What NorthWestern Energy's Supply Strategy Could Mean For Customers
This story was originally published by the Montana Free Press on Dec. 19, 2019.
At a cramped meeting before the Montana Public Service Commission in Helena Dec. 9, a crowd of climate activists radiated suspicion as a bearded economist flipped through a slide deck.
Ben Fitch-Fleischmann, an energy planner for Montana’s largest power company, NorthWestern Energy, was explaining a 300-page plan that analyzes the utility’s options for supplying Montanans with reliable, affordable electricity over the next two decades. While other Pacific Northwest utilities are planning to shut down coal plants, he said, if NorthWestern is going to keep Montana’s lights on without overcharging ratepayers, it needs more fuel-burning power generation — not less.
The activists, convinced that NorthWestern is dragging its heels as other utilities divest from fossil fuels, were there to disagree. Toting signs from a pre-meeting rally in the PSC parking lot, they argued NorthWestern has to get serious about pivoting to cleaner sources — and soon — if the state and world are going to avoid the worst consequences of climate change.
At the front of the room, Montana’s utility commission presided over what was officially a listening session — and unofficially a flash point in a sprawling, highly technical debate over Montana’s energy future.
“I know that if you’re concerned about climate change, you don’t want to hear that gas is the cheapest way to provide energy into the future,” Fitch-Fleischmann told the skeptical crowd. But the reality, he said, is that NorthWestern owns less generating capacity than most of its peers, and so buys more market power, making it vulnerable to a regional power supply crunch as utilities decommission coal plants. His analysis, he added, indicates gas-fueled power plants are likely the best way to fill the gap.
“The key result here is we’re short on capacity today, and the region is increasingly short on capacity,” he said.
“They have no imagination. This is a sham,” said Don Harris of Clancy, one of 40-plus attendees to take a turn at the microphone to criticize NorthWestern’s plan.
The next morning, NorthWestern, which serves 369,000 Montana customers, announced plans to expand its ownership in the Colstrip coal power plant . Pending regulatory approval from the PSC, the company will purchase an additional 25% stake in Colstrip Unit 4 from Bellevue-based Puget Sound Energy for $1, adding to its existing 30% share. In its announcement, NorthWestern officials compared the cost of operating the additional Colstrip generation, an estimated $15 million a year, to the $240 million cost of building equivalent natural gas capacity.
Puget Sound, faced with a Washington state law requiring the utility to eliminate coal generation from its portfolio by 2025, has touted the deal as a major step toward that goal .
“This is what our customers have been asking for,” executive David Mills said in a release.
NorthWestern’s critics would say they’re asking for the same thing, but the company argues that, given its capacity shortage, the Colstrip deal will help keep Montana electricity reliable as the company transitions toward cleaner energy sources. In announcing the deal, the company pledged to reduce the carbon intensity of its generating portfolio to 90 percent below 2010 levels by 2045.
NorthWestern’s energy supply plan, which looks forward two decades and is updated every few years, is intended to serve as a roadmap as the company weighs decisions like the Colstrip purchase, keeping the public, and PSC regulators, apprised of its big-picture strategy.
Photo by Thom Bridge / Helena Independent RecordEnergy planner Ben Fitch-Fleischmann presents NorthWestern’s 2019 Electricity Supply Resource Procurement Plan to the Public Service Commission during a public hearing in Helena on Dec. 9, 2019.
Per Montana law , regulated utilities like NorthWestern are required to “provide adequate and reliable electricity supply service at the lowest long-term total cost.”
The NorthWestern supply plan is reviewed by the utility commission, which will give the company feedback, but won’t explicitly endorse or reject the plan with a formal vote. Commissioners will, however, ultimately vote on specific supply proposals from NorthWestern, like the Colstrip acquisition.
That regulatory power makes the PSC, where all five seats are Republican-held, the pivot point in Montana’s energy politics — the place where elected officials, agency staff, utility representatives, and interested citizens converge to hash out the policy that will drive the state’s energy future.
While global climate warming caused by human activity is still treated skeptically by some Montanans, including at least one current Public Service Commissioner , it is considered scientific fact by 97 percent of active climate scientists, according to NASA .
