NorthWestern Energy proposes rules for big electricity users to 'protect existing customers'

NorthWestern Energy on Wednesday announced they have proposed establishing new rules and requirements for anyone who wants to buy enormous amounts of electricity from them, including data centers. However, an environmental group in Montana says that it doesn't go far enough.

The power company says the move is aimed at ensuring customers who buy over 5 megawatts are responsible for the costs associated with serving those power loads and that "existing customers do not subsidize these large new load customers."

NorthWestern says it will ask the Montana Public Service Commission to approve a "Large New Load Tariff," which would allow the power company to place new rules and contract terms on anyone, or any company, that wants to buy 5 megawatts or more, including data centers and other energy-intensive operations.

If approved, NorthWestern would be able to tell these new large load buyers that they have to commit to buying power for a minimum service period. And a buyer who wants more than 50 megawatts would have an even longer minimum service term.

The large users would also be required to have a minimum demand and a minimum energy billing to "ensure these customers pay for the capacity and energy needed to serve them."

There would be performance assurance and collateral requirements to secure customer payment and performance obligations, and there would be "termination cost provisions" to address unpaid costs if a customer reduces its load or terminates service before the end of a contract term.

“Our responsibility is to serve new opportunities in a way that protects our existing customers and strengthens Montana’s energy future,” said NorthWestern Energy President and CEO Brian Bird. “Given the strong interest from both the Montana Public Service Commission and the public, we believe it is important to bring this issue forward now, instead of waiting until a contract with a large new load customer is in place. Filing this tariff now supports constructive dialogue as we all work together toward a solution that serves Montana best.”

There are three data center companies that have signed Letters of Intent with NorthWestern to buy an enormous amount of power. They'd be located in Butte and in Yellowstone County. Between the three of them, they'd like to purchase somewhere between 850 and 1,400 megawatts, combined, by the year 2030. NorthWestern currently supplies roughly 750 megawatts to all of its customers in Montana, so the data centers would require it to more than double its supply in the state.

There are another 11 data center companies that are in talks with NorthWestern, including five who are in the "high-level assessment stage."

Another data center company has announced plans for a smaller facility near Bonner, outside of Missoula, but it wouldn't be served by NorthWestern and not many details have been released about that project.

Under the proposed new tariff, prospective large new load customers would enter into a development agreement with NorthWestern and they would have to pay for studies to evaluate system impacts, infrastructure needs and service feasibility. The results of those studies would be incorporated into an electric service agreement, which NorthWestern says would include "required customer protections."

There would be more scrutiny of anyone buying 50 megawatts or greater.

Under the proposed tariff, anyone buying 50 megawatts or greater would file an executive Electric Service Agreement with the PSC for review and approval before they could buy power. But for customers with loads between 5 and 49 megawatts, there would be no requirement for case-specific PSC approval.

Anne Hedges, the executive director of the nonprofit Montana Environmental Information Center, called the proposed tariff a "baby step in the right direction that's long overdue," but says there are some serious deficiencies.

"It's still woefully inadequate," she said. "At least it's a place to start. I hope nobody is convinced by their argument that this is going to protect existing residential customers."

She said the lack of transparency in the proposal is "stunning."

"They're trying to separate out customers buying under 50 megawatts, which is big, from those over 50," she said. "So they're not requiring PSC approval for those under 50. They're not requiring public participation and engagement in those discussions."

Hedges said that means a data center developer could choose to build several facilities, under different company names, that each consume 49 megawatts to skirt the rules.

A spokesperson for NorthWestern Energy, Jo Dee Black, told the Missoulian that there are provisions in the tariff proposal to prevent a customer from aggregating different, smaller units.

"At the top of the Large New Load Rule tariff, it discusses that aggregation of affiliate entities under common ownership or control is 'intended to prevent the artificial segmentation of load among multiple entities or service points for the purpose of avoiding the applicability thresholds of this rule," Black said.

Hedges believes that the wording of the proposal could allow lots of developers under the 49 megawatts.

"At some point that becomes an enormous amount of electricity and infrastructure need not being approved by the PSC and being reviewed by existing customers," Hedges said. "They're trying to bypass letting the public know who they're hooking up to the system. The Legislature said in 2007 it's the PSC's job to make those decisions in a public process, not NorthWestern's."

Another thing Hedges is concerned about is that the proposed tariff doesn't establish a separate rate class for data centers. There are many different rate classes, including a residential rate class.

"All (a separate rate class) means is over time, the PSC can verify that all costs imposed on the system because of a data center are attributed to the data center and not to other customer classes, like the residential customer class," Hedges said. "It's really important to have a separate rate class. A lot of states are moving toward developing a separate rate class, to really attribute that cost to that rate class."

Black, the spokesperson for NorthWestern, said that a new rate class can't be established for data centers yet because there currently aren't any large load data center customers. She said the normal procedure is to establish the rate class after a rate review.

"NorthWestern Energy anticipates the creation of a separate rate class when there are customers to include in the rate class," Black said. "New Large New Load customers will be billed under their currently applicable rates until a rate review, when a separate rate class can be created," Black said. "A new Large New Load customer will be included in the GS-2 rate class until then."

Hedges said there's a "whole lot of other things missing" from NorthWestern's proposal. She'd like to see a a provision that ensures that data centers pay for transmission, not just studies about transmission.

"And I don't see any incentive for companies to develop clean energy sources," Hedges said. "But mainly I'd like to see more transparency."

Black said that "data centers will pay for the costs to serve them, including transmission infrastructure costs."

Hedges said her organization will almost certainly file to intervene in the case before the PSC votes on the issue.

Bird, the CEO of NorthWestern, said their proposal supports constructive dialogue.

“We look forward to working collaboratively with commissioners, stakeholders, and our customers,” Bird said. “Our goal is a solution that protects Montanans, supports reliable electric service, strengthens Montana’s energy infrastructure, drives responsible economic growth, and is right for Montana’s unique situation.”