Travis Kavulla: Please Stop Lying

Travis,

Consider this an open letter.  In a few days you very well may be elected to the Montana Public Service Commission, and in that capacity you will have to take the following Oath:

"I do solemnly swear (or affirm) that I will support, protect and defend the constitution of the United States, and the constitution of the state of Montana, and that I will discharge the duties of my office with fidelity (so help me God)."

As an individual I am excited to see someone as young as you, and with a strong hunger for truly understanding the issues of the day, get involved in public service.  But as an elected official, and what the Oath speaks to (especially the part about fidelity), is that you have an obligation to be honest and to not purposefully and maliciously distort the truth to fit your political needs.

So, please stop.  Your editorial yesterday in the Great Falls Tribune is a pathetic work of fiction.  Typically, I would dismiss it as just some person picking numbers to fit political needs.  But you know better.  You went to Harvard.  You know as well as I do, that NorthWestern Energy is not going to pay the "average price per MWh" from it's RFI, and that they have selected a group of finalist with expected cost of around $65 MWh. Not the $80.14 as you allude to.  I know that you know this because you quoted the relevant PSC docket in your TV ad.

You also know, that given the "historical levelized price of Mid-C" of $54 per MWh, that locking in $65 per MWh for a small portion (5%) might be a good deal and an effective way to minimize some of the high price risk of Mid-C. 

If you don't like mandates and that is your beef with the RPS, ok.  But than suggest some progressive ways that regulators can help to influence energy procurement decisions in Montana, instead of just massaging numbers and the narrative to meet your political needs.  If you need some suggestions, or want to better understand these issues, please send me an email mtroscoe [at] gmail.com.

Fidelity Travis, fidelity.


Update: Travis' Response 11/1/2010


Dear Roscoe --

I've said it before and, despite your PSC coverage, I will say it again: Thank you for starting an energy blog. I can tell from reading the posts which do not concern me that we probably have a number of mutual sympathies, our differences notwithstanding.

First things first, I consider my Tribune piece considerably more factual than Mr. Brouwer's, with realization that we are both speculating about the possible future prices of electric power. The logic of my argument hinges on my use of an average deduced from a list of renewable proposals, as you note. I do not consider an average number unfair. Considering that the lowest-cost renewable proposals are also likely to be the largest facilities with the largest footprint -- just the type to be ripe for a NIMBY kibosh these days -- I consider it prudent to weight toward an average. Moreover, the number Mr. Brouwer has chosen as the stand-in for coal-fired generation is on the high end of the cost spectrum.

If you object to $80, how about we just call it fair at $71 per MWH, like the 80 MW-sized facility approved by Idaho's PUC? That is the likelier direction of wind development, and still significantly higher than the levelized Mid-C price or even a multicycle natural gas facility, supposing the glut of gas continues because of shale finds. Of course even that price does not accurately represent the additional value (or, in wind's case, lack of value) deriving from sales of excess electricity on the market. Wind is notoriously difficult to sell, and this diminishes its value in a way which is often not quantified.

Anyways, I think you misconstrue my point. I'm not against wind development. There clearly are projects which are feasible. Judith Gap appears to be one of these--and it would have been developed regardless of a mandate (a point of fact with which those mining it for figures do not grapple).

My problem is with the RPS. I have yet to hear any explanation of why a mandate makes sense, or why expanding the mandate would be a good deal for consumers. Instead, I hear the fallacy parroted over and over that wind is simultaneously a good deal economically, but that government needs to muscle you into this "good deal." When challenged on this apparent contradiction, the only response is something a la Mark Jacobson's vague prognostication that there are "market barriers that prevent renewable energy from competing on a fair basis," which is not followed by an attempt to explain any of them. I am merely looking for a credible and detailed explanation of what these barriers between a utility and low-cost electricity would be.

