Northwestern Energy and an irrigation district seeking to build a hydroelectric facility scrapped over the price of power during a hearing Montana’s utility board conducted this week.
Northwestern, the largest monopoly utility operating in Montana, is at odds with the Greenfields Irrigation District over a nearly 40-page purchase agreement NorthWestern filed with state regulators earlier this year.
Greenfields Irrigation District, which distributes water to more than 500 irrigators across a 93,000-acre portion of central Montana’s Sun River Basin, argued during a hearing before the state’s Public Service Commission that NorthWestern’s proposed contract will stifle competition for power generation by making projects too risky to secure financial backing. Without revisions to the contract outlining how much would-be project developers will be paid for the power they produce, loans will be near-impossible to secure, argued GID attorney Lowell Chandler.
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GID wants to put turbines in an existing dam in order to generate up to three megawatts of electricity and help fund upgrades needed to keep the nearly 100-year-old district operational.
NorthWestern said its proposal will ensure that it’s paying competitive electricity prices, which will benefit the hundreds of thousands of utility customers it serves in Montana. It also argued that it has plenty of generation in the hopper and it shouldn’t have to pay small electricity generators for power it doesn’t need.
The parties laid out their positions during a quasi-judicial hearing that started Tuesday and continued through Wednesday morning. The PSC, the five-member elected board established to balance the financial health of investor-owned utilities with the interests of its customers, is expected to decide the issue next year.
Many components of the power purchase agreement in question are governed by the Public Utility Regulatory Policies Act, or PURPA, a law Congress passed in 1978 to increase grid reliability and introduce more competition in energy markets dominated by monopoly utilities.
Chandler said that the commission’s role is to act as a “neutral arbiter†of PURPA to ensure that NorthWestern will sustain a degree of competition from small power generators.
“You must decide whether to encourage that competition, as PURPA requires, or to defer to NorthWestern’s proposed [pricing] methodology that will all but eliminate that competition and give NorthWestern total control over generation in Montana,†Chandler said.
One of the biggest points of contention in NorthWestern’s proposed contract relates to how it calculates its “avoided cost of energy†— the amount of money the utility wouldn’t have to spend on power from other sources by virtue of having an established contract with a small power producer.
NorthWestern argued that the pricing structure should be based on the price regional utilities pay merchant power generators for electricity on a near real-time basis to reflect market prices.
NorthWestern also argued that it shouldn’t have to pay GID an additional amount for its ability to serve as a “capacity†resource, or a generator that can add electricity to the grid on an as-needed basis to accommodate spikes in usage.
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Public Service Commission approves NorthWestern Energy rate hike
After at least 20 commenters urged the Public Service Commission to deny an electricity and natural gas rate increase, commissioners approved a 28% surge in rates for residential consumers.
“When NorhtWestern added the Yellowstone County Generating Station to its portfolio and added additional shares of Colstrip to its portfolio, avoided costs went down,†NorthWestern attorney Ann Hill told the commission. “NorthWestern has lowered its avoided cost of capacity and that should be reflected in the tariff rates.â€
Chandler countered that eliminating a more predictable pricing structure is part of NorthWestern’s deliberate attempt to stifle competition in an industry the utility already has a stranglehold over. GID division manager Erling Juel testified that an established pricing framework to govern the payment structure over the life of the 20-year contract creates something that should be desired by all parties — certainty. Having a pre-established pricing structure in place will protect NorthWestern and its customers from market volatility, Juel argued.
The parties also disagreed over how upgrades in transmission infrastructure should be allocated between them. NorthWestern argued that GID should bear some of the costs associated with those investments, while GID said any outlay it provides for network upgrades should be refunded to them in order to establish consistency with how NorthWestern treats larger power producers.
Each party will have an opportunity to submit two more rounds of their arguments to the commission in the coming months.
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