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Report on NorthWestern Energy’s Yellowstone County Generating Station

Executive Summary

A staff report from the Public Service Commission (PSC) concludes that NorthWestern Energy’s planning, procurement, and construction of the Yellowstone County Generating Station (YCGS) were marked by significant deficiencies. These actions failed to align with key principles of the Sustainable Development Goals (SDGs), particularly SDG 7 (Affordable and Clean Energy), SDG 12 (Responsible Consumption and Production), and SDG 16 (Peace, Justice, and Strong Institutions). The report finds the utility did not minimize costs and risks for customers, leading to a recommendation that $45 million in cost overruns be excluded from customer rates.

Project Analysis and SDG Implications

Deficiencies in Planning and Contradiction of SDG 7 (Affordable and Clean Energy)

The PSC staff analysis indicates that NorthWestern Energy’s process for selecting the YCGS did not adhere to the principles of providing affordable and sustainable energy. The utility failed to demonstrate that the methane-fired plant was the most cost-effective, long-term solution for consumers.

• Inadequate Evaluation of Alternatives: The utility did not adequately evaluate a full range of cost-effective resource options. It specifically structured its request for proposals in a way that prevented a low-cost, low-risk pairing of battery capacity with reciprocating internal combustion engine units from being properly considered.
• Biased Portfolio Development: The selection process appeared biased, with the YCGS included in 27 of 36 resource portfolios, while the identified “lowest-cost resource” was included in just one.
• Failure to Minimize Costs: The report concludes that the planning and procurement processes had “significant deficiencies” that “raise serious doubts about whether NorthWestern minimized total costs and risks for customers,” directly undermining the affordability tenet of SDG 7.

Financial Mismanagement and Impact on SDG 11 (Sustainable Cities and Communities)

The project’s financial execution demonstrates a failure in responsible management, leading to significant cost overruns that threaten the affordability of energy, a cornerstone of sustainable communities (SDG 11).

1. Avoidable Cost Overruns: The utility could have likely avoided $45 million in cost overruns by selecting alternative resource offers that did not involve the construction risks associated with the YCGS.
2. Acknowledged Risk: The report states NorthWestern “knew it was making a risky decision,” as evidenced by its earlier withdrawal of a pre-approval application for the project, yet proceeded without managing the risks in a cost-effective way.
3. Improper Accounting: The utility attempted to earn a return on a portion of the plant that should be depreciated, a practice that does not comply with “regulatory accounting fundamentals.”

Lack of Transparency and Accountability Undermining SDG 16 (Strong Institutions)

The utility’s failure to provide transparent documentation and information violated regulatory requirements and impeded the PSC’s ability to function as an effective and accountable institution, as called for in SDG 16.

• Insufficient Documentation: NorthWestern did not provide documentation explaining cost increases or the rationale for replacing its contractor, failing to meet PSC rules that emphasize transparency in risk management.
• Withholding of Information: The utility failed to provide critical cost information about alternative options for nine months, delivering it only on the first day of the hearing. This action deprived the PSC and other parties of “essential information” and violated state regulations.
• Failure to Justify Investment: Citing arguments from Renewable Northwest, the staff report agrees that “NorthWestern has continually failed to meet its burden of demonstrating that YCGS represents a prudent investment.”

PSC Staff Recommendations

Proposed Adjustments for Consumer Protection and Regulatory Integrity

To address the identified failures and align the outcome more closely with sustainable and equitable principles, PSC staff have recommended specific financial adjustments.

1. Disallowance of Cost Overruns: Staff recommend that the PSC exclude the $45 million in cost overruns from the amount NorthWestern can recover from its customers.
2. Reduction of Rate Base: It is recommended that NorthWestern’s proposed $287 million rate base for the YCGS be reduced to $227.7 million.