Nor am I denying that wind development here has something to do with West Coast mandates, with the federal renewable production tax credit, with utilities' own anticipation of Congressional and regulatory reform. But what man does can be undone. Tomorrow, California voters will be asked whether they will suspend the Calif. Renewable Portfolio Standard. The production tax credit is also scheduled to expire next year, unless Congress renews it. (On behalf of economic development in the Rocky Mountain states, I implore California voters to take the advice of the Sierra Club and continue to subject themselves to this onerous mandate.) The question is: Will the bottom fall out of renewable development? 
I suppose I just don’t see why Montana — with a consumer base about 1/50th the size of California — should have to take the plunge when its commodities/resources competitors (North Dakota, Wyoming) are not. Especially when I'm a candidate for an office whose only historical purpose is to keep costs as low as possible without bankrupting the utility or stifling investment, I find it pretty rich that I'd be asked to endorse a mandate -- the sole purpose of which is to compel wind production even if it is not price-competitive. The fact that Wyoming has more MWs of wind development today even without a WY mandate should be evidence enough that an escalated RPS in Montana would be a needless act.
Anyways, I'd love to meet up for dinner or something in that netherworld of time before I take office -- should, of course, I have the good fortune to be elected by the people of PSC District #1. In spite of my politics, a good deal of my friends are liberals and I'm sure we will get along.

Feel free to reprint the above on your blog.

Sincerely,
Travis Kavulla

A Month In

It has been about a month since the first post, and I am excited about the attention the work has been getting.  I hope that the 40 or so folks who read the blog daily will help to make it a little bit more dynamic by telling your friend and colleagues about it, and by commenting, and more importantly challenging and correcting the work.  

If anyone has any tips or feedback, please contact me at mtroscoe@gmail.com.

Thanks for visiting!

Inverted Block Rates, the MCC, and why you should care

The Montana Public Service Commission (MT PSC) is currently reviewing a rate case by NorthWestern Energy that broadly addresses how Montanans are charged for the energy they consume.  Though much of the focus of the docket has been on the actual increases NorthWestern Energy has proposed, there are two other important proposals that are being addressed in the docket: Decoupling and Inverted Block Rates.

Inverted Block Rates would fundamentally change the way customers are billed for electricity and natural gas.  Under NorthWestern Energy's proposal (p. 24), residential customers would be split into two groups referred to here as low and high.  The low group, under  NorthWestern Energy's initial proposal, would consist of all customers that consume 0-350 kWh a month, and the high group would be those that consume greater than 350 kWh (there would be a similar design on the natural gas side).  Each group would be charged a different price on an incremental basis for the energy that they consume.  For instance, a consumer in the low group may have a rate of 4 cents/kWh, and the high group may be 6 cents/kWh.

The reason for separating the rates is to create a clear incentive for consumers to use less energy.  Energy conservation benefits all consumers, by delaying the need to construct expensive new power plants and new transmission lines, and generally reducing prices as demand falls and less expensive forms of energy can be used.

To illustrate the incentives created by Inverted Block Rates, take the following example.  Consumer A uses 350 kWh and Consumer B use 400 kWh.  Consumer A would pay $14 per month, and Consumer B would pay $24.  Consumer B would have  an incentive of $10 per month, or $120 per year, to lower their electrical usage by 50 kWh per month.

The MT PSC is still deliberating how they will act on NorthWestern Energy's proposal, but in a series of filings in the docket most of the groups involved are in favor of the proposal, but with one notable exception: the Montana Consumer Council (MCC).

The MCC has filed their post hearing testimony earlier this week, which highlights their opposition (p. 5).  I have immense respect for MCC's criticism of the economics of Inverted Block Rates, however i am not convinced that they come by the honestly.  It seams to me that regardless of the proposal, the MCC just has a philosophical disagreement with the idea.  I found the particular section telling:

"Some residential customers who require relatively large amounts of electric energy because they have electrically heated homes or large families will find their electricity bills rising by as much as 20 percent because of inverted block rates, while smaller consumers are afforded much smaller rate increases." (p. 11)


There are of course a lot more significant reasons why customers would have use more energy than just the number of family members.  I would suspect that individual income, or house size, are more relevant indicators.  And, in the case of electric heat, the Inverted Block Rate applies on both the electric and natural gas side, so customers who many not capture the lower rates on the electric side would capture them on the natural gas side.  It seams to me that the MCC is missing its objective on representing all consumers, to protect the largest consumers of energy in Montana.  Such as this 120,000 square foot home built by Tim Blixseth.

