BEFORE

THE PUBLIC SERVICE COMMISSION

OF THE STATE OF MONTANA


*****


IN THE MATTER OF NorthWestern
) REGULATORY DIVISION
Energys 2015 Electricity Supply
)
Resource Procurement Plan

) DOCKET NO. N2015.11.91


COMMENTS OF THE MONTANA ENVIRONMENTAL INFORMATION CENTER

The Montana Environmental Information Center (MEIC) submits the following
comments on NorthWestern Energys 2015 Electricity Supply Resource
Procurement Plan.
Planning Process

MEIC appreciates the opportunity to comment on NorthWestern Energys

2015 Resource Procurement Plan. MEIC is a member of the Energy Technical

Advisory Committee (TAC) and has participated in NorthWesterns resource
planning process for several planning cycles. The 2015 planning process has
demonstrated to us the need for changes and improvement to the publics
opportunity to comment and engage in the planning process. Additionally, the
Commission should review the current planning rules in ARM 38.5.8201 and
determine if the current rules are still relevant given NorthWestern Energys shift to
almost completely vertically integrated utility following the purchase of the hydro
system from PPL.

There are important changes that should be made to improve the

opportunity for the public and Commission to participate in NorthWesterns

resource planning process prior to its formal filing at the PSC. The current rules
acknowledge the importance of public involvement but there is limited opportunity
for diverse stakeholders to participate in the planning process prior to the final plan
being filed with the Commission. MEIC participates in the TAC assembled by
NorthWestern and acknowledges and appreciates the opportunity to provide input
to the utility through that committee. In past planning cycles, NorthWestern
regularly convened the TAC on a monthly basis prior to its submittal of the resource
plan. During the development of the 2015 Plan, there were only five TAC meetings.
Since the TAC serves as the primary forum for stakeholder involvement with
planning preparation there should be at the very least, more frequent meetings.
More importantly though, the planning process should be improved to increase
public and Commission involvement. Increasing the planning cycle from every two
years to every three years is an important first step to facilitating more stakeholder
and public involvement and engagement. The current planning process and limited
public involvement are incongruent with a plan that is intended to be a long-term
vision.

There were several recommendations for potential changes to NorthWestern

Energys planning process and rules provided in Graceful Systems, LLC final report
to the Commission in Docket# N2012.5.56. We recommend the Commission and
NorthWestern review those recommendations in the context of NorthWesterns
changing portfolio and move to becoming a more vertically integrated utility with
the purchase of the dams. It is also critical that the planning rules acknowledge the

importance of energy efficiency as a resource similar to supply side resources in

NorthWesterns portfolio.
Economically Optimal Portfolio/Gas-Fired Resource Strategy

NorthWestern Energys Economically Optimal Portfolio (EOP) includes

multiple gas-fired resources of different sizes and technology types phased into the
portfolio at different times. The purpose of these gas plants is to provide capacity
and resource adequacy that NWE determined it will need due to certain changing
conditions in the Northwest over the next decade. Rather than analyzing the costs
and risks of relying on other resources in the region to continue to provide capacity,
NorthWestern assumes that it will need to supply all of its customers capacity
needs and used it as an assumption in the PowerSimm model. NorthWestern Energy
constrained the model based on an assumption of its need for capacity without
analyzing viable alternatives to meeting capacity needs by other means.
NorthWesterns limited economic analysis of gas resources is also constrained by
only a high level analysis of natural gas transmission infrastructure costs. Without
a more detailed analysis, it is difficult to determine whether the EOP truly minimizes
costs to meet customers future needs.

We also have concerns that a portfolio that increasingly relies on gas-fired

resources is shortsighted and is not realistic about the inherent volatility of gasfired resources. We understand that Northwestern is concerned about the risks
associated with continuing to rely on market purchases for capacity, resource
adequacy, and reliability. We also acknowledge that there are changes occurring
across the energy system in the Northwest that could have impacts on the cost and

risk of relying on market purchases. But, we believe that exchanging the risk of
market purchases for the risk of natural gas fuel prices is imprudent because it
ignores other alternatives that could be much lower cost and risk in the long run.
One of these alternatives, demand response, is identified in the Northwest Power
Planning and Conservation Councils 7th Power Plan as the least-cost strategy for
the regions utilities to meet winter peaking capacity needs. We will go into more
detail about demand response opportunities later in our comments. We are
concerned that the EOP with a focus on developing gas resources ignores demand
response strategies and other alternatives that are a less expensive, more
sustainable, and less risky investment for Northwestern and its customers.

