NorthWestern seeks rate hike, in part to pay for coal emissions costs

NorthWestern Corp. d/b/a NorthWestern Energy (NYSE: NWE) on Dec. 19 filed a request to the South Dakota Public Utilities Commission (SDPUC) to increase electric rates in 2015. 

The SDPUC will determine the actual amount of any rate adjustments, which could be greater or less than initially requested and it will determine the date that new rates will go into effect. However, rates are not expected to change earlier than July 1, 2015. 

“This increase is largely the result of recent investments to meet federal environmental and infrastructure regulatory mandates as well as the investments that we’ve made to improve our infrastructure to maintain the high-level of reliability that our customers expect and deserve,” said Bob Rowe, CEO. “We’ve managed the business well over the years and have avoided the need to increase rates for 34 years. It’s amazing to think that the last general electric rate increase was in 1980. Now, current rates simply don’t cover the costs associated with these significant investments.”

Rowe added that approximately 95% of the requested increase is the result of costs associated with federally required and critical infrastructure investments. 

The most significant of the large projects are the upgrades of the jointly-owned, coal-fired Big Stone and Neal power plants to meet federal regulations that limit pollutants linked to regional haze. NorthWestern’s portion of the cost to upgrade the Neal Unit 4 plant in western Iowa was $23m and the work was completed in 2013. Its portion of the cost to upgrade the Big Stone plant is estimated to be in the range of $95m-$105m and is due to be completed in 2015. Other partner utilities are either in the process or have recently completed the process to increase rates as a result of these federally-mandated projects. 

In addition, the rate filing request includes recently or soon-to-be completed new transmission lines, upgraded substations and the new 60-MW Aberdeen peaking plant that has been serving the company’s South Dakota customers since May 2013.

“No one, including us, likes to increase rates, but it’s necessary for all of us who own and benefit from these plants and systems to share the costs fairly and equitably with the other regional utilities and their customers,” said Rowe. “It’s also important to note that these upgrades don’t address the Environmental Protection Agency’s recently announced carbon reduction plan. We are very concerned about the possibility of further costs that all South Dakotans may be facing in the future.”

NorthWestern Energy provides electricity and natural gas in the Upper Midwest and Northwest, serving approximately 678,200 customers in Montana, South Dakota and Nebraska.

Dennis Wagner, Director of South Dakota Production for NorthWestern Energy, said in Dec. 19 testimony filed in this case that currently, NorthWestern relies on approximately 210 MW of coal-fired generating capacity to supply baseload energy plus approximately 150 MW of peaking capacity to provide for peak load requirements, primarily during short periods in the hot summer months.

Looking at the situation by plant:

Big Stone

  • Big Stone is a 475 MW coal-fired plant jointly owned by Otter Tail Power (53.9%), Montana-Dakota Utilities (MDU) (22.7%) and NorthWestern (23.4%).
  • Said Wagner about this plant: “An emerging issue regarding BNSF coal delivery to Big Stone is a 2013-2014 trend in increased unit train cycle times reportedly caused by increased rail system congestion in the region. As a result, during part of 2013 and much of 2014, the plant was forced to reduce output during off-peak periods in order to maintain a minimum level in the emergency coal stockpile. This reduced output has caused a large increase in energy market purchases at prices significantly higher than plant production cost. This is having a significant impact on customers for purchased power on the open market.”
  • Wagner wrote about the new air quality control system (AQCS) for this plant: “The rules require the new AQCS to be installed within five years of the EPA’s approval of the South Dakota SIP. EPA approved the South Dakota SIP on May 29, 2012. The projected Commercial Date of Operation is October 1, 2015.” This installation includes: a semi-dry FGD system with a new baghouse for mainly SO2 emissions; a selective catalytic reduction (SCR)/separated overfire air (SOFA) combination to control NOx emissions; activated carbon injection (ACI) for mercury removal; and balance of plant modifications to include boiler changes and replacement of the existing baghouse. 

Coyote

  • Coyote is a 427 MW coal-fired plant at Beulah, North Dakota. It is jointly owned by Otter Tail Power (35%), MDU (25%), Minnkota Power Cooperative (30%) and NorthWestern (10%).
  • Wagner noted about this plant: “The current coal contract with Dakota Westmoreland Corporation (‘DWC’) expires in 2016. The Coyote owners provided notice to DWC that the current contract would not be renewed, which resulted in a competitive bidding process between DWC and North American Coal Corporation (‘NACC’). The owners have entered into a new coal agreement with NACC, which goes through December 31, 2040. The location of the new mine is adjacent to Coyote which eliminates the need for rail transportation.”
  • An ACI system is being installed at Coyote during 2014-2015. The EPA’s MATS rule limits the amount of mercury and other toxic emissions from power plants. The EPA designed the emissions rate based on the type of coal burned; Coyote falls under the lignite sub-category for regulatory purposes. Installation of Advanced Overfire Air equipment for NOx control is planned by the end of 2016. 

Neal Unit 4

  • Neal 4 is a 640 MW coal-fired facility that is jointly owned by parties like MidAmerican Energy (40.570%), NorthWestern (8.681%) and Corn Belt Power Co-op (8.695%).
  • A new scrubber was placed in service in 2013, selective non-catalytic reduction (SNCR) for NOx control was placed into service in 2013, and ACI was placed in service on Nov. 13, 2014.
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.