The accepted science holds that greenhouse gases, most notably the carbon dioxide emitted when coal and natural gas are burned to produce electricity, change the earth’s atmosphere, trapping solar energy, warming the planet, and shifting weather patterns. According to the National Oceanic and Atmospheric Administration , the atmosphere’s current CO2 concentration is 407 parts per million, a 45 percent increase since the Industrial Revolution began in the 1700s.
The 2017 Montana Climate Assessment published by the Montana State University and the University of Montana-affiliated Montana Institute on Ecosystems predicts Montana temperatures will rise by 4.5 to 6 degrees Fahrenheit by the 2040s or 2050s, depending on future greenhouse gas emissions. It also says Montana temperatures could rise by as much as 9.8 degrees by the end of the century.
The assessment says those changes will likely lead to less snowpack accumulation and earlier spring runoff, making less water available for summer irrigation. It also says higher temperatures will likely contribute to worse forest fire seasons.
About 30.9 million metric tons of CO2 from burning fossil fuels were emitted in Montana in 2016, according to the U.S. Environmental Protection Agency . Approximately half that amount is attributable to energy generation. The Colstrip power plant — which transmits much of its output to west coast states — produced 14.4 million metric tons of CO2 in 2016, nearly half the Montana total.
NorthWestern’s Montana energy operation, which currently owns 10.6 percent of Colstrip’s total generating capacity, was responsible for about 3.4 million metric tons of CO2 in 2017 . That includes both the utility’s in-house generation and its market power purchases.
“I can’t keep the lights on without the dispatchable power.”—NorthWestern energy supply director Kevin Markovich
Public pressure on power utilities, legislative mandates, advances in renewable energy technology, and cheap natural gas from North America’s fracking boom are driving Pacific Northwest utilities away from their aging coal plants at an accelerating pace. In addition to Washington state’s anti-coal legislation, adopted in spring 2019, a 2016 bill requires Oregon’s two largest utilities, Portland General Electric and PacifiCorp, to eliminate coal energy imports by 2035 .
By NorthWestern’s count, power companies in the northwest plan to shut down seven coal-fired generating units, totaling more than 3,600 megawatts of generating capacity, by 2032. Among those scheduled closures are two of Colstrip’s four generating units operated by Talen Montana, which accelerated its Colstrip closure timeline this summer, citing the company’s inability to make the units economically viable .
That shift is welcome news for climate-concerned consumers and activists, and an existential challenge for built-on-coal communities like Colstrip, where well-paid jobs at the plant and associated mines drive the local economy .
For NorthWestern energy managers, it’s also a headache.
Inside NorthWestern’s LEED-certified Montana headquarters in uptown Butte, the company’s energy supply operations are managed in a monitor-filled room with a view of the Highland Mountains.
A particularly prominent display shows each of the company’s Montana power plants and their current production, including NorthWestern’s share of the Colstrip plant, its string of hydroelectric dams along the Missouri River, the Dave Gates natural gas generating station in Anaconda, and a handful of wind farms.
NorthWestern energy supply director Kevin Markovich, a clean-shaven Butte native who has worked for the company for more than 30 years, pointed to an adjacent monitor, explaining a circle hovering just off-center of a blue-and-white crosshair. The display, he said, represents the minute-by-minute balancing act by which the company ensures that the power its generators are feeding into its transmission system matches what customers are drawing from the grid.
A key part of his team’s job, Markovich said, is predicting upcoming electricity demand and adjusting the power supply accordingly, either by throttling generators up or down, or by trading energy with other power companies.
Weather, he said, is the system’s biggest demand-side factor. A 1-degree temperature decrease typically increases NorthWestern’s customer demand by 8 megawatts, equivalent to turning on approximately 5,300 standard space heaters.
Photo by Eric Dietrich / MTFPNorthWestern energy supply director Kevin Markovich explains how the company monitors the balance between power generation and customer demand in NorthWestern’s Butte headquarters.
Accordingly, generation flexibility — or “dispatchability,” in utility lingo — is a premium asset in NorthWestern’s power portfolio.
On a per-megawatt basis, renewable energy sources like wind and solar tend to produce power more cheaply than fossil fuel plants because operators don’t have to purchase fuel to run them. But wind and solar production varies based on weather conditions, and operators can’t simply dial up production to meet demand spikes.
As a result, Markovich said, he needs coal and gas generators to augment the inconsistent renewable power that flows into NorthWestern’s grid.