Current low natural gas prices have not reduced the volatility associated with

its fuel costs. Northwestern must weigh this and other risks when forecasting longterm economic impacts to ratepayers, including future state and federal regulations
aimed at reducing climate change emissions and water and air pollution from
natural gas production. Natural gas has many end uses and is susceptible to extreme
weather events. These factors have contributed to natural gass historic price
volatility. These risk factors are only going to intensify in the future as more utilities
invest in new natural gas power plants during this period of low prices. The natural
gas prices at the Henry Hub Terminal between 2002-2014 from the Energy
Information Administration displayed below illustrate the extreme volatility of
natural gas prices over time.

FIGURE3. Natural Gas Spot Prices*, 2002 through 2014

14
12

$/MMBtu

10
8
6
4
2
0

2002

2004

2006

2008

2010

2012

2014

For more than a decade, U.S. natural gas prices have been subject to significant volatility, which can harm consumers and the economy.
*At the Henry Hub Terminal in Erath, Louisiana.
SOURCE: EIA 2014F.

Natural gas price volatility can have a negative effect on

In the past, price volatility has made some power
the economy, consumers, and the environment. For example,
producers cautious about relying too heavily on natural gas.
As more natural gas is burned for electric use, competing uses such as home
elevated natural gas costs contribute to higher electricity
Yet most
utilities have typically responded to periods of low
prices by investing in new natural gas power plants and using prices, especially in regions heavily reliant on natural gas.
heating and transportation could lead to higher prices for natural gas for electricity.
In New England, a region that generates 46percent of its
existing ones more frequently. For example, nearly 187 GW
electricity from natural gas, wholesale electricity prices are
of natural gas capacitymore than 40percent of the current
closely linked to the price of natural gas (ISO New England
U.S.
fleetwas
added
between
2000
and
2003,
when
natural
Also, with increasing natural gas exports overseas, domestic natural gas prices could
2014). When natural gas prices spiked in January 2014,
gas prices were near historic lows (EIA 2013a). Since 2009,
wholesale electricity prices in the region also jumped to
when prices began to fall again, another 45 GW of natural
increase. These are all factors that increase the uncertainty and risk associated with
nearly $100 per megawatt-hour (MWh) (ISO New England
gas capacity has come online, and an additional 48 GW of
2014). These costs are then passed on to consumers. NStar
capacity is under construction or planned through 2020
a portfolio that relies heavily on gas resources.
(SNL 2015; EIA 2013a). This shift toward greater dependence and National Grid, the two largest electric utilities in Massachusetts, recently announced rate increases of 29percent and
on natural gas for power during periods of low prices can
While carbon dioxide emissions from burning natural gas for electricity can
exacerbate the impact on consumers and the economy when 37percent respectively, citing natural gas prices (Newsham
2014a; Newsham 2014b). Rate increases of this magnitude are
prices spikehigher.
be less than from burning coal, burning natural gas still produces CO2 emissions.
Although the recent increase in U.S. shale gas production particularly burdensome to families on fixed incomes, and the
has resulted in lower natural gas prices, it has not eliminated impact is even greater on families who heat their homes with
Compared with grid operational and management alternatives that do not produce
natural gas.
price volatility. For example, a cold wave that began in
In addition, higher natural gas prices could lead elecDecember 2013, caused by a southward shift in the North
tricity
generators to shift from gas back to coal, undermining
Polar
Vortex,
resulted
in
record
low
temperatures
that
any CO2 emissions, natural gas is a more carbon intensive and risky investment.
efforts to reduce carbon emissions in the process. Evidence
extended into March 2014. High natural gas demandfor
of this in the short run appeared in 2013, when higher gas
electricity
and
heating
purposescombined
with
pipeline
These alternatives include improved weather forecasting and shortening dispatch
constraints and irregularities between the power and heating prices resulting from responses to several particularly severe
cold snaps led utilities in some regional markets to ramp
markets resulted in record-high delivered natural gas prices
schedules. Each of these alternatives can improve flexibility of resources, balance
down natural gas plants and ramp up coal plants. Fortunately,
across much of the Northeast and parts of the Midwest. On
the rapid addition of wind and solar resources to the power
January 7, 2014, average delivered natural gas prices spiked
supply with demand, and allow the grid to respond more quickly to rapid changes in
system between 2008 and 2013 helped reduce the magnitude
from $35 to $40 per MMBtu in the Northeast, 10 to 12times
of this 2013 coal rebound (EIA 2014a), clearly demonstrating
higher than average prices for the prior several years (Rose
supply from variable resources. A recent paper titled Grid Flexibility: Methods for
both the benefits of a more diversified electricity mix and the
etal.2014).

