FERC sides with NorthWestern on grid upgrade costs for dismantled generator

FERC on April 21 allowed NorthWestern (NYSE:NWE) to terminate the large generator interconnection agreement (LGIA) with Southern Montana Electric Generation and Transmission Cooperative’s (Southern Montana) Highwood generating station, a 46-MW natural-gas fired plant that has been dismantled following Southern Montana’s Chapter 11 bankruptcy proceeding.

The Highwood station, which generated a limited amount of power in February 2012 and between July and October of 2013 – during which time NorthWestern provided transmission service credits to Southern Montana – was decommissioned in June 2014 and sold for parts, FERC noted in the order.

Southern Montana and Beartooth Electric Cooperative (Beartooth), together as joint protestants, challenged the termination of the interconnection agreement and asserted that FERC should require NorthWestern to reimburse Southern Montana for unreimbursed network upgrade costs of $5.8m associated with the grid connection for the plant, FERC related. Beartooth, which was a distribution co-op member of Southern Montana when the LGIA was executed, advanced a portion of the funds for the network upgrades, the order explained.

The network upgrades included construction of a new switchyard on NorthWestern’s existing 230-kV transmission line between its Great Falls and Broadview substations, re-routing the 230-kV line and installation of a 200-MVA autotransformer at the Great Falls substation, FERC noted.

NorthWestern on Jan. 22 filed at FERC a notice of termination of the LGIA, which followed a Dec. 23, 2015, confirmation from Southern Montana that termination of the LGIA was appropriate, FERC said. NorthWestern asserted that the termination of the LGIA eliminated its obligation to repay Southern Montana for the unreimbursed network upgrade costs.

Beartooth and Southern Montana, which filed for Chapter 11 bankruptcy protection in October 2011 with the U.S. Bankruptcy Court for the District of Montana, asked to withdraw the Dec. 23, 2015, letter that said termination of the LGIA was appropriate, FERC said. The joint protestants asked FERC to deny the LGIA termination, or if the commission accepts the termination request to find that the “plain language of the LGIA establishes Southern Montana’s post-termination right to refund” of the unreimbursed network upgrade costs, according to the order.

NorthWestern maintained that the permanent cessation of operations under the LGIA is fulfilled because Southern Montana, through its trustee in bankruptcy, dismantled and sold the parts of the Highwood station, including the physical interconnection between the plant and NorthWestern’s transmission system, FERC said.

FERC determined that NorthWestern’s notice of termination of the LGIA conforms with the controlling terms of the agreement and FERC regulations.

Language in the LGIA allows it to be terminated either by notice of Southern Montana that the plant ceased commercial operations or by NorthWestern notifying FERC that the plant ceased commercial operations, FERC said. Because the joint protestants equivocated on the Dec. 23, 2015, notice, FERC granted the termination of the LGIA on the second ground – notification by NorthWestern that the Highwood plant ceased operations.

FERC also found that NorthWestern has no obligation to pay Southern Montana the unreimbursed network upgrade costs, pointing to its order establishing interconnection agreement rules. In that ruling, FERC clarified that a transmission provider has no obligation to reimburse an interconnection customer for its upfront payment if the generating facility ceases commercial operation before the interconnection customer has been completely reimbursed, the April 21 order noted.

The order accepted the termination of the LGIA with an effective date of March 22, as requested by NorthWestern.