest Power Act of 1980, certain electricity-intensive industries were allowed to buy wholesale power directly from BPA. These were primarily aluminum smelters, often referred to as direct-service industries. Today, Alcoa is the only smelter directly served by the agency. At one time, there were as many as 10.
BPA signed the current contract with Alcoa in December 2009, and the company began receiving power from BPA last May. The service period was limited by a decision handed down by the U.S. Court of Appeals for the Ninth Circuit. The Court ruled that non-obligatory contracts with direct-service industries must be consistent with sound business principles. In other words, the benefits to BPA of serving the direct-service industry must equal or exceed BPA's cost of serving the load during the period of service.
Following that ruling, BPA did an analysis called an equivalent-benefits test to determine if net benefits would flow to BPA and its ratepayers through a contract with Alcoa. The test showed net benefits but, given the volatility of the economy, could only guarantee them through the coming May. BPA left the door open for a longer service period if a subsequent equivalent-benefits test showed the same results for extended periods.
Following Alcoa’s request for extending service, BPA conducted another stringent test of benefits, followed by a public comment period. Not only had the current service period produced positive net economic benefits, but the new analysis indicated that extending the Alcoa power sale for 12 months should continue to benefit BPA and its ratepayers.
“We believe this is a good outcome for Alcoa workers and BPA’s other ratepayers,” Wright said. “Whether it’s setting rates, managing our costs or providing service, we are well aware of the positive impact we can have on our regional economy.”
Based on the equivalent benefits analysis and a public comment period, BPA agreed to extend the initial period of service. In late October, the agency issued a final record of decision indicating that it will extend the service period of its Dec. 21, 2009, power block contract with Alcoa for 12 months, through May 26, 2012. Further extensions may be granted as long as BPA determines it would achieve equivalent benefits for the requested period.
Prop 23 failed overwhelmingly (61-38), which would have suspended California's 2006 Global Warming act. This act is driving for renewable energy growth in California and across the West.
Initiative 7 passed in Idaho (57-43), which allows municipal electrical utilities to enter into long-term contracts for energy (profiled here on this blog).
Both republicans (Kavulla & Gallagher) won their races for the Montana Public Service Commission, placing that party in control.
Claudia Rapkoch, NorthWestern Energy's Director of Corporate Communications forwarded me the following letter late last Friday. I am hesitant to post it for three reasons that I will explain, but given my deep respect for Mr. Hines and his position I will honor the request.
First, the letter is not clear if the cost of Judith Gap that Mr. Hines reports "about $40" is inclusive of the cost of integration. This is important, as Mr. Brouwer's Op-ed that Mr. Hines is critical of, identified the $29 as just the energy cost. With integration, the price would be at the "about $40" level, which is this blog's opinion of the price.
Second, Mr. Hines does not provide a conclusive price for what new renewable energy will cost. Providing an average of bids is basically meaningless in describing future costs. One would expect, given that all bids are real, that the lowest cost bid would be the one selected by NorthWestern Energy. It is also likely that the high bid is probably for solar, which is unlikely to be built in Montana and would skew the price up. Given that NorthWestern Energy has just completed a Resource Procurment Plan that requires a detailed assessment of the cost of new renewables, i am curious as to why a more formal estimate for pricing was not provided (I suspect politics are afoot, and NWE's directors are aiming at the RPS).
Third, Mr. Hines claims that Mr. Brouwer's price for efficiency is wrong. I think that Mr. Brouwer and Mr. Hines are splitting hairs here, but it would be helpful to see some analysis from either party to support their estimate. Once again, Mr. Hines has a Resource Procurement Plan to reference. I would also note that the plan was delayed so NorthWestern Energy could complete a detailed study on the cost of energy efficiency.
Third Updated (11/3/2010), Here is the response i received from Mr. Brouwer which I have not verified, I have not received anything from Mr. Hines:
"The $4.80/MWh figure I used comes straight from testimony by Bill Thomas (NorthWestern Energy) in the recent PSC rate case (PDF page 8). I suspect the $12 figure they’re using is from a third party analysis of their DSM operations that they had done by Nexant in 2007. Unfortunately that report is three years old and doesn’t reflect the notable downward trend in DSM costs over the past few years."
NorthWestern Energy Clarifies Energy Supply Costs
NorthWestern Energy’s electricity supply costs, as represented by Ben Brouwer, the energy program manager for AERO, have been the subject of much recent debate. Since NorthWestern’s cost information is being used and debated, it is necessary to clarify and correct some of the data.
