HELENA — Drought and high temperatures this summer in the West likely will be bringing yet another discomfort for many Montanans, although not right away: Higher electricity prices.
The drought and unusually hot weather have dropped hydroelectric reservoirs to historic lows in California and other parts of the West, crimping supply and increasing demand. Regional power prices are both volatile and spiking.
That means Montana’s largest electric utility, NorthWestern Energy, will be paying millions more than expected to acquire enough power to serve its 380,000 Montana customers, company officials told MTN News.
“When we set our forecast about a year ago for what we thought we’d pay in July, August and September of this year, we thought we’d pay about $15 million on market purchases,” said Kevin Markovich, director of energy supply for NorthWestern. “If these prices continue … we think those purchases will be like $40 million.”
NorthWestern electric customers pay 90 percent of those extra costs – but won’t see the impact on their bills until July 2022.
NorthWestern estimates how much power they’ll have to buy for a year ahead of time, starting in July each year, and those estimates are baked into rates. Any excess costs, or savings, are “trued up” at the end of the fiscal year, in June, and then folded into rates for the next year.
Still, the drought and hot weather have power-company managers sweating over prices and supply shortages across most of the West.
John Hines, NorthWestern’s vice president for supply, said last week he’s pretty sure the company can acquire enough power to keep the lights and the air-conditioning on through its Montana service territory for the summer.
But being sure is “one of my stay-awake items,” he added.
“There is a limit to how much we can bring in from other states,” Hines said. “I’m feeling pretty comfortable, but that’s assuming all our resources perform as expected. And, not just the resources that NorthWestern owns, but resources that other parties own in this state as well.”
NorthWestern serves nearly two-thirds of the households with electricity in Montana. Almost one-third of Montana’s electric customers are served by rural electric cooperatives.
Co-op customers are mostly shielded from any power-price effects of the drought because they have fixed, long-term supply contracts in place, said Ryan Hall, communications director for the Montana Electric Cooperatives Association.
NorthWestern generates its own power from a collection of coal, natural gas, hydro, and wind sources it owns or controls.
But in peak consumption hours during hot summer months, that “portfolio” of power produced by the company isn’t enough to meet demand, and it must buy extra power on the wholesale market.
Markovich said in a normal summer, NorthWestern is buying perhaps 275 to 300 megawatts of extra power to meet demand during peak consumption. This summer, it’s already had to buy 500 megawatts at times.
The company had forecast the price at $40 to $50 per megawatt-hour, which powers anywhere from 600 to 1,000 homes. Last week, NorthWestern paid $150 per MWh on one day and $300 per MWh on another, he said.
“The market is very, very volatile and very, very high-priced,” Markovich said.
The price paid by NorthWestern, or anyone in the Western region, is affected by shortages and demand in places like California and Arizona. This week, many of California’s hydroelectric reservoirs were at 50 percent of normal, or lower.
“We’re market-takers, not market-makers,” he said. “There’s no way we can dictate any lower (prices).”
In Montana, reservoirs in the northwestern part of the state are near normal, Markovich said. But the further south you go, the worse it gets.
“In our Missouri River Basin, which is the Hauser, Holter, and Great Falls dams, we’re producing 73 percent of normal and our precipitation in June was like 20 percent of normal, so it’s bad and getting worse,” he said.
Markovich said other concerns are whether California puts a moratorium on electricity exports out of the state, if wildfires take down transmission lines, or if generating units go down somewhere.
“If any of those items occur, or something along those lines, we’re at the mercy of the market,” he said. “Other than having rolling blackouts, there is nothing we can do but pay the price.”