These recommendations aim to protect consumers from the financial consequences of the utility’s imprudent decisions and reinforce the importance of accountability, transparency, and cost-effectiveness in developing energy infrastructure.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

   • SDG 7: Affordable and Clean Energy: The article’s central theme is the cost and procurement of a new power plant (Yellowstone County Generating Station), which directly relates to providing energy. The debate over cost overruns and whether customers should bear them speaks to the “affordable” aspect of this goal.
   • SDG 9: Industry, Innovation, and Infrastructure: The construction of a power plant is a major infrastructure project. The article critiques the planning, procurement, and risk management processes involved in developing this infrastructure, highlighting deficiencies that question its sustainability and resilience.
   • SDG 12: Responsible Consumption and Production: The article discusses the utility’s procurement process and resource management. The criticism that NorthWestern Energy did not adequately evaluate more cost-effective options or manage risks efficiently points to a failure in sustainable production patterns and responsible resource (financial and natural) management.
   • SDG 16: Peace, Justice, and Strong Institutions: The entire article revolves around the role of a regulatory body, the Public Service Commission (PSC), in holding a monopoly utility accountable. It emphasizes the importance of transparency, documentation, and adherence to regulations, which are core principles of strong and effective institutions.

2. What specific targets under those SDGs can be identified based on the article’s content?

   • Target 7.1: Ensure universal access to affordable, reliable and modern energy services. The article directly addresses the “affordable” component. The PSC staff’s recommendation to exclude $45 million in cost overruns from customer bills is a direct attempt to ensure energy remains affordable and that customers are not burdened by the utility’s “lack of cost discipline.”
   • Target 9.1: Develop quality, reliable, sustainable and resilient infrastructure… with a focus on affordable and equitable access for all. The article questions the quality and sustainability of the infrastructure development process. The staff report notes “significant deficiencies in the planning and procurement processes” and that NorthWestern never demonstrated the plant “achieves the lowest long term total cost for customers,” which is a failure to meet the target’s focus on affordability and quality.
   • Target 12.7: Promote public procurement practices that are sustainable, in accordance with national policies and priorities. The utility’s procurement process for the plant is heavily criticized. The report states NorthWestern “botched the process to evaluate ‘the full range of cost-effective resource options'” and conducted its request for proposals in a way that prevented a low-cost, low-risk pairing from being considered, indicating a failure to follow sustainable procurement practices.
   • Target 16.6: Develop effective, accountable and transparent institutions at all levels. The article highlights a breakdown in transparency and accountability on the part of the utility. The PSC’s rules “emphasize the importance” of “transparency and documentation,” but the report states NorthWestern failed to provide required information and documentation, undermining the effectiveness of the regulatory institution’s oversight. The PSC’s actions, however, represent an attempt to enforce this target.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

   • Indicator for Target 7.1 (Affordability): The monetary value of cost overruns and their impact on customer rates. The article specifies the **$45 million in cost overruns** and the proposed reduction of the rate base from **$287 million to $227.7 million** as concrete financial indicators of the effort to maintain energy affordability.
   • Indicator for Target 9.1 (Sustainable Infrastructure Planning): The number and quality of alternative resource options evaluated. The article implies a negative indicator by stating that the “lowest-cost resource” was included in just **one of 36 portfolios**, while the chosen plant was included in 27, suggesting a flawed and biased planning process.
   • Indicator for Target 12.7 (Sustainable Procurement): Adherence to transparent and documented procurement processes. The article points to a failure in this area, noting that NorthWestern **”didn’t provide any documentation to explain the reason the expected costs for the plant had increased”** and failed to provide cost information on alternatives until the day of the hearing.
   • Indicator for Target 16.6 (Transparency and Accountability): Compliance with regulatory requirements for information disclosure. The article provides a clear indicator of non-compliance by stating that NorthWestern’s failure to provide timely information **”violated state regulations”** and deprived the PSC and other parties of “essential information.”

Summary of SDGs, Targets, and Indicators

Source: dailymontanan.com