Web Meeting Summary NorthWestern Energy Electricity Technical Advisory Committee August 28, 2013

Transcription

1 Web Meeting Summary NorthWestern Energy Electricity Technical Advisory Committee August 28, 2013 Attendance Those participating in the Energy Electricity Technical Advisory Committee (ETAC) meeting conducted via GoToMeeting and conference call included: Name Garrett Martin Jamie Stamatson Will Rosquist Steve Fisher John Bushnell Thomas M. Power Make Dalton Brian Spangler Chuck Magraw Paul Schultz Diego Rivas Brien DeKiep Patrick Barkey Jeff Blend Todd Guldseth Frank Bennett Dave Fine Gary Dorris Gerald Mueller Organization Montana Department of Environmental Quality (DEQ) Montana Consumer Counsel (MCC) Montana Public Service Commission (MPSC) Lands Energy NorthWestern Energy (NWE) District XI Human Resource Council MPSC DEQ Natural Resources Defense Council MCC NW Energy Coalition Northwest Power and Conservation Council (NPCC) University of Montana - Bureau of Business and Economic Research DEQ NWE NWE NWE Ascend Analytics Consensus Associates Agenda 2013 Resource Procurement Plan Model Inputs Load & customer forecast Peak demand forecast DSM forecast Existing resources Proposed new resources to model Natural gas price forecast Electricity price forecast Carbon penalty forecast REC forecast Wind integration & ancillary services costs Ascend Analytics PowerSimm Modeling Presentation Next Meeting 2013 Resource Procurement Plan Model Inputs August 28, 2013 NWE ETAC Meeting Summary Page 1

2 Dave Fine introduced this item stating that its goal was an understanding of the resource planning inputs for this plan s modeling. The inputs are provided graphically and include a comparison to the input values for past resource plans. Todd Guldseth discussed the specific model input topics using a presentation found under the August 28 meeting heading on the ETAC web page at: Highlights of points made by Mr. Guldseth that expand upon or clarify the presentation material and the meeting participant questions and comments by topic follow. Unless otherwise noted, answers and responses were provided by Mr. Guldseth or Mr. Fine. Model Inputs (Presentation Page 1) Past modeling using GenTrader assumed normal weather. Ascend Analytics will conduct the 2013 modeling using its PowerSimm model. In this model, weather will be a variable which drives loads and electricity prices. Also, modeling for past plans used a table of electricity and natural gas volatility developed by Lands Energy as an input. PowerSimm will generate the price volatility used in the stochastic analysis from historic Mid-Columbia electricity and AECO gas price data. NWE is developing a summary of new resource production and cost characteristics which will include granular heat rate curves. Load and Customer Forecast (Presentation Pages 2-10) The electric load forecast for residential and GS1 customer classes, which together make up 85% of NWE s retail load, is based on the Montana Department of Commerce Census and Economic Information Center (CEIC) econometric population modeling. The number of residential and GS1 customers (each meter constitutes one customer) is growing faster than population. The forecast of loads for the large commercial and industrial customer classes, which constitute the remaining 15% of NWE s load, uses a known and measurable change methodology based on specific customer information provided by NWE Key Account Executives. Comment - The load forecast does not incorporate economics such as electricity prices and the business cycle. Response - The load forecast is based on an econometric population forecast. The economies of prior years are built into the regression. Comment - The CEIC model is a reasonable model to use for demographics. However, the model does not understand business cycles. The residential and GS1 customer use graphs show the same trend taking off from different initial points for the different year forecasts. If the model knew about business cycles, the trend lines may be affected. Response - The historic data includes 20 years of data, the same period as the planning horizon. Response - We will look into incorporating customer use as a regression variable for the next resource planning cycle. The NPCC 7 th Power Plan, which is under development, may help inform the next plan forecast. Comment - This situation reminds me of the projections of gas prices during the 1980s and early 1990s. The forecasts were always wrong, and each year the curves were merely shifted forward. The forecasts of use per NWE customer are not encouraging in terms of reflecting reality. Response - We need to weather normalize the historic load data so that forecast curve does not change abruptly at the transition from historic to projected data. August 28, 2013 NWE ETAC Meeting Summary Page 2