“I can’t keep the lights on without the dispatchable power,” he said.
Renewable energy advocates argue that energy storage technologies like lithium battery banks and pumped hydro reservoirs can even out variable sources by siphoning energy off production peaks and returning it to the grid in the troughs. But Markovich is skeptical that those technologies are mature enough to replace fuel generation.
“The solution is not there yet,” he said.
Hydroelectric facilities like NorthWestern’s dams do allow for some generation flexibility, but their production is vulnerable to droughts and can be limited by other management imperatives, including flood control and environmental streamflow requirements.
“This whole thing seems like we have people screaming at us, ‘There’s a climate crisis — can’t you see that and take it seriously?’ And our response is, ‘There’s a regional power supply crisis. Can’t you see that and take it seriously?’”—NorthWestern Energy planner Ben Fitch-Fleischmann
NorthWestern’s other flexible power source is market power. Market purchases have played a central role in Montana’s energy supply picture since the late 1990s, when NorthWestern’s predecessor as the state’s primary energy utility, Montana Power, sold off its generating assets in its disastrous bid to pivot to the telecommunications sector .
NorthWestern has spent the last dozen years rebuilding its in-house generating portfolio, buying control of its Colstrip generation in 2007 and purchasing the Missouri River dams in 2014. Even so, the utility remains much more dependant on energy markets than its peers. It says it relies on short-term market purchases to cover 46% of its peak energy demand, while most other large utilities in the region can cover their entire peak load between in-house power plants and long-term purchase contracts.
While market power prices have trended lower in recent years as the grid takes on more wind and solar, NorthWestern managers worry that prices are also becoming more volatile, adding risk to the company’s market-reliant position.
“Continuing to assume the market will always be able to provide customers with sufficient electricity at affordable prices is a reckless approach that could have severe reliability and cost consequences,” the company’s supply plan states.
Company officials point to a three-day period this March when prices on its primary energy market, the Mid-Columbia trading hub, spiked as high as $1,000 per megawatt-hour , a level last seen in 2000. The winter price for a megawatt-hour of Mid-Columbia power, roughly enough to power an average American home for a month, is typically closer to $30.
NorthWestern traders had no choice but to buy, Markovich said. The company spent $8.5 million to buy 11,300 megawatt-hours of power on March 3 and 4, it says. In comparison, it had forecast spending $1 million on market power for the whole month.
According to market analysts , the March spike was caused by a perfect-storm confluence of factors: high demand due to cold weather across the Pacific Northwest, plus an explosion that put a Canadian natural gas pipeline out of commission, and maintenance issues at a Washington storage facility that squeezed fuel availability for the natural gas plants that would normally ramp up to help meet peaking demand.
With Pacific Northwest coal plants heading for closure, removing what has been a key source of grid power for decades, Markovich sees the March debacle as a sign of things to come.
“That’s why we’re looking for capacity,” he said.
At the Dec. 9 listening session, NorthWestern economist Fitch-Fleischmann, a 37-year-old who spent a stint surveying roadless areas for the Sierra Club in his youth and joined the company last year, paused as he launched into his slide deck on the plan, momentarily distracted by a “NorthWestern we are watching you” sign in the audience.
Fitch-Fleischmann, his hair pulled back into a man bun, forced a laugh and forged ahead, telling the crowd the state’s energy sector faces not one but two big challenges: climate change, of course, but also the looming power shortage.
“This whole thing seems like we have people screaming at us, ‘There’s a climate crisis — can’t you see that and take it seriously?’ And our response is, ‘There’s a regional power supply crisis. Can’t you see that and take it seriously?’ Fitch-Fleischmann said in an interview. Both those concerns, he said, are worth heeding.
In order to reach energy self-sufficiency, he said, the company needs an additional 725 megawatts of dispatchable generating capacity by 2025. That’s enough to nearly double its current 755 megawatts of peak generation.
Photo by Eric Dietrich / MTFPClimate activists protest before a Dec. 9 meeting in Helena at which NorthWestern Energy presented its 20-year energy supply plan.