Of course, MCC is your representative in the case (they are an organ of the Montana Legislature).

As a final note, i will add that Professor Tom Power is strongly supporting NorthWestern Energy's proposal.

Oregon Regulators concur with shutting down Coal Plants

Staff of the Oregon Public Utilities Commission has concurred with Portland General Electric's (PGE) request to close their Boardman Coal fired generation facility.  PGE proposed shutting down Boardman in its 2009 Integrated Resource Plan, which must be approved by Oregon regulators.   Boardman is a 550 MW coal plant, and the last such facility in Oregon.

The decision to close Boardman, appears to be based primarily on economic rational with the plant requiring significant investments in pollution control technology to keep operating.  However, it is also part of a regional trend to retire 1970s era Coal fired generation.  Puget Sound Energy suggested in their 2009 IRP that they would retire their interest in Colstrip units 1&2 in 2019 (p. 13).

The Future Cost of Electricity in Montana

Travis Kavulla has tweaked his arguments against the Montana RPS, and is acknowledging that the RPS has not increased rates for Montana to date, but is poised to do so in the near future.  And in doing so, Travis has highlighted an important question, what will different forms of energy cost in the future?

One of the undisputed benefits of wind, or renewables, is that they allow utilities and customers to lock in rates at  construction.  Unlike fossil fuels, the price of wind does not depend on the variable cost of fossil fuels.

Travis Kavulla has claimed that the next generation of wind will cost $69 per MWh, which is NorthWestern Energy's avoided cost rate.  I think that the avoided cost rate is actually a poor proxy for future wind costs, and that actual rates will be around $55 per MWh (depending mostly on the cost of integration), but these are small details.

The real point is that even at $69 per MWh, Montana consumers have a fairly good deal on their hands.  Why?  Energy prices are projected to increase.  Below is a figure from NorthWestern Energy 2009 Resource Procurement Plan, Page 119 of Chapter 6, that shows several projections for future market prices of electricity.  I have added an orange line to show where the $69 per MWh wind cost falls out.  The obvious implication is that wind offers Montanan's the opportunity to lock in low and reasonable prices for a portion of the electricity we consume (not necessarily all of it), but enough to hedge against future predicted price increases and volatility.  

Excellent Commentary on Montana Energy Prices

Ben Brouwer with AERO, hits the nail on the head in his op-ed that ran in the Missoulian yesterday, on the relative cost of energy for Montanans.  As I have already talked about these costs here before, I wanted to take the analysis one step further and calculate the welfare savings to Montanans. 

Basically, how much has Judith Gap and the MT RPS saved Montana Consumers.  For simplicity sake, I will just compare the plant to Colstrip 4. 

450,000 (Judith Gaps approximate annual generation) * 18 ($/MWh savings for Judith Gap) * 4.5 (length of time Judith Gap has been online, years) =  $36,450,000

That's right, the Montana RPS has saved Montana Consumers approximately $36 million. 

It would of course be more accurate to compare the price of Judith Gap to the hourly market prices that NorthWestern Energy has paid, but these prices are not nearly as constant as Colstrip 4 and require more time than I have to determine. 

FERC will not rubber stamp NorthWestern Energy’s proposal on Mill Creek

In an Order issued Friday, FERC has found that NorthWestern Energy’s proposal was not “just and reasonable” and will grant only temporary acceptance until a full hearing can be held. 

This is a big deal for Montana rate payers as FERC is committing to a rigorous analysis of NorthWestern Energy’s proposal.  It will be interesting to see if any of the Montana media picks up the story, how this alters NorthWestern Energy’s filings with the MT PSC on the same subject, and to what degree it may impact expectations about company revenues.  NorthWestern Energy has invested around $150 million into the plant, and any change by FERC or the MT PSC, on how NorthWestern Energy will recover costs could drastically alter their financial projects and bottom line.  

The Order highlights a number of very substantive issues as to how Mill Creek will be operated that quickly dive off into energy wonk land.  Suffice it to say, they are not taking anything NorthWestern Energy has proposed on face value.  

