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Mont. Supreme Court upholds denial of NorthWestern's plant outage costs

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Mont. Supreme Court upholds denial of NorthWestern's plant outage costs

The Montana Supreme Court upheld the Public ServiceCommission's denial of $1.42 million in power supply replacement costsNorthWestern Corp.incurred during a 2011 outage of its Dave Gates Generating Station.

In a Sept. 27 opinion, the court decided the PSC was right to rulethat the company, which does business in Montana as NorthWestern Energy, shouldhave investigated insurance coverage to identify the risk of incurringreplacement power costs before the outage occurred.

Instead, NorthWestern only assumed insurance would have beenmore costly than it was worth, so it failed to seek any, the court said inproviding background on the case in the opinion.

Weighing risk would have been prudent, because the 144-MWDave Gates plant near Anaconda, Mont., was a first-of-its-kind facility thatNorthWestern presented as having the potential to be a model facility for thesupply of regulation service, the court said.

The plant consisted of three generating units made by Pratt& Whitney Power Systems, Inc., now PW Power Systems, and was a uniqueapplication of a simple-