The energy supply plan is in large part an analysis about how to fill that gap. At its heart is PowerSIMM, a proprietary modeling software that combines simulated weather conditions, customer demand, generation capacity, and market prices, among other inputs, to produce hour-by-hour predictions of how different generating portfolio scenarios could perform over the next two decades. Running 100 simulations for each scenario, the software gives NorthWestern’s energy planners an estimate of each scenario’s likely cost, reliability, and carbon emissions.
Among the scenarios the plan compares is a no-additional-carbon approach, in which the company keeps Colstrip Unit 4 in operation but doesn’t add any new greenhouse gas-emitting generation as it adds extra capacity, instead turning to wind power balanced with pumped hydro and battery storage. Another scenario fills the gap with natural gas plants. The gas plant scenario, the company’s modeling concludes, is cheaper — by a total of $523 million.
NorthWestern’s regional supply-crunch fears, Fitch-Fleischmann said, are echoed by studies from regional energy planning organizations, including the Bonneville Power Administration and the Northwest Power and Conservation Council.
Given pending coal plant retirements in its Oregon-Washington-Idaho-Montana service area, the NWPCC estimates the annual chance of a power shortage severe enough that utilities must take “extraordinary and costly measures” to avoid blackouts could rise to 17 percent by 2026 , depending on how much new generating capacity is built. The council’s target is 5 percent.
“I see a lot of you shaking your heads at me right now, and saying this is a crazy plan,” Fitch-Fleischmann said at the PSC listening session. “I just want to submit to you that we’re not the only ones finding these results.”
In public comments and interviews over the last month, a range of environmentalists and renewable energy advocates generally acknowledged that the region is facing supply uncertainty as coal plants close. Even so, they universally criticized the logic behind NorthWestern’s proposed response.
“There are competing views about how much capacity is really necessary,” said Jeff Fox, the Montana Policy Manager for nonprofit advocacy group Renewable Northwest.
It makes sense for NorthWestern to explore adding generating capacity, Fox said. However, with renewable technology advancing rapidly, his concern is that a new gas plant could end up outmoded and unprofitable before the end of its expected lifespan — a “stranded asset,” in utility speak — as the cost of alternative energy sources falls. That could put NorthWestern consumers in the position of paying higher rates to cover construction debt for an obsolete power plant.
“If that is the only way we can operate while saving the planet, I would rather have the blackouts.”—Public commenter Brad Stacey, of Plains
Fox and others pointed to research by the Boulder, Colorado-based Rocky Mountain Institute, a pro-renewable think tank that argues clean energy portfolios combining power conservation efforts with wind, solar, and battery storage can serve the same function as gas plants at lower cost. Since 2010, the institute says, clean energy portfolio costs have fallen by 80 percent.
“Right now is a time of incredible dynamic change,” Fox said. “And to be making long-term decisions in this environment should make any prudent planner nervous.”
NorthWestern’s analysis reaches a different conclusion, but environmentalists question the assumptions its modeling is based on. To take one example: Montana Environmental Information Center Clean Energy Program Director Brian Fadie said the plan’s analysis of wind power potential assumes 100-megawatt facilities, while Montana already has several larger wind farms under development .
Renewable energy advocates argue that NorthWestern also neglects other options for addressing the supply crunch, such as looking farther afield for energy trades or paying industrial power customers to rein in usage when supply gets tight.
They also worry that the company’s push to replace energy market reliance with owned generation may not be based solely on what’s best for customers.
As a regulated utility, NorthWestern essentially negotiates the profit margin for large portions of its business in legal proceedings before the PSC, developing rate frameworks designed to give the company fair compensation for its business expenses and provide it with a reasonable profit. However, the way the system is structured, the company earns a return on capital investment in generating plants but merely recovers its costs for market power purchases.
For example, if NorthWestern were to spend $100 million buying market power, its rate structure lets it bill customers to recover those costs. If it were to instead invest the same amount in building a power plant, it would be able to bill for $100 million plus a 6 or 7 percent margin.
That gives NorthWestern, like regulated utilities across the nation , a financial incentive to own as much in-house generating capacity as it can justify to the PSC.
Overbuilding is also a concern for critics. Market analysis firm S&P Global argued in a report published this month that overly ambitious gas plant development has already pushed other parts of the U.S. into an “electricity glut.”
Photo by Eric Dietrich / MTFPAttendees listen to NorthWestern Energy’s presentation of the company’s new energy supply plan at the PSC office in Helena Dec. 9.