3 Comment - Weather will not shape the trend lines in the customer use forecasts. The graphs reveal a problem that should be addressed. Comment - NWE and the ETAC have been wrestling with clarifying customer use trends for several years. The historic residential customer use data for do not show the flattening and declining trends in the forecasts made during those years. The expected values may lie between the forecasted values for 2012 and 2013 and the forecasts made during the preceding years. This appears to be a weak point of the analysis. Comment - The GS1 customer use forecast also did not foresee the Great Recession. The succeeding year forecasts keep the trend the same but use a different starting point. Unlike the residential use forecasts, the GS1forecast trends keep the same sign. Peak Demand Forecast (Presentation Pages 11-13) Question - This year s peak forecast will be independent of the energy forecast? Answer - Yes. Comment - The peak forecast also does not include economics so we don t know if the recession caused a temporary or permanent downward adjustment. Response - The bump in the 2014 forecast relative to the 2013 actual represents economic recovery. Comment - In planning for a 20-year period, the slope of the line is more important than its starting point. Response - The business cycle impacts historical actual values. The extent of the discontinuity from actual to forecasted values is embedded in the forecast. Comment - For the energy forecasts, several years of past forecasts are shown. The peak forecast shows only the current year. The information for past years helps one to assess what the forecast model reacts to. Response - We should be able to provide past year forecasts for peak as we have for energy. The forecasted growth rates in the winter and summer peak values are the same as the energy forecast, even though the two were developed separately this year. DSM Forecast (Presentation Pages 14-15) Question - Could you provide a graph showing past DSM program savings projections versus actual savings? Answer - Yes. Comment - The MPSC recently conducted an evaluation/verification of the DSM program savings in the electric tracker proceeding. Response - The evaluations of the DSM program have been based on a sampling of the DSM program measures rather than all measures. We will look into providing a summary of the evaluation results. Existing Resources (Presentation Pages 16-17) August 28, 2013 NWE ETAC Meeting Summary Page 3

4 About 90 MW of the QF Tier II resources are made up of two projects, the Yellowstone Energy Limited Partnership or YELP project which is a petroleum coke fueled generating plant in Billings and the Colstrip Energy Limited Partnership or CELP project which is a waste coal fueled generating plant located near Colstrip. Question - Are you accounting for the results of the resources acquired pursuant to the 2013 request-for-proposals (RFP) to partially replace the contracts with PPL that expire in 2014? They do not provide volumes of physical power and therefore are not listed in the table of existing resources (page 17 of the presentation). Question - On the existing resources table, Basin Creek is listed as providing 35 MW of capacity and 2 MW of average energy, and the Dave Gates Generation Station (DGGS) is listed as providing 7 MW of capacity and 7 MW of average annual energy. What will we see in the future for these plants? Answer - The 2 MW average energy for the Basin Creek plant is the historical value. The model will dispatch this plant. Three of the plant s units are used for reserves. The 7 MW for the DGGS plant is the minimum turn-down value for the two units. This is the amount now dedicated to Energy Supply. When NWE determines the ultimate amount that Energy Supply will receive from this plant, it will be included in resource planning. Proposed New Resources to Model (Presentation Pages 18-19) For this plan, NWE has not included leading edge technologies, some which were included in past plans. Resources for this plan are limited to those that are commercially available. Question - Given the concern about NWE interest in purchasing additional portions of the Colstrip plants, should you include in the portfolio modeling a purchase of existing base load resources? Answer - Energy Supply has not been directed to do so. We are including in the portfolio modeling only plausible resources. Comment - It would be good to know ahead of time how a purchase of existing baseload plants would compare to a new gas-fired resource. Response - We do not know what the purchase price of the existing baseload plant would be. Without a price, we do not know how to model it. Comment - The justification for any purchase of an existing baseload plant would have to be its low price. One could work backward and determine what the price would have to be to be competitive with a new gas-fired resource. Response by Steve Fisher - Such a purchase would look like a wholesale market acquisition. Question - Is the solar photovoltaic (SPV) resource listed in the table a utility scale resource? Answer - Yes, it would be measured in megawatts rather than kilowatts. Question - So it would not consist of distributed SPV installations? Answer - Correct, it is a commercial scale project or projects. August 28, 2013 NWE ETAC Meeting Summary Page 4