The Natural Gas Gamble

13

Modernizing the Power Grid outlines some operational and grid management
techniques that can improve flexibility of the grid at lower costs. 1
Energy Efficiency and Demand Side Management

NorthWesterns 2015 Plan anticipates 6 average megawatts (aMW) per year

of cost-effective energy efficiency savings available. This Demand Side Management

(DSM) acquisition goal was based on a 2009 energy efficiency assessment. We are
pleased that NorthWestern has contracted to have an updated Energy Efficiency
Potential Assessment completed in 2016. We encourage the utility to work closely
with the ETAC group as well as the Commission and the public to get input on the
results of that assessment.

Although new avoided costs are likely to be lower than those applied in

previous planning cycles, we believe NorthWestern should prioritize energy

efficiency above new natural gas-based supply side resources, as it has proven to be
the lowest cost resource available. As the 2015 Plan indicates, NorthWestern has
exceeded its annual DSM goal and spending has been significantly less than the
budgeted amount. This means that energy efficiency programs are delivering more
savings at less cost and greater savings can be achieved within the budgeted
amount. We do have concerns that the anticipated DSM budget and associated DSM
acquisition drop significantly in the 2024-2025 tracker year. We encourage the
utility and the Commission to fully value energy efficiency and work together to
remove existing regulatory disincentives for acquisition of efficiency savings.
Revenue decoupling is one possible regulatory mechanism that can remove the

1 Aggarwal and Orvis. Grid Flexibility: Methods of Modernizing the Power Grid. March 2016.

throughput incentive to increase energy sales. The recent elimination of the Lost
Revenue Adjustment Mechanism as well as anticipated low avoided cost calculation
amplifies the need to eliminate barriers to energy efficiency acquisition. We
strongly encourage NorthWestern and the Commission to work with stakeholders
and the public to ensure robust energy efficiency acquisition is guaranteed in future
planning cycles.
Demand Response

The Northwest Power Planning and Conservation Councils (Councils) 7th

Plan identifies cost-effective demand response as the least cost solution for
providing peaking capacity in the Northwest. NorthWesterns 2015 Plan includes
only a cursory analysis of demand response resources available to meet its capacity
needs. Because NorthWestern identified meeting capacity as a top priority in this
planning cycle, we encourage a much more in-depth cost-effectiveness analysis of
demand response resources available to meet these capacity needs. The
Economically Optimal Portfolio identified in the 2015 Plan includes building new
gas resources to meet capacity needs, a costly undertaking that can take years
longer than anticipated. Demand response can be deployed sooner and in quantities
better matched to peak capacity needs than building new gas resources. Demand
response can also avoid the need to expend significant capital on new supply side
resources in order to meet capacity needs that occur in only a handful of hours per
year.