HJR-7, and its big implications for Idaho

The Idaho Post Register has a fantastic piece today on this complex initatives that would rewrite how municipal power providers in the state contract for power. Under current rules, municipal power providers (such as Idaho Falls Power), must seek approval from members through an election before entering into long-term contracts. The politics here are fascinating, take this statement from the Chair of the Bonneville County Republicans.

Don Schanz, chairman of the Bonneville County Republican Central Committee, holds a more nuanced view of the proposed amendment. While the Republican Committee has yet to take a position on the proposed amendment, Schanz said it's his personal opinion that Idaho Falls and other power cities should be able to enter power contracts they deem in the best interests of the city.
"That's what you hire bureaucrats for," he said.

As the Post Register explains, long-term contracting capacity is critical for gaining access to low-cost power at opportune times without the expense and time lags of elections. Without the authority, municipal power providers could find themselves at a disadvantage to the states large IOUs that have this privilege and forced to resort to short-term contract positions, which could mean higher rates for Idaho consumers.

Compare this to Montana, where there is no approval process for long-term contracts by members or customers of either IOUs or cooperatives.

ConocoPhillips Fined $69,400 for not complying with the MT RPS standard

The Order was signed yesterday by the commission, and follows almost a 9 month procedural investigation into compliance with the RPS by the PSC.  The relevant PSC docket can be accessed here.

The primary issue for the PSC, was whether the ConocoPhillips Company met the requirements of a "competitive electric supplier" under the MT RPS standard.  The PSC found that they did, as in 2008 they sold almost 138,812 MWh of energy to four industrial customers: Jupiter Sulphur, the Yellowstone Pipeline Company, the ConocoPhillips Pipeline Company, and Stimson Lumber.  As Connco Phillips made little effort to procure 5% of these sales from a renewable source, the MT PSC charged them the applicable administrative penalty of $5.

That is equivalent to the amount energy consumed by about 12,500 Montana homes.  The decision appears to be on the mark, and to my recollection the first time that the administrative penalty for the RPS has been applied. 

"It will literally suck all the energy out of Montana"

MSTI, the Mountain States Transmission Intertie that is, and Bill Gallagher who is challenging incumbent Ken Toole, is against it.  Now, I think there are lots of real arguments against MSTI, but this is just hyberbole that is so far removed from reality, that Bill Gallagher is making the could be chair of the Montana Public Service Commission Brad Molnar look, and i hate to say this, rational. 

The quote is from Emily Ritter's Montana Public Radio feature interview last night of both Toole and Gallagher, and comes in the context of Mr. Gallagher's concern that MSTI will raise rates for Montanans.  

For those of us that are familiar with the physics of the Montana electrical grid, it is clear that MSTI will not suck all the energy out of Montana.  Here is why:

1. Montana has about 5500 MW of generation capacity
2. MSTI only has a capacity of 1500 MW (From NWMT's website)
3. 1500 is less than 5500 => MSTI can not suck all the energy out of Montana. 

Caveat: I did not take the time to isolate the quantity and than subtract generation that is not in WECC, but in Montana.

Mr. Gallagher is also concerned that Californians will be able to bid against Montanan's for this energy.  This is also impossible, as MSTI stops in southern Idaho.  From there, there is little or effectively no capacity to move power to California.  Which means, if anything, Montanans would be competing with Idaho for our energy and that may be a good thing for Montana as Idaho pays less on average for energy than we do in Montana (keep in mind power can flow both ways on electrical transmission).

Idaho: $56.9  per MWh
Montana: $77.2 per MWh

Moving forward, I actually think the market impacts to Montanans from new transmission are really important and need more substantive analysis.  As a first step, maybe those running for elected offices could commit to doing just that.

NrothWestern Energy has filed to include Mill Creek in the "rate base"

The full press release is available from NorthWestern Energy here.  The links are still broken for the filings, but except some analysis once they are available, as i know a lot of folks are watching these rates closely to see what the cost will be to regulate wind and load in Montana and how NorthWestern Energy plans to operate the facility.  

