NorthWestern Energy is withdrawing its request for regulatory approval to build a new natural gas-fired power plant in Laurel, opting to move forward without approval.
The utility informed the Montana Public Service Commission Tuesday that construction and supply chain challenges related to the COVID-19 pandemic forced the withdrawal. The gas-fired power plant's capacity is 175 megawatts, about 78% of size of the utility's share in Colstrip Unit 4.
NorthWestern in a press release said it would forego the 270-day preapproval process, months underway at the utility's request, and get construction started "in order to accelerate the commercial operation date of the Laurel Generating Station and to take full advantage of the favorable supply and labor prices in existing contracts."
The reciprocating internal combustion engine, or RICE plant, is easily ramped up or down, making it possible to balance generation from intermittent resources like wind and solar farms or outages at Colstrip. It was a power plant NorthWestern earlier said it needed to have.
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“The uncertainties and upheaval in the construction market and challenges to the supply chain due to the COVID-19 pandemic have resulted in the need to make commercial decisions outside of the timelines of the approval docket to ensure that we maintain the most favorable supply and labor prices for this project,” said NorthWestern attorney Shannon Heim in a notice to the PSC.
NorthWestern had asked the PSC for pre-approval for putting Montana customers on a payment plan for the $283.8 million development, which was expected to raise residential customer rates about $80 a year, on average. The clock was ticking on a decision. State law gives the PSC 270 days to act on a pre-approval request. The countdown had been on since June 11.
Nothing prevents NorthWestern from skipping pre-approval and just building a project, in which case the amount customers pay is determined afterward when the full costs of the project are realized. As the utility contacted parties Monday about its decision with withdraw, criticism started to swirl about whether choosing the lengthily pre-approval route had pushed NorthWestern into a period of higher construction costs.
There had been no indication NorthWestern was going to withdraw its request. As recently as Sept. 9, NorthWestern included Laurel Generating Station in its presentation to would-be investors at the Barclays Energy Power Conference. There was no mention of supply challenges, just the sought-after pre-approval of the state PSC before construction would start.
“NorthWestern Energy negotiated a very favorable price for the plant construction, however the worldwide pandemic caused supply-chain disruptions and contributed to labor shortages across all industries, including the energy sector, that were not fully anticipated during contract negotiations,” said NorthWestern Energy CEO Bob Rowe, in a press release.
NorthWestern, which didn't respond to questions Tuesday, began its press release not with its power plant withdrawal, but a statement about a shortage of firm power in the West and high market prices affecting customers.
The utility had recently asked the PSC to pass those unanticipated higher energy costs fully onto customers rather than using a cost-sharing formula in which the utility picks up 10% of the expense.
Construction of the power plant was to begin after PSC pre-approval, with the power plant coming online by the beginning of 2024. At the peak of construction, between 250 and 300 people would be working on the plant.
When NorthWestern sought PSC pre-approval for the gas plant, several parties raised questions about the cost of the pipeline needed to supply natural gas to Laurel Generating Station, which NorthWestern had left out of its application.
The utility planned to repurpose a former oil pipeline to connect the Laurel plant to a natural gas supply network in Wyoming. The cost of the line would be brought up at a later date, the utility said. But in choosing to build a natural gas-fired power plant, NorthWestern as passed on several renewable energy projects, the developers of which argued that the pipeline costs should have been included up front for a more fair price comparison with renewable developments.
Concerned about NorthWestern adding another fossil-fuel power plant to its Montana portfolio, groups like the Montana Environmental Information Center said the power plant was bad for a worsening climate. Three of the state's largest cities also said the gas-fired plant didn't fit with their green energy goals.