NorthWesterns July 2015 survey of 54 large account customers to determine

their willingness to participate in demand response programs gives some insight

into how much load from these customers could be reduced during peak load
periods. This information is not, however, demonstrative of the total amount of
demand response available from residential and small commercial customers. The
2015 Plan focuses on qualitative limits to demand response savings available to
NorthWestern from each sector. These limits include low penetration rates of
electric water heaters and electric space heat in NorthWesterns service area.
NorthWesterns end-use studies show a 3% penetration rate for electric space heat
and a 21% penetration rate for residential electric heat. This is compared with the
Councils analysis in the 7th Plan that shows a 33% penetration rate for residential
electric space heat and a 57% penetration rate for residential electric water heat.
Most of the lowest cost demand response savings the Council identified in the 7th
Plan come from these two residential consumption categories. We understand that
NorthWesterns lower penetration rates functionally limit some potential savings
from demand response programs focused on electric heat and electric water
heaters. But, these limitations do not mean that there are not any cost-effective
demand response savings available on NorthWesterns system. The low cost of
demand response resources combined with their ability to reduce peak capacity
needs makes them an extremely valuable resource worthy of a more in-depth
economic analysis. NorthWesterns 2015 Plan lacks this analysis, despite their
description of this plan as a capacity first plan. NorthWestern should model
demand response resources from the residential, commercial, and industrial sectors
to determine peak capacity quantities available and at what price. These results
should be compared against the cost of gas resources in the current EOP.

NorthWestern has not performed this quantitative analysis and therefore should
not rule out demand response as a cost-effective resource strategy in its 2015 Plan.
Renewable Energy

As it has done in previous plans, NorthWestern continues to undervalue the

contribution of additional supply side renewable energy resources to its portfolio.

The plan also continues to establish the resources required under the Renewable
Portfolio Standard as the ceiling for new renewable energy resources.
NorthWestern claims renewable resources (primarily wind) have a lack of capacity
contribution. However, Montanas wind resources are well known for having high
and steady capacity factors during the winter months. Winds intermittency does
not equate to zero contribution during all peak periods. Similarly, utility scale solar
PV can also contribute to summer peak despite also being an intermittent resource.
The Plan also omits thorough analysis of additional measures that can help integrate
additional quantities of renewable energy on NorthWesterns system. These include
storage technologies, system upgrades, and smart grid devices and applications.

Also omitted from the Plan is a detailed discussion of steps NorthWestern

will take to comply with the Community Renewable Energy Project (CREP)
requirements. The RPS requires NorthWestern to have secured around 65.4 MW of
capacity from CREP eligible projects in 2015. Currently, NorthWestern admits to
only having about 25 MW of CREP capacity and being out of compliance with the
law. The 2013 RPP detailed specific steps NorthWestern had taken to comply with
CREPs. An account of these efforts from the past two years is missing, making it
difficult to assess what compliance efforts have taken place. Regardless of any

challenges NorthWestern may or may not have faced in securing CREP qualifying
projects, the lack of a roadmap or detailed discussion for how to come into
compliance is disturbing and without justification.

Additionally, we appreciate NorthWesterns openness to participating in

discussions about joining organized regional markets such as the Energy Imbalance
Market (EIM). We encourage continued analysis of the benefits and costs associated
with the regional EIM that continues to gain more participation. As more of the
regions utilities join and are active in the EIM, we believe there could be
tremendous benefits to NorthWestern and its customers in joining.
Colstrips Future and Modeling Scenarios

In November 2015, the University of Montana Bureau of Business and
Economic Research (BBER) released a study commissioned by NorthWestern aimed
at estimating potential impacts of the Clean Power Plan on Montana. The report is
titled The Economic Implications of Implementing the EPA Clean Power Plan in
Montana, and NorthWestern included it in its entirety as reference within the RPP
(Volume 2, Chapter 4, Number 2).2 One of the key findings is the claim that The size
of the required CO2 reductions imposed by the Clean Power Plan, and limited
options available raise the prospect that compliance will result in the complete
closure of the Colstrip generating station, (page 3). Regarding this closure the
report states, It will also require significant new investment in replacement
generation assets, as well as in the transmission system improvement necessary to
support them, (page 2).

2 http://www.northwesternenergy.com/docs/default-source/documents/defaultsupply/plan15/volume2/um-bber-report