Here is how NorthWestern Energy is describing their request:

Butte, Mont. – Oct. 12, 2010 – NorthWestern Energy’s (NYSE:NWE) Mill Creek Generating Station will begin serving Montana electric customers by January 1, 2011, prompting the company to file an application to include it in energy supply rates on an interim basis until the actual revenue requirement is approved.     
 
The 150-megawatt natural gas fired plant is the first newly constructed facility to be approved under the law which allows public utilities to obtain “preapproval” of electric generation resources prior to acquisition, or in this case, construction.  The Montana Public Service Commission approved in part the preapproval application in May 2009 with the requirement that the company submit a compliance filing within 90 days after the plant is placed into commercial operation.  The compliance filing will be used to determine the plant’s final revenue requirement.  

Update: The AP is reporting that the request will increase rates for a consumer by $4.5 a month. 

What does Judith Gap Actually Cost?

There seams to be some ambiguity about how much Judith Gap, which provide about 8% of NorthWestern Energy's annual needs, actually costs. 

Mike Dennison, in his profile today about the PSC races, pegs it at between "$40 to $50 per megawatt hour, including power that balances intermittent wind power".  Commissioner Toole says it is "$39.48 per MWH (this includes the cost of "regulating")", and Travis Kavulla thinks it costs "double the market price", which, at the least, is greater than $70 per MWh.  

That's a pretty big spread and a big deal for Montanan's, as a change in $5 per MWh represents $2.25 million in value.


Fortunatley, every month NorthWestern Energy is required to file a Monthly Supply Tracker which shows the cost they are paying for each resource for that month, and its projected forward expenses for a year.  Based on the lasted tracker, filed on 9/15/2010, NorthWestern Energy is projecting to pay $14,048,421 for an estimated 476,592 MWh from Judith Gap.  Or, $29.48 per MWh. 

Now, this price does not include the cost of integration or balancing.  However, under guideline determined in previous dockets, NorthWestern Energy has assigned 91.23% of  the cost of these services for all the wind plants on its system to Judith Gap (See NorthWestern Energy's response to MCC10, D2010.7.77)  These costs are projected to be $3,857,145.80 for effectively the same time period as above.  Which amounts to a cost of integration of  $8.10. 

Bottom line: Judith Gap $8.10 (integration) + $29.48 (energy) = $37.58 per MWh

Caveat to the above:  NorthWestern Energy, in their 2009 Resource Procurement Plan, describes the tracker as not being inclusive of "payments or reimbursements to Invenergy under terms of the long-term purchase power agreement. These items include property taxes and impact fees" (p.2 Chapter 3)  Given this statement, the tracker costs may need to be increased to cover property taxes from the facility (I would estimate around $1 million), and other soft costs.  Given the inclusion of these costs, I would suspect Commissioner Toole is right on the money. 

Travis Kavulla's Attack Ad: false (Part II)

The blog got a lot of activity after the previous post about Travis Kavualla's attack ad, and i suspect that Travis' google alert has directed him to the site.  So, now that i have your attention, let's get to the real meat of the problem with Travis' ad.

Your second claim,   "And he voted to force your power company to spend double the market price to buy renewable energy or credits".  First, I doubt this would survive a complaint to the Commission of Political Practices without even a date to reference Don Ryan's purported vote or the bill number.  But for the purpose of argument, and please correct me if I am wrong, the reference was probably to the MT Renewable Portfolio standard (RPS) which mandates that regulated utilities (NorthWestern Energy, MDU, and apparently the City of Great Falls) purchase a portion of energy from renewable energy products. 


Ok, so does the RPS standard require utilities to buy energy at double the market price?  Travis offers two links, which i have pulled and posted for everyone's convince, that are apparently related to his claim.   

1. http://ferc.gov/market-oversight/mkt-electric/northwest.asp (This link was slightly modified to work), referred to as "link 1"

2. http://www.psc.mt.gov/eDocs/eDocuments/pdfFiles/D2010-7-77IN10080634144TA.pdf , referred to as "link 2"


As Travis did not provide page references or any analysis, we are left to wade through the data to provide the substance for his claim (Travis consider this an open offer to provide your analysis). 