“Utilities, faced with a steady stream of coal plant retirements and the allure of historically low natural gas prices, have continued to build new gas plants despite flat electricity demand and rapidly falling prices for energy from renewable sources,” S&P analysts wrote.
“That building spree has led to a glut of generation capacity in many regions,” they add. “And it continues today, because natural gas is cheap and because business models and regulatory structures reward many U.S. utilities for building new infrastructure, whether it is economically viable or not.”
“This is a for-profit company that’s trying to come up with a plan that would make them money,” said Mike Scott, a Billings-based Sierra Club staffer who works on energy issues.
“I think this is a play on uncertainty,” he said.
Public commenters expressing those concerns and others tore into both NorthWestern and the regulatory agency at the Dec. 9 meeting.
Sharon Griffin, of Great Falls, criticized the commission and the company for their roles in public controversies around Montana energy policy, including NorthWestern’s unsuccessful push earlier this year for legislation that would have let it purchase an expanded share in Colstrip without regulatory oversight from the PSC . She also cited an episode this fall when the commission initially failed to fully publicize a key decision in a rate case involving NorthWestern — a failure that prompted Commissioner Roger Koopman to accuse Commission Chair Brad Johnson and the agency’s communication director of “putting out false information to the news media. ”
That record, Griffin said, makes it hard to trust NorthWestern’s claims about its supply plan — and hard to trust utility commissioners to give the company’s proposals adequate scrutiny.
“I don’t believe you, your board, have the confidence of the people in Montana, and I don’t believe that NorthWestern has the confidence of the people in Montana,” she said.
“We need to act. We don’t have time,” said Diana Hammer, of Helena.
Brad Stacey, of Plains, said climate change terrifies him and his family to the point that his daughter and her husband aren’t sure it’s responsible to have children on a warming planet. He also said he’s skeptical of NorthWestern’s claim that it needs extra greenhouse gas-producing generation to keep its power supply reliable.
“If that is the only way we can operate while saving the planet,” he said. “I would rather have the blackouts.”
The Public Service Commission plans a few more listening sessions on the NorthWestern supply plan before the Jan. 6 public comment deadline: Dec. 30 in Bozeman, Jan. 2 in Billings, and Jan. 3 in Lewistown. Utility commissioners will then issue formal feedback as the company moves forward with concrete proposals in the new year.
NorthWestern has said it will solicit proposals for 280 megawatts of “dispatchable capacity” in January. Despite its statistical model’s preference for gas generation, the company insists in a release that it’s open to pitches involving any combination of “generation, storage and demand-side products.”
Photo by Eric Dietrich / MTFPThe Colstrip Power Plant photographed in August 2019.
The utility has also signaled it will file a formal application for PSC approval of its Colstrip purchase in late January or early February, a submission that will trigger a monthslong regulatory process. That process, which is likely to involve its own share of heated hearings, will give Public Service Commissioners and the public another chance to weigh the costs and benefits of the utility’s expanded stake in coal.
Beyond that, the future of coal and gas in NorthWestern’s generating portfolio is hard to gauge. The gas-powered Dave Gates Generating Station, which opened in 2011, was financed assuming a 30-year lifespan, according to PSC filings.
NorthWestern’s Colstrip Unit 4 co-owners — Puget Sound, Portland General Electric, Avista and PacifiCorp — are subject to anti-coal legislation in Oregon and Washington and plan to exit Colstrip between 2025 and 2034. It isn’t clear whether NorthWestern could or would keep Unit 4 in operation as a solo act, perhaps picking up the remaining ownership stakes in deals similar to its arrangement with Puget Sound.
Regardless, to the inevitable frustration of Montanans who want the state’s primary energy provider to take an aggressive stand against climate change, NorthWestern’s company line remains that its existing share of Unit 4 is a necessary asset that “continues to provide value to NorthWestern’s resource portfolio throughout the 20-year planning horizon.”
NorthWestern’s power plan is built around a doomsday scenario: a frigid, still evening amid a days-long winter cold snap when its grid hits a breaking point trying to keep Montanans in electric heat. The company’s critics forecast a different doomsday: hot, smoky summers with dry streams and stunted crops.
As they weigh those competing concerns, Public Service Commissioners will continue to feel the heat.
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