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.
Respectfully Submitted by
John Hines
Energy Supply Officer
NorthWestern Energy
40 E. Broadway
Butte, MT 59701
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