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NorthWestern Energy files to update avoided cost rate for qualifying facilities; change could save customers millions

May 04, 2016

Butte, Mont. – May 4, 2016 – NorthWestern Energy has asked the Montana Public Service Commission act quickly to lower the rates of mandated purchase power agreements with qualifying facilities (QF), which could save customers millions in coming years.

The company routinely updates the rates it must pay to QF developers following the release of its biennial Electricity Supply Resource Procurement Plan. NorthWestern Energy is required by law to purchase the output from QFs regardless of need at Commission set rates that are based on the cost the company theoretically would avoid if it provided the power itself. Because these rates have not been updated for some time, NorthWestern’s filing brings avoided cost rates in line with equivalent market supply costs, which have declined significantly since QF rates were last updated.

In addition, due to the proliferation of solar companies requesting contracts with NorthWestern, the company is proposing to establish solar specific avoided costs rates in a manner similar to how it establishes rates for wind.

“Since the beginning of this year, we’ve had two out-of-state developers propose 43 3 megawatt QF solar projects, projects which our electric system does not need,” said John Hines, vice president – supply. “Montana is currently very attractive to these developers because their profits are so much higher under the current rates set for NorthWestern. Entering into these contracts at the current rate results in customers paying higher prices than they should for the energy – especially energy they don’t need in the first place.”

Under the proposed new rate structure, the average cost of output from solar facilities would be about $34 per megawatt-hour or $44 if the developers transfer the environmental benefits (in the form of Renewable Energy Credits) to NorthWestern. Under the current rate structure, the rate is about $66 per megawatt-hour. The new avoided cost for wind facilities would be $30 per megawatt-hour ($41 with the RECs) compared to the current average annual rate of $54. NorthWestern is allowed to officially include the energy in its renewable portfolio only if it includes the Renewable Energy Credits.

Because these costs flow directly through to customers, it is the customers who benefit from the lower rate structure. “According to our calculations, changing the rate will save customers about $5 million per 3 megawatt solar facility,” explained Hines. “With so many solar facilities now being proposed due to the current rate structure, the commission must act immediately to save customers a significant amount of money into the future”. 

There are currently 29 qualifying facilities on the system today. They are mostly wind farms but also small hydro and include a waste coal generator at Colstrip and a petroleum-coke facility co-located at a Billings area refinery. While utilities must acquire the power from QFs under l law, customers are not supposed to be adversely affected.  The terms and conditions of these purchases are determined by state regulatory commissions for each utility within its jurisdiction and thus vary from state to state. Existing QF contracts are not impacted by the proposed new rates.

The Electricity Supply Resource Procurement Plan is updated and filed every two years with the MPSC. The plan is meant to provide a road map to NorthWestern’s customers and regulators about how NorthWestern plans to respond to future needs. The plan is subject to review and public comment.

Please visit www.northwesternenergy.com to view the plan, learn more about simple and effective ways to make your home more energy efficient, our 60-percent carbon-free electricity supply and about various bill payment and assistance options.

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About NorthWestern Energy
NorthWestern Energy provides electricity and natural gas in the Upper Midwest and Northwest, serving approximately 701,000 customers in Montana, South Dakota and Nebraska.  More information on NorthWestern Energy is available on the company's website at www.northwesternenergy.com.


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