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Plotting a power gambit in Montana: No certainties in generation race

The competition to develop new power-generating facilities in Montana can be compared to a baseball game.

Being on first doesn’t guarantee anything because there are other factors at play.

Such as who’s on second.

By JIM GRANSBERY
Of The Gazette Staff

Montana energy expert John Hines can remember that Bud Abbott and Lou Costello comedy routine.

Who’s on first has the advantage, said Hines, one of Montana’s two members of the Northwest Power Planning Council, but he wasn’t talking baseball.

The NWPPC is a regional power planning group made up of representatives from Montana, Idaho, Washington and Oregon. Each state has two members appointed by the governor.

"The company that comes on line first has a competitive advantage," Hines said. "Any new generator better avail themselves to whatever (transmission) capacity there is without upgrading significantly."

He cautioned that "there is a nuance here, whoever is first will still be partially dependent on upgrades" to existing electrical transmission lines and corridors.

Some of those planning new coal-fired generating units in Montana agree with Hines, at least in part; others reject the premise – it doesn’t matter who’s on line first because there are so many other variables.

Fundamentally, it is the company that provides the lowest cost per megawatt hour and finds the means to deliver it to long-term customers that is the one who makes it to first base and beyond. How that is achieved depends on the marketplace, and each proposal has its own set of obstacles to overcome.

Finding customers is at the top. A revenue stream is also necessary. And financing construction is as key as shipping the power over existing transmission lines, building upgrades or new lines through existing or new right-of-way corridors.

Then there is another big question: Will the power stay in state or be exported?

"This is not black or white, or a zero-sum game," Hines said. The plants will be built "to the level they meet their owners’ needs or other participants’ expectations."
Going for the power

In the past two or three years, a number of electrical generation proposals have emerged for supplying power in-state, out of state or both. They include the use of wind, gas, and coal or, in one case, a combination.

Among the proposed coal-fired plants, three major and two lesser plans have been floated. Proposals using natural gas have been placed on the back burner because of sharply higher prices and tight supply. Federal Reserve Board Chairman Alan Greenspan recently expressed his concern for the national economy because of the natural gas situation, which is not expected to stabilize in the short term.

Hines said higher natural gas prices make coal generation more economical, but coal requires more technology for cleaning up emissions.

Wind generators – a least three proposals so far – are pegged as part of the default supply portfolio of NorthWestern Energy, which supplies the electrical needs of the former customers of Montana Power Co.

"You are assuming transmission is the driving force. It is not," said Jerry Vaninetti, president of Great Northern Power Development of Denver, whose company plans a 500-megawatt coal plant near Miles City.

Joe Dickey, project manager for proposed twin 390-megawatt plants in the Bull Mountains, rejected the premise as "not a logical assumption.

"By the time this project gets on line," he said, "the transmission lines will be there, they are going to get built."

A spokesman for a third major project disagrees as well.

"I don’t disagree with the premise," said Mike Gustafson, president of Wesco Resources of Billings, a member of a consortium looking to develop state-owned coal in the Otter Creek area of southeastern Montana.

Gustafson said the real key for both the first and second phase of his proposal is "long-term, exclusive contractual access to transmission."

That supposes "we are the least-cost plan for the utilities" buying the power, he said.
Miles City idea

Vaninetti’s Great Northern Power Development and its partner, Kiewit Mining Group of Omaha, in May announced their intention to proceed with permitting and construction of a 500-megawatt coal-fired generating plant at Miles City.

The plant will include an adjacent coal mine and wind-power facility. The project is estimated to cost $900 million and will provide 175 direct jobs and an estimated 1,200 spin-off service jobs. Construction is estimated to be complete and the electrical power on line by 2008.

The Miles City plant is to serve Montana and the Pacific Northwest.

"It is the customer first, then transmission," Vaninetti said. "That will be determined by the best economics for the customer, the lowest price per megawatt."

