Community Action Agency’s Corner
All choices we make in each of our regulatory jurisdictions are subject to prudency standards. For instance, in Montana we have a least‑cost requirement when considering electric generation resources. This may not always result in the choice of the lowest carbon resources. Therefore, our regulators will be influential in the speed of our transformation. In addition, from a planning perspective, permitting processes for new resources are lengthy. We submit an integrated resources plan with regulators, obtain proposals for qualified resources as part of a formal request for proposals process, and retain an independent party to evaluate the selection of qualified resources. From a planning requirement, this process significantly increases the complexity of determining future resources.
We also will continue to monitor conditions that may affect our longer‑term plans. This includes continually assessing the energy market conditions that affect the economics of our planned generation portfolio, such as prices for fuel and electricity. We will monitor expected customer demand and the adequacy and reliability of our portfolio resources to meet our customers’ needs.
NorthWestern Energy will advocate for constructive energy policies, including those that address investment in energy infrastructure, incentives for clean energy technologies, and environmental regulations.
NorthWestern Energy will support policies that will enable the investment of critical infrastructure and oppose cost shifts for customers.
New technologies will be critical to achieving our goal of Net Zero by 2050. We will monitor these technologies as they are deployed to determine if they can be reliable, cost effective, and provide the clean outcomes we require to serve our customers.
Trends in customer demand will continue to drive our outlook for the need for generation resources. This includes the electrification trends mentioned earlier, along with continuing improvements in energy efficiency. Underlying economic trends are expected to produce modest increases in demand, and while the current pandemic is expected to continue to have significant short‑term impacts on customer demand, the longer‑term impacts are not known.
In addition to the trends in customer and investor attitudes and preferences, we must also consider the potential for changes in energy policy. One of the areas of great potential impact related to energy policy is addressing the risks of climate change. Other policies that could affect our planning include more stringent regulation of hydraulic fracking used to extract natural gas and policies promoting electrification of transportation and other uses of fossil fuels. Policies to incentivize the deployment of clean energy, such as production tax credits, investment tax credits, and potential changes in regulation of power plant emissions, water use, and waste handling may impact our planning.
A number of future market conditions also influence our planning, and we have examined ranges of possibilities for such factors to test their potential impact. These factors include prices for natural gas, electric power, and the cost for debt and equity capital to fund infrastructure investments. The cost and reliability of our existing fleet of generation resources is important as we consider the specific actions necessary to implement our transition. We are actively engaged in regional market development in the West and work closely with SPP, WRAP, and CAISO-EIM. We will continue to evaluate the potential need for, and cost of, transmission infrastructure necessary to deliver increasing amounts of renewable energy to our customers. See the section of Forward Looking Statements for more considerations.
The Taskforce on Climate‑related Financial Disclosure (TCFD) is an expanded voluntary reporting framework used to further enhance the disclosure of climate‑related information. The TCFD guidance supports informed decision making and capital allocation by investors, lenders and insurance underwriters. We have not finalized our TCFD analysis but expect to have this work completed in 2022. However, we believe there is value in sharing our preliminary thoughts on the Four Pillars of TCFD.
Governance Pillar: Our Board of Director’s Governance committee is responsible for monitoring our ESG activities. In fact, ESG is now a standing item at each Board meeting during the Governance Committee. Other aspects of ESG, specifically those that are associated with our operations, are frequently addressed in our Safety, Environmental, Technology and Operations Committee. We established an ESG disclosure committee, chaired by the President and Chief Operating Officer. This committee meets monthly and is comprised of ESG subject matter experts throughout the company.
Strategy Pillar: We have been transitioning our generation portfolio to cleaner resources to reduce emissions. We have had great success through the addition of owned and contracted carbon‑free resources. We see significant opportunity to continue to invest in assets to support this transition going forward. However, legislative and regulatory support of this transition will be necessary to ensure recovery of new investment and appropriate treatment on recovery of our existing fossil fuel resources ‑ in the event these resources are retired in advance of their planned useful life. The Electric Business portion of this document highlights our preliminary portfolio analysis and its alignment with the Paris Accord (2 degree scenario).
Risk Management Pillar: The Company deploys a robust Enterprise Risk Management (ERM) program developed nearly 20 years ago. The ERM committee has identified wild fire as the largest climate related risk the company currently experiences. Over the last decade, we have made significant investment to clear hazard trees in heavily forested areas ‑ especially focusing on those areas infested with mountain pine beetles. Those areas often have standing dead trees that are at a much higher risk of falling into our transmission and distribution power lines and sparking fire. In addition, with warmer temperatures and reduced precipitation, we are experiencing longer fire seasons. Both forested and prairie grass fires pose a risk to the company, its customers and communities. We continue to expand our fire mitigation activities to address these risks while also hardening our system against other physical and cyber related threats.
Metrics Pillar: We utilize several different frameworks to disclose our climate related metrics, including the industry specific templates developed in collaboration with the Edison Electric Institute and the American Gas Association. These reports can be found here. While our Net Zero 2050 target is specific to our Scope 1 and 2 emissions, we will continue to identify and assess our Scope 3 emissions. However, we currently believe there are too many complexities and variables outside our control to establish any Scope 3 targets at this time.