Mr. Brouwer’s analysis significantly underestimates both the cost of existing renewable resources and energy efficiency. Mr. Brouwer recently represented that the cost of energy from the Judith Gap Wind Farm is $29.00 a megawatt hour (MWh). That is not correct. There are several components to the Judith Gap contract and when all these costs are added together, NorthWestern customers are currently paying about $40/MWh, which changes slightly on a month-to-month basis. The Judith Gap contract was signed in 2004 and, since then, the cost of new renewable resources has increased.
NorthWestern is currently assembling additional renewable energy sources to meet the 2015 Renewable Portfolio Standard of 15%. In 2009, NorthWestern requested proposals from prospective renewable resource developers. We received 20 proposals with per megawatt hour costs ranging from $54 – 156.10 with a cost escalator or an average of $80.14. This information was provided to two Legislative Committees this past summer. In addition, NorthWestern Energy is obligated to purchase energy from small-scale renewable facilities (Qualifying Facilities) at a rate currently set at $69.21/MWh.
We agree with Mr. Brouwer that energy efficiency is a great resource for our customers. However, Mr. Brouwer’s analysis again misstates the actual cost of energy efficiency. NorthWestern is currently paying an average of $12/MWh for energy efficiency, nearly 2.5 times more than Mr. Brouwer’s number. This is a good deal for customers. We have ramped up our acquisition of efficiency and are now among the top tier nationwide. However, it is important to note that there is only a finite amount of cost-effective energy efficiency available to acquire.
NorthWestern believes customers benefit from a diverse portfolio of resources, including both renewable supply-side resources and energy efficiency. Energy policy is enhanced through discussion of the issues. An informed discussion must be based on the correct numbers.
This looks like an interesting project, and fairly good rates for Idaho Consumers. The project would be the first in the American Fall area. Ridgeline has developed several other projects in Idaho (including Wolverine and Goshen), but to my knowledge this would be the first that they would own. The project would lock in a 25 year flat rate of $71.29 per MWh.
Idaho Public Utilities Commission
Case No. IPC-E-10-24, Notice of Application and Comment Deadline
Utility seeks agreement with 80-megawatt wind project near American Falls
The Idaho Public Utilities Commission is taking comments through Nov. 19 on a request by Idaho Power Company to enter into a sales agreement with the 44-turbine, 80-megawattRocklandWind project near American Falls in eastern Idaho.
The agreement, with Seattle-based Ridgeline Energy, is for a PURPA project with a scheduled operation date of Dec. 31, 2011. PURPA is the federal Public Utility Regulatory Policies Act passed by Congress during the energy crisis of the late 1970s. The act requires electric utilities to offer to buy power produced by small power producers or cogenerators who obtain Qualifying Facility (QF) status.
The proposed agreement has many unique characteristics because of its size. All Idaho Power PURPA wind projects to date are 10 megawatts or smaller, which is as large as a project can be for developers to be paid an “avoided cost” rate that is determined and published by the commission. The avoided cost rate is to be equal to the cost the electric utility avoids if it would have had to generate the power itself or purchase it from another source. However, projects larger than 10 MW can still qualify as PURPA projects if the developer and the utility are able to negotiate a price that closely matches the utility’s avoided cost. Because Idaho Power customers ultimately pay for the power generated by PURPA projects, it is not in the public interest for the commission to approve sales agreements that result in customers paying more for power that could have been generated or purchased elsewhere at lower cost.
The negotiated levelized energy price in the 25-year agreement is $71.29 per megawatt-hour, according to Idaho Power’s application, lower than the published avoided cost rate of $75.88 per MWh for projects 10 MW or smaller.
The proposed agreement contains financial damage and security provisions for the benefit of customers in the event of the project’s default or failure to meet its completion date as well as a mechanical availability guarantee. The developer would retain the renewable energy credits (green tags) for the first 10 years, which will help offset the development cost. Idaho Power would keep the renewable energy credits for the final 15 years when the utility may have to comply with federal or state renewable portfolio standards.
The commission plans to handle this request in a modified procedure that uses written comments rather than conducting a hearing. Comments are accepted via e-mail by accessing the commission’s homepage atwww.puc.idaho.govand clicking on "Comments & Questions About a Case." Fill in the case number (IPC-E-10-24) and enter your comments. Comments can also be mailed to P.O. Box 83720, Boise, ID 83720-0074 or faxed to (208) 334-3762.
A full text of the commission’s order, along with other documents related to this case, is available on the commission’s Web site. Click on “File Room” and then on “Electric Cases” and scroll down to the above case number.
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