NorthWestern Energy aims to build its owned generating portfolio

NorthWestern Energy (NYSE:NWE), which already holds a 222-MW stake in the coal-fired Colstrip Unit 4, would consider acquiring more existing coal capacity, but only if that buy survives a review based on assumed costs of pending and future environmental regulations.

In its 2011 Electricity Supply Resource Procurement Plan, filed Dec. 15 at the Montana Public Service Commission, Northwestern laid out a three-year action plan that describes specific resource acquisition and evaluation activities. The plan helps Northwestern satisfy its Montana retail electric load-serving obligation.

“This Plan contemplates and details the continued pursuit of certain resources and market-based purchase power opportunities; however, it should not be used as a prescriptive tool,” the company noted. “Opportunity electricity supply resource acquisitions may become available to NorthWestern and could be in the form of contracts for power or asset purchases of new or existing generation facilities. Existing facilities could include gas-fired, hydro, or coal-fired generation with the caveat that an existing coal-fired facility would have to be a high performance, low environmental risk facility.”

NorthWestern said it has taken important steps to ensure reliable and cost-effective service. These steps include: an in-house marketing operations staff, in-house electric generation group staff, and in-house environmental group staff; an aggressive and sustainable demand side management program; renewable resource acquisitions that meet Montana eligibility for Renewable Portfolio Standards (RPS); and appropriate and effective use of market products and competitive resource solicitations that include asset and market purchases.

Current conditions demonstrate that market and other forward-looking assumptions have changed since the last plan was filed at the PSC due to the factors like the nationwide recession, the company noted. Also, delayed enactment of thermal resource emissions legislation has lowered near-term carbon cost risk and significantly impacted compliance planning.

Resource and portfolio evaluations have not identified a single preferred gas-fired technology choice, Northwestern noted. Supply needs are changing and it is not yet clear which one of the gas-fired resources may provide the best resource attributes for future operational and dispatch purposes. Additional work must also be performed to answer resource siting questions including fuel supply and infrastructure needs such as electric and natural gas transmission.

NorthWestern said it is pursuing the orderly rebuilding of a vertically integrated electric utility through asset development and/or purchase as authorized under the state Electric Utility Industry Generation Reintegration Act. This legislation allows utility ownership and investment in rate-based electric generation assets for the purpose of reliably serving retail customer energy and capacity needs through utility operation and management of supply sources.

Any resource proposals evaluated by the company will be benchmarked against alternatives in a manner similar to prior applications for approval such as the Dave Gates Generating Station at Mill Creek (DGGS), Colstrip Unit 4 (CU4) and the current Spion Kop docket. The DGGS is nearing the successful completion of its first year of commercial operation and has demonstrated its capability to meet the existing NorthWestern Balancing Authority Area regulating reserve requirements, the plan noted. DGGS is a 150-MW, gas-fired facility located east of Anaconda, Mont.

Colstrip in good shape in terms of EPA air limits

The coal-fired Colstrip Unit 4 has been in compliance with Montana state mercury emission regulations since 2010, and as a result of complying with those regulations, no additional compliance measures are expected to meet future compliance measures resulting from federal Hazardous Air Pollutants (HAPS) Maximum Achievable Control Technology (MACT) standards, the plan said. “However, HAPs emissions at coal and oil-fired power plants are expected to be regulated at a federal level under the National Emission Standards for Hazardous Air Pollutants (NESHAP) under Utility MACT (final rule expected Dec 2011). The proposed rule for mercury emissions, however, is less stringent than the State of Montana standard.”

Ongoing environmental compliance capital costs for existing thermal units are expected to be incurred by Colstrip Unit 4 to comply with Utility MACT for Hazardous Air Pollutants and Coal Combustion Residue disposal requirements. Also, the Regional Haze requirement to have zero impacts in national parks by 2064 is expected to cause this unit to incur cost in order to comply. “It is unknown, however, to what extent or what timeframe costs will be incurred to comply,” the plan added. “CU4 is in compliance with other potential requirements and is not located in one of the 27 states impacted by the Cross State Air Pollution Rule (CSAPR).”

The NorthWestern energy supply portfolio has approximately 750 MW of peak capacity-rated long-term electricity supply that is included as a part of the 2011 plan’s base portfolio of generation. Colstrip Unit 4 provides 222 MW of unit contingent electric power that provides 222 MW of peaking capacity and 203 aMW energy. This unit is operated in conjunction with a sister unit, Colstrip Unit 3 (CU3), as a single project that is governed by a Joint Ownership and Operation Agreement with PPL Montana, owner of an undivided 30% share of CU3. CU4 is expected to remain in the supply portfolio through the end of this 20-year planning cycle, and it represents the largest single asset under NorthWestern control, the company noted.

Also, in 2007, NorthWestern began receiving 325 MW of firm on-peak power and 175 MW of off-peak power from PPL Montana under a contract that will run from July 2007 through June 30, 2014. Replacement of that capacity with power purchases and/or new owned generating capacity is a key goal of the plan.

During 2011, NorthWestern took significant steps toward meeting future RPS requirements. It has followed through with its 2009 plan recommendation to acquire 50-75 MW of additional wind resource by acquiring nearly 90 MW of new wind power. With these additions, called Spion Kop and QF wind, NorthWestern said it is positioned to meet RPS needs through 2016. In addition to Spion Kop, NorthWestern has entered into five new QF projects totaling about 50 MW of wind generation. These projects, scheduled for commercial operation by the end of 2012, are under contract for 25 years and will contribute energy and renewable energy credits to the retail portfolio.

In a background section of the plan, NorthWestern addressed increased pricing under a Westmoreland Coal (NasdaqGM:WLB) contract to supply minemouth coal out of a long-established mine to Colstrip Unit 4. “The minemouth coal mining at Colstrip has entered a stage in which the coal is more difficult to obtain than in previous years and therefore is experiencing about an $8.00/ton premium compared to the base case forecast,” the plan noted. “This equates to a higher $/MMBtu fuel cost at Colstrip by an annual average $0.35. An alternative to mining the more difficult coal at Colstrip would be to mine in the Wyoming Powder River Basin and have it shipped to Colstrip, but the cost of shipping is roughly the same as the $8.00/ton additional cost experienced at Colstrip.”

NorthWestern Energy is one of the largest providers of electricity and natural gas in the Upper Midwest and Northwest, serving approximately 656,000 customers in Montana, South Dakota and Nebraska.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.