5 Question - The utility faces a choice of supporting distributed customer-scale projects or commercial utility-scale projects. Could the modeling inform a debate about how much distributed projects should be subsidized by other customers? Answer - This appears to be a spread sheet or policy issue rather than a resource supply issue. Comment - Maybe this is a marketing issue. If solar resources look good, then the question of how to its acquisition should be pursued. Response - For supply planning, the question is when SPV become attractive from a capital cost perspective. Comment - Some people think that roof top solar installations prices may drop so that customer use will increase. Someone in NWE should be reading the literature and considering an appropriate strategy. Response - Bill Thomas group is likely following this issue. Natural Gas Price Forecast (Presentation Pages 20-21) Question - What is the delivered cost of gas to residential customers? Answer - In July the delivered cost was $7.92 per dekatherm. The commodity cost was approximately $4.00 per dekatherm. Comment - The prices in the chart on page 21 is the gas commodity plus the cost of moving it through the transmission system. Question - I understand the historical use of AECO hub prices. However, NWE is using increasing amounts of gas from Havre and Wyoming. Should AECO prices be used for the future? Answer - For now using AECO prices is appropriate. In the future, use of Rockies and Wyoming gas may increase. NWE s recent gas field purchases have been for gas customers not for fueling electricity generation. Question - Given the use of the Gross Domestic Product based price deflator, are you assuming a constant real gas price beginning with the end of the AECO forward price curves? Answer - No, the GDP Implicit Price Deflator is a measure of inflation and used for nominal escalation, not real price escalation. Question - in the chart on page 21, what is the mix of real and nominal prices? Answer - The dotted lines show real and nominal price escalations. The solid lines are nominally escalated only. Question - The natural gas price projections are nominal. The solid line includes a 2% per year escalation because of inflation. The market has recently changed significantly. Many demand and supply factors could change the market in the future. Should price uncertainty be a point of emphasis in this plan? Answer - Yes. The Ascend modeling will incorporate a range of prices. The price chart is the beginning point of the analysis. We don t expect actual prices to follow any specific line over the planning period. August 28, 2013 NWE ETAC Meeting Summary Page 5

6 Comment - NWE is talking about price volatility. I am concerned about the trend rate of growth. I would be more comfortable with price forecasts made by economic outfits such as Moody s Analytics rather than the Energy Information Administration (EIA). Response - We want to rely on market prices and fundamentals. Historically, the GDP price deflator has served as a reasonable escalator for forecasting commodity prices. Four or five years ago, forecasting the downward adjustment in gas prices that has occurred would have been heretical. We use the forward market price curve as the starting point for the gas price forecasts. Comment - The EIA provides comparisons of its past forecasts with other respected forecasters, so that we need not rely on EIA forecasts alone. Electricity Price Forecast (Presentation Pages 22-23) and Carbon Penalty Forecast (Presentation Pages 24-25) Question - You use forward electricity price forecasts for Beginning in 2021, you appear to apply a carbon cost adder. Why the change in 2021? Answer - Forward electricity prices at the Mid-Columbia trading hub are available through Beginning in 2021, we apply escalations including the carbon adder forecasts by the EIA. Comment - You might add to the chart on page 23 an overlay of the Mid-C heat rate for the no carbon tax case. The existing green line appears to escalate the heat rate. Response - Our objective is long-term equilibrium. We want to pay close attention to the heat rate because increased heat rates may imply an increased profitability of a gas-fired resource. REC Forecast (Presentation Pages 26-27) Mr. Fine receives a daily from Karbone Inc. with price information about renewable energy credits (REC). Recently, we have not seen REC-only contracts, nor much volume in the REC markets. NWE and other utilities purchasing renewable resources have retained their RECs to meet renewable portfolio standards (RPS). Question - What about the California market and Washington market for double RECs? Answer - California has a limit of 25% for REC-only contracts to meet its RPS. This limit is apparently limiting the impact on REC prices. At some point the California market may increase purchases from Montana wind farms. Answer by Steve Fisher - The Washington double REC applies only to small projects, not commercial wind farms. Comment - I will send you the link to the Washington statute that addresses double RECs. Ascend Analytics PowerSimm Modeling Presentation Dr. Gary Dorris of Ascend Analytics gave a presentation entitled Resource Planning with Uncertainty for NorthWestern Energy. A copy of this presentation is available on the ETAC web page at the address given above. The presentation provided an overview of Ascend s modeling approach and modeling activity plan for NWE s 2013 resource plan. Unlike past plans, NWE will not conduct modeling in-house but will rely on its contractor, Ascend Analytics. Question - Will wind be treated as a variable in the stochastic analysis? Answer - Yes. August 28, 2013 NWE ETAC Meeting Summary Page 6

7 Question - How will you handle wind? Answer - The relationship between wind and load and market prices will be preserved. Simply drawing wind amounts from a random distribution is not acceptable. When it is very hot or very cold, the wind sometimes does not blow. Question - Will you use Montana wind data? Answer - Yes. We have data for a couple of wind sites. Next Meeting The next meeting was scheduled for Wednesday, September 25, 2013 at the NWE General Headquarters in Butte. Disclaimer Committee members provide advice to NWE as individual professionals; the advice they provide does not bind the agencies or organizations that the members serve. August 28, 2013 NWE ETAC Meeting Summary Page 7