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Expanded Renewables, Conservation Outlined in NorthWestern Energy's Default Supply Resource Plan Mark Ohrenschall Con.Web, February 27, 2004

Bigger Role

NorthWestern Energy plans a substantially expanded role for renewables and conservation in serving customers that have not chosen the open power market.

Montana's largest electric utility hopes to finish contracts by mid-2004 to buy power generated from two proposed wind energy projects, one potentially 75 megawatts capacity, the other planned at 50 MW capacity.

These would be the first large-scale wind farms in the windy Treasure State, and would culminate the utility's quest for wind power initiated in 2001. However, an official of one of the wind development companies told Con.WEB of his concerns about NorthWestern's bankruptcy and its ability to make long-term payments.

NorthWestern also wants to boost demand-side management, targeting 5 average megawatts of annual savings beginning in 2006, up from about 2 aMW gained each year now with the state's public-purposes funding.

These are part of NorthWestern's resource acquisition plan for its default supply customers, unveiled in January. This voluminous document shares the utility's vision for what it called "a balanced, reliable, low cost solution to the default supply resource mix."

A total of 150 MW of wind and 5 aMW annually of DSM are included in all four of the utility's preferred default supply energy portfolios, although other baseload and variable load resources would comprise most of the mix. The investor-owned utility wants to greatly lessen its exposure to short-term electricity markets, from which NorthWestern now gets 29 percent of its default power supply.

NorthWestern spokeswoman Claudia Rapkoch described the plan as "a work in progress." It will be scrutinized in coming months by the Montana Public Service Commission, stakeholders and the public, and subject to annual reviews and updates.

Resource Plans for Default Supply

NorthWestern is the designated electricity supplier for the 300,000 residential and commercial customers in its service territory that don't get power from another source. This default supply load ranges from 393 MW off-peak to as high as 1,078 MW at peak times; the 2004 base case forecast for default supply is 653 aMW.

The IOU gets most of its current power supply from PPL Montana, which bought generating plants from NorthWestern's predecessor, Montana Power.

In the default supply resource procurement plan, four scenarios came out as favorites based on low risk and low cost. "All four include 150 MW of wind resource; they vary only in the amount of coal resources (a difference of 100 MW) and dispatchable resources (a difference of 30 MW)," the plan states. DSM at 5 aMW annually also is included in each portfolio.

NorthWestern estimates this plan would acquire power through mid-2007 at an average price of about 3.7 cents per kilowatt-hour to 3.8 cents/KWh, "but with significantly less market risk. Post July 2007 costs will depend on the replacement cost of the current PPL Montana contracts."

This planning document represents "a starting point for public discussion," said NorthWestern chief operating officer Mike Hanson in a statement.

"What we're looking for is feedback that says, 'Yes, this is the right way to go,' or, 'No, here are some other options for you to consider,'" said Rapkoch.

The PSC is planning meetings around the state, to discuss the plan and gather comments. Commissioners also will make their own thoughts known, although commission approval of the plan is not required. PSC rate analyst Will Rosquist said NorthWestern would likely seek endorsement of power contracts stemming from the plan. Rapkoch confirmed the utility's intent to bring agreements to the PSC.

Bankruptcy court approval would be required for any contracts, but, she said, "We don't anticipate any difficulties with the bankruptcy court" in that regard.

Wind Power

One of NorthWestern's first expected actions is contracting for power from two proposed wind projects, one in central Montana, the other in southwestern Montana.

These ventures were selected by NorthWestern through a wind power solicitation issued in late 2002; a previous ill-fated request for wind proposals, launched in mid-2001, resulted in a canceled power-purchase agreement after the PSC questioned how the utility selected 150 MW proposed by Montana Wind Harness (see Con.WEB, Sept. 2003, for more on this wind saga and NorthWestern's bankruptcy filing ).

Discussions with developers Whitehall Wind and Windpark Solutions America are ongoing and agreements are anticipated soon, Rapkoch. The utility wants to present wind-power contracts to the commission in the first half of 2004, according to its default supply plan.

However, a Whitehall Wind official told Con.WEB he has continuing reservations about NorthWestern's bankruptcy and its ability to guarantee payments for wind energy.

"There are still some contractual issues we need to iron out," said Greg Jaunich, president of Navitas Energy, parent of Whitehall Wind. "Most of them are resting on the fact there's been a material change in NorthWestern's financial condition," with the September bankruptcy filing. "If we're going to make an investment in the Whitehall project, we're concerned who NorthWestern's successor is, how we're going to get paid, and guaranteed how we'll get paid."

He characterized discussions with NorthWestern as "exchanging ideas," and said his company would try to follow the utility's schedule.

Navitas proposes a 50-MW-capacity wind farm near Whitehall, which is some 50 miles east of Butte. Jaunich said his company is "not actively seeking a permit at this juncture," but is monitoring the wind and conducting environmental work.

The proposed project likely wouldn't start operating until at least 2005, "simply because we don't have our [federal] production tax credit," Jaunich said. The 1.8 cents/KWh wind energy PTC expired in December and has not been renewed.

NorthWestern's other planned wind energy purchase would come from a project in Wheatland County between Judith Gap and Harlowton. Windpark Solutions plans a 180-MW-capacity wind farm, built in phases. Rapkoch said the utility is negotiating for power from 75 MW.

Windpark officials could not be reached for comment, but a NorthWestern project summary said construction is hoped to start in fall 2004, with electrons spinning out by 2005.

"Once we are able to bring these contracts to the commission, certainly we'll have better direction on timing and price and when it will actually be available," said Rapkoch.

The expired wind PTC is beyond NorthWestern's control, but "certainly will be a consideration, particularly for cost," she said.

"The only other variable is our ability to bring a peaking facility into our control area. We need that to offset the [variable] wind power," said Rapkoch. NorthWestern lacks such a peaker, but hopes to rectify that with the proposed 54-MW Basin Creek gas-fired plant. "That is critical for bringing any large-scale wind project onto our system."

NorthWestern DSM

The demand side also figures into the IOU's plans for its default supply.

NorthWestern proposes a 5 aMW annual target, starting in mid-2006 after a two-year ramp-up period. It projects an average levelized cost of 1.8 cents/KWh for these savings over 10 years.

This proposal follows a thorough assessment of DSM potential within NorthWestern's service territory, conducted by KEMA-XENERGY.

It found a maximum achievable DSM potential, with 100-percent incentives, of 102 aMW over 20 years. NorthWestern concluded that goal was among the "desirable characteristics" for DSM acquisitions, though the proposed planning horizon covers 10 years. Other key features are "constant and sustainable year-over-year growth in DSM," a "desire to maintain near term default supply rate stability while minimizing long term total costs" and "[r]ecognition that, in fairness to all ratepayers, program participants should share in the cost of DSM measures to the greatest extent possible consistent with achieving plan targets and minimizing loss of cost effective DSM resource."

The utility saved about 2 aMW annually from 2000 through 2002 with its Universal System Benefits programs, funded at 2.4 percent of 1995 electric revenues, as established by the state's electric industry restructuring law. USB-funded initiatives would continue in coordination with DSM programs (and funding) for default supply customers.

"We're committed to the conservation segment of our portfolio," said Rapkoch. "We're in the process right now of building up the department that will manage that function." Program details aren't yet known, but should be more clear by summer, she said.

NorthWestern wants to continue expensing and recovering DSM costs in rates the same year. It proposes a DSM electric default supply tracker, in which rates would be adjusted based on program costs and lost revenues from savings. This would be "quite a bit different" from the USB approach, noted PSC's Rosquist