Wednesday, July 16, 2014

Charged issue

Posted on Wed, Jul 16, 2014 at 2:14 PM

Recently, the Independent published a story about NorthWestern Energy's electricity supply costs (see "Sour taste," July 3), focusing on our 30 percent ownership in Colstrip 4 (which is NorthWestern's only owned coal resource serving our Montana customers). Some of what you're hearing about our recent interim (temporary) electric rate increase isn't accurate. The supply cost increase is not because of Colstrip—at least not to the extent that some quoted in the article may have led you to believe.

Even after our most recent temporary increase takes effect in July, customers will be paying less for electricity than in January. That's because electric rates have been declining for the past six months. Natural-gas prices have been dropping as part of a long-term trend. Price reductions don't usually make the headlines and because everyone's usage changes from month to month it can be difficult to notice the chances in supply prices.

We recently received approval for a temporary increase from the Montana Public Service Commission in a proceeding called an "electric supply tracker," which tracks changes in cost for electric supply. We received this temporary increase because our current energy supply rates didn't collect enough to cover our actual costs of purchasing electricity. This is the result of two main causes: the cost of purchasing power on the market was greater than the forecast of market prices, and we were replacing a portion of the generation that we would've normally received from our ownership interest in Colstrip. To be clear, both of these increases were based on actual costs tied to market purchases, with no profit to NorthWestern.

The electric supply tracker adjusts supply rates on a monthly basis, using a standard mathematical calculation that takes into account estimated future electricity supply costs over a 12-month period. These costs are then trued up every year at the end of June. When there are larger-than-usual changes in market conditions (up or down), there will be a significant variance to correct.

Several years ago, we were in a similar situation, but in reverse: We had a significant over-collection in rates, and NorthWestern trued-up the difference by increasing the credit to customers by several dollars which paid customers back, with interest.

This July, a typical customer using 750 kilowatt hours a month will go from a 27-cent deferred supply credit to a $4.03 charge to help make up this difference in actual costs, which will remain in place pending a final PSC decision on the case next spring, and until we true up our next tracker in June 2015. Some of this is related to the cost of purchasing replacement power while Colstrip Unit 4 was down last year, but it's difficult to estimate with any degree of accuracy exactly how much effect this had on the total under-collection, except that it was a relatively small portion of the overall amount we purchased in the market to serve customers.

We've also heard the criticism over the extended outage of Colstrip 4. We own 30 percent of Unit 4 Colstrip and receive our share of the power generation equally from both units 3 and 4. When we dedicated this asset to serve our customers in 2009, we estimated that it would be available 86 percent of the time. The recent outage was caused by contractor error during a scheduled overhaul and not due to the age of the plant. Although it first came online in 1986, Colstrip 4 is the newest large coal plant in the western U.S. Even with the outage, Colstrip 4 has been available 82 percent of time since 2009 and is relatively predictable. As a point of comparison, wind generation is typically available about 40 percent of the time and must be backed up by other generation, typically natural gas, for reliability since it is more unpredictable.

Right now, we own or have under long-term contract coal, natural gas, wind power generation and also have energy efficiency programs. If our proposed purchase from PPL of the hydroelectric facilities is approved, over half of our Montana customers' supply needs will be served with water and wind. We are assembling a diverse set of long-term resources that will operate well together to meet customer needs and to keep supply rates stable and as low as possible.

Claudia Rapkoch

Director

Corporate Communications

NorthWestern Energy

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