10

In November 2015, NorthWestern requested a federal court stay EPAs

implementation of the Clean Power Plan.3 In that request NorthWestern made clear
it sees a potential future in which Colstrip is retired in its entirety by 2022, It is
clear that operation of the Colstrip Plant cannot continue as it exists today under the
Final Rule, regardless of whether Montana adopts a rate-based or mass-based
program. To achieve compliance under a rate-based program, Colstrip must cease
operation in 2022. To achieve compliance under a mass-based programColstrip
would need to spend over $100 million each year to operate at 2012 levels by
2030, (pages 16, 17). The request then includes a detailed list of predicted harm for
NorthWestern customers, including The premature shutdown of the Colstrip Plant
will increase transmission costs for NorthWesterns customers, (page 18) and The
premature shutdown of the Colstrip Plant will increase the cost of power purchases
for NorthWesterns Montana customers, (page 19).
However, despite the results of the NorthWestern-commissioned BBER
report and the companys own claims in court filings against the Clean Power Plan,
the RPP being presented here states, Colstrip is assumed economically viable under
the modeling scenarios, (page 5-2). Throughout the RPP this assumption continues,
some examples of which can be seen in Figure 12-1 and 12-2 on pages 12-8 and 129 respectively in which Colstrip Units 3 and 4 are seen operating through 2034.
NorthWesterns detailed claims about potential effects of a Colstrip closure in
its request for stay of the Clean Power Plan demonstrate the company has given

3
http://www.chamberlitigation.com/sites/default/files/cases/files/2015/UARG,%20et%20al.%20supplemental%20declarati
ons%20in%20support%20of%20motion%20for%20stay.pdf

11

significant consideration to this potential future. The inclusion of the BBER report as
supplemental material in the RPP would also indicate NorthWestern takes its
findings seriously, presumably including its claims about a Colstrip closure. Both the
BBER report and NorthWesterns filing against the Clean Power Plan came in
November 2015. The RPP was filed with the Commission on March 31, 2016. This
makes the exclusion of the Colstrip closure possibility from the Plans modeling
scenarios a significant deficiency of the Plan. It also raises questions as to why this
scenario was not modeled and presented to the Commission when the company in
other venues has explored it in detail.
Similarly there are other issues related to the Colstrip plant that were
omitted from the analysis in the RPP. For example, the closure of Units 1 and 2 has
been subject to much speculation and analysis. NorthWestern failed to consider its
April 2015 analysis that considered the impact to the transmission system if
Colstrip Units 1 and 2 were closed.4 This study was completed prior to the submittal
of the RPP to the Commission yet was not considered in the RPP. Furthermore, no
analysis was provided on how closure of a portion of the plant may impact the longterm economics of the remainder of the plant.
The RPP also failed to mention how the price of mined coal could affect the
economics of the Colstrip plant. The price of coal for the Colstrip plant averages
$25.64 per ton. That price is expected to be $23.60 in 2016. (Table 4-2 Colstrip Coal
Price Forecast). NorthWestern, as well as the other owners of the Colstrip plant
have failed to control the price of coal from the Rosebud Mine owned by Western

4 NorthWestern Energy, EPA 111-D Consideration Retirement of CS units 1 & 2. Prepared for Regional Electric Transmission
Planning. April 2015.

12

Energy. Consumers are stuck paying a bill for that coal that is dramatically greater
than market prices. Powder River Basin (PRB) coal for the week of August 12, 2016,
sold for $8.70 per ton. According to the Energy Information Administration, PRB
coal has not made it above $15 per ton since at least January 2011 and has been
steadily declining since then. NorthWestern overpays for the coal used at the
Colstrip plant and a better deal may be available with a different coal provider that
would directly benefit ratepayers.
Finally, NorthWestern assumes that it will not need to install selective
catalytic reduction (SCR) technology on Units 3 and 4 at any time during the 20-year
planning horizon for compliance with the reasonable progress requirements of EPA
Regional Haze rule. Other Colstrip owners have projected otherwise. Puget Sound
Energy, in its 2013 Integrated Resource Plan mid-cost scenario, analyzed the
installation of SCR on Units 3 and 4 by 2027. Pacificorp, in an Oregon utility
commission proceeding, recently estimated Units 3 and 4 would need to install SCR
technology by December 2023. The other owners of Colstrip are considering the
installation of SCR within the 20-year time horizon. NorthWestern should as well.
Conclusion
The Commission should review its rules and require an improved public
process in the next RPP. NorthWestern should better analyze demand management
and the potential changes that closure of Colstrip Units 1 and 2 could have on its
Montana customers. NorthWestern should also analyze the impacts of closing units
3 and 4 within the planning horizon, the increased cost of mining on Montana

13

consumers, the fact that other owners are being required to depreciate their interest
in the facility, and the impact of federal regulations on the plant.

14