Most of the Lee Papers in MT covered the story with some variation of this article written by Mike Dennison, which makes two very important points:
"Because of the addition of Colstrip 4 and the Mill Creek plant, NorthWestern's electric supply rates for homeowners are climbing 15.6 percent, to their highest level in more than two years. Residential customers had been paying about 5.4 cents per kilowatt hour and will now pay 6.2 cents per kwh for the supply.
Delivery costs for electricity are dropping slightly, as the result of a complex rate case that the Public Service Commission recently concluded. The PSC granted NorthWestern a slight increase over its July delivery rates, but the final outcome reduced a temporary rate increase enacted at the beginning of the rate case, thus the decrease in supply rates as of Saturday."
Just so we are clear, Colstrip and Mill Creek are increasing rates for Montana Consumers...
In early December, the MT PSC approved a settlement with NWE over matters concerning how they handled the affiliate transaction of Colstrip 4 (which was owned by an affiliate of NWE before being "bought" by the consumer rate-base). In particular, the MT PSC found that NWE had used it's public utility revolving credit line to finance transactions, which is backed by the Montana Consumer, without seeking the MT PSC's approval as required. The matter was finally resolved in District Court, where the settlement was reached.
The Order and settlement provide that NorthWestern Energy will invest shareholder money in three projects:
$500,000 in a 1-MW flywheel demonstration project to help augment their new Mill Creek generation station, and primary frequency regulation resource for load and supply variability
$265,000 in creating a Smart-Grid demonstration house in Helena, that will showcase the potential for new technologies and energy efficiency.
Continued participation and funding of the Pacific NorthWest Smart-Grid pilot, which is a multi-million dollar effort of utilities in the region to test and deploy certain technologies.
Commissioner Molnar dissented on the Order, but did not provide any written dissent explaining his decision. Neither Mike Dennison or any paper in the state picked up the story...
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.
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.
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.
Back in June, NorthWestern Energy released their 2009 Resource Procurement Plan which sets out their prefered energy supply portfolio. These plans are supposed to come about every 2 years, and this was the first one since NorthWestern Energy regained the ability to own generation assets in 2007 from the Montana Legislature (i believe).
Basically the plan is a methodical analysis of where the utility plans to get energy from over the next 20 years. Will they rely on market based purchases? Aquire wind or coal plants? Or build natural gas?
The PSC, as part of the docket, is receiving public comments on the plan. Comments must be e-filed here, by Friday October 1st. This is your chance to tell NorthWestern Energy and the MT PSC which direction NorthWestern Energy should go.
If i have time, i may add some general thoughts about the plan and what I think it means for Montanans. But, i found the following chart fascinating. It shows, all else constant, the adding new wind is the cheapest "Base Cost" portfolio (Portfolios PF11, 52 & 53).
NorthWestern Energy has made the first post hearing filing in the voluminous PSC docket dedicated to determining future natural gas and electrical delivery rates in Montana. The filing is a late filed exhibit which provide the sample calculations for how NorthWestern Energy's revenue would be calculated with decoupling.
I did not have a chance to watch the proceedings in detail, but i got the sense that the PSC was anxious over implementing decoupling during a period of slack consumer demand.
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