He said there is not a significant amount of capacity on current lines and, depending on the size of an individual project, upgrades to current lines will be needed.

"Everyone will have to string additional wire and add towers," he said.

He said no utility had committed to buying his power yet.
Bull Mountains plan

The Roundup Power Project in the Bull Mountains north of Billings would cost $910 million, provide 800 construction jobs and 150 permanent jobs when operating. Coal would come from an adjacent underground coal mine. Completion of the plants is pegged for 2005 and 2006. Montana has issued an air permit for the plants, but it is being challenged in state court by environmental groups.

Dickey said whatever transmission is needed will be built by the private sector.

"By 2007, the Pacific Northwest will need an additional 3,000 to 4,000 megawatts," he said. "We’re just a little piece of that. There is room for a lot – wind, coal, gas."

He said gas supply and prices will probably take a decade to settle down.

The Roundup Power Project anticipates Pacific Northwest utilities as owner-participants who need power for their existing customers.

"They will own the plants," Dickey said. He said construction of the plants does not depend on the participation of Montana electrical cooperatives, which were mentioned as possible owners when the project was announced in October 2001.
Otter Creek efforts

A year ago, a group of entrepreneurs and corporations announced its intention to develop a plan for the coal resources known as the Otter Creek tracts, which the federal government turned over to Montana in April 2002.

A consortium of Wesco Resources, Bechtel Enterprises Inc., Burlington Northern Santa Fe Railway, The Gallatin Group and Kennecott Energy Co. projects leasing and mining the coal, building one or more power plants and power lines to transmit the electricity either east or west from Miles City. It also envisions a railroad from Ashland to the BNSF mainline near Miles City.

The facilities would be built over the next five to 10 years. Projected costs, depending on the number of power plants involved, would range from $2 billion to $4 billion.

The first phase includes a 750-megawatt coal generator, 100-mile power line to tie into existing transmission, a 3-million-ton-per-year coal mine for the power plant with the electricity being sold in Montana and the Pacific Northwest. First-phase completion is estimated at 2008-10.

"This is the minimum economic size," Gustafson said.

He said transmitting the power to the Pacific Northwest would require that current power line owners – the Bonneville Power Administration and the utilities that built and own Colstrip units 3 and 4 – provide the contractual access to transmission, which would then provide the revenue to pay for the first phase.

"Seven hundred fifty megawatts is not enough long term," he said. "But phase one would be the upside to chase more capital" to build additional power plants and lines to send the electricity to Northern California.

Gustafson said the energy legislation being written in Congress needs to provide the secretary of energy the authority to declare "critical transmission corridors." The effects could be mitigated by using existing corridors and expanding the rights of way, he said

"We cannot ignore this coal," Gustafson said. "The economic future of the Pacific Northwest depends on it."

So might the future of rural Montana.

Co-op efforts

The Central Montana Electrical Power Cooperative is a 15-member organization serving rural customers from Cut Bank to Ashland, from Opheim to Dillon.

The co-op currently gets power from the Western Area Power Administration, BPA and Basin Electric of North Dakota.

The co-op currently is evaluating its needs after 2008, said Tim Gregori, general manager.

"Our first contractual shortcoming is in July 2008," he said. "We’ve spent three years evaluating our options."

The co-op has four choices: a power purchase agreement with an existing or new facility or taking an equity position in a new or existing facility.

Gregori said the co-op has considered the Great Northern Power Development project, but has looked at 20 others, also.

He said that the 15 members of the co-op all are independently owned and some have their own transmission while others do not.

There are some gaps to hook up, he said.

He said he does not see any distinct advantage to the first to get its power plant on line because the customers may need to make their own system improvements before buying new power.

Gregori said most of the co-op’s current supply comes from hydropower.

"Central Montana recognizes the values of its members," he said, "so future power needs will not be determined only on price but that the new power be environmentally compliant as possible. That current clean coal technology be implemented as a complement to the hydropower."

Copyright © The Billings Gazette, a division of Lee Enterprises.

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