Every three years our monopoly utility, NorthWestern Energy, is required to submit a detailed plan to the Montana Public Service Commission outlining how it anticipates providing affordable and reliable electricity to the utility’s customers in the future. The utility must conduct an in-depth study of all available resources and model a wide range of scenarios over a 20-year horizon to ensure that it is making decisions in the best interests of ratepayers.
NorthWestern submitted its latest “Resource Procurement Plan” in August 2019, and its conclusions are alarming.
Our utility is planning to more than double its current electrical generation capacity within the next 5 years, despite the fact that demand has been flat, and it owns enough generation to meet average electricity loads. NorthWestern is proposing to build and own capacity to meet the very highest peak demand on any given day of the year, without providing any analysis of the potential benefits of market purchases versus the costs of building, operating, and maintaining owned generation for these very few high-demand days. Not content with owning generation to meet highest peak demand, NorthWestern is also proposing to own an additional 16% “reserve margin” on top of peak demand. Most importantly, it is proposing that all of that new generation be investments in fossil-fueled sources — 4 new natural gas-fired generating plants at the cost of more than $1 billion. All renewable energy resources are rejected as economically infeasible.
Fortunately, the PSC hired an independent consultant, Synapse Energy Economics, to evaluate the resource planning process as well as the modeled resource portfolios. The findings in its report are enlightening — and troubling.
Economists at Synapse identified a number of issues and errors in NorthWestern’s plan. Among the most egregious were flaws in its modeling, which:
• severely undervalued the capacity of wind and solar resources,
• assigned unreasonably high capital, operational, and maintenance costs to solar resources,
• failed to consider solar or wind resources paired with storage,
• failed to model a high-natural-gas-price scenario,
• failed to model risks associated with gas curtailment during winter peak demand, and
• neglected to model a scenario with early Colstrip retirement despite repeated requests to do so.
Synapse found that by severely constraining input assumptions and rejecting inconvenient scenarios, NorthWestern’s modeling was able to conclude that the best way to meet its capacity deficit and ensure resource adequacy is to procure 985 MW of new gas-fired generation. In other words, NorthWestern designed the modeling to reach its desired outcome.
The irony in NorthWestern’s conclusions is that the utility is slated to join the Western Energy Imbalance Market in 2021. As Synapse points out, this regional energy market “allows for more efficient sharing of any needed flexible capacity,” and “the overall need for any one utility to hold a certain level of dispatchable resources is lessened.” And according to the WEIM website, “besides its economic advantages, the EIM improves the integration of renewable energy, which leads to a cleaner, greener grid.” One has to wonder why NorthWestern ignored these cost-saving benefits in its analysis.
As ratepayers, what are we to make of these troubling findings? It appears that NorthWestern is not making decisions in its customers’ best interests. Because it earns a guaranteed return on everything it owns—more than 10% on equity—NorthWestern has an incentive to build and own expensive new generation. Our utility already has the highest electricity rates in our region, and rates would skyrocket if the PSC were to approve NorthWestern’s planned generation expansion.
Moreover, NorthWestern’s plan is sharply out of step with neighboring states, who are making substantial investments in renewable energy because they have found it to be cheaper than new natural gas generation. Although the company constantly touts its commitment to a carbon-free future, it is clearly stacking the deck when it analyzes the cost of new natural gas-fired generation compared to Montana’s abundant renewable resources.
Jennifer Swearingen is a member and former board member of the Montana Environmental Information Center.
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