First, Travis's link to the MT PSC Docket (Link 2) is about rates for qualifying facilities, which is the rate approved by the MT PSC for such faciliteis (wind, biomass, etc.) to be paid if they elect to sell power to either of the state's regulated utilities.  Oddly, these facilities are not part of the MT RPS standard, so I am not sure how their rates (at least on face) relate to the rate that NorthWestern Energy or MDU pays for energy from RPS facilities.
 
Also, to the extent the rates are related, they are forward projections and do not reflect the actual rates NorthWestern Energy has paid for RPS energy, and as Travis' claim was past tense, I am going to limit my analysis to that world. 


Thanks to Commissioner Toole's op-ed the actual rate that NorthWestern Energy pays is known, and it is .38 cents.  With that, we can use link 1 to compare that to historical market rates, as described by FERC, to the price that NorthWestern Energy has paid for it's RPS Energy. 

See chart.

Now, i read that chart to show an average rate of about $40 per MWh over the last year, with some interesting spikes and valleys.  For arguments sake, lets actually call it an average of $30 per MWh, which makes it cheaper than wind.  We are also looking at a selective period of low prices.  See the chart in the upper right for market prices during periods of greater economic demand (they average above $60 per MWh during 2007-2008).


My call from Travis' information?  That the MT RPS standard has resulted in NorthWestern Energy paying about an equal amount for energy from renewable as power from the market.  I actually think the Montana RPS has saved Montana Consumers money, but I will not ask for you to believe an anyomoys blogger until I take the time to throughly prove my case. 

Travis Kavulla's Attack Ad: false

One of the primary reasons I started this blog, was to shed light on blatantly inaccurate information about energy in the Inter-mountain west.  The hope is that the discourse on energy policy would shit from one of rumor, to one of information that would, in the end, produce better policy results for Montanans.

It is in that vein that I am calling out Travis Kavulla.   The ad, which Travis says is running in Great Falls claims that  "As a State Senator Ryan Voted to Continue Deregulation".  Supporting this claim is background text that reads: "Montana Legislature, 60th Session; 4/19/2007 D. Ryan, Nay". 

Regardless of what the Commissioner of Political Practices might say, I think it would be at least fair for Travis to provide the reference to the bill that Mr. Ryan voted against.  And, assuming that the bill in question is HB 25, you can not, Mr. Kavulla, credibly say that Mr. Ryan's "nay" was a vote to continue deregulation. 

HB 25 is certainly an effort to reverse deregulation by allowing NorthWestern Energy and others to own generation assets. However, a nay vote is not a vote to continue deregulation.  Just like, and i know this may be difficult for someone who went to Harvard and wrote for the national review, being a republican does not make you opposed to say, truth.

Opinion Pages are alive with Energy News

First, Commissioner Ken Toole's Guest editorial in the Missoulian, helping to demystify the cost of electrical rates. 

"To understand prices you have to compare either all future power options or all existing power sources. The problem with looking at future costs is that they are estimates and the numbers are often wrong. So, for example, if we look at recently purchased sources of power in NorthWestern Energy we see the following:
■ Colstrip Unit 4: $54.69 per MWH;
■ Judith Gap Wind Farm: $39.48 per MWH (this includes the cost of "regulating"); and,
■  Energy conservation programs: $4.80 per MWH."

Second, TransCanda's John Dunn (director for their DC project, Zephyr and Chinook) in the Billings Gazette clarifying that they are still working to build Chinook.  

"This is not the case. TransCanada continues to pursue the Chinook project. The $3 billion, high-voltage power line, proposed to ship 3,000 megawatts of wind energy from wind-rich Montana to markets in California, Nevada and Arizona, is currently conducting an open season in which companies can bid for space on the line until Dec. 16."


Third, Rep. Bob Lake again in the Missoulian urging folks to oppose EPA efforts to regulate emission from Biomass Facilities. 

"The bottom line when it comes to this issue is that we need to make the best we can out of a bad situation. Congressman Denny Rehberg as well as Sens. Max Baucus and Jon Tester have signed onto letters opposing the woody biomass provision in the proposed EPA rule. I urge you to call and ask them to ensure that this rule is not approved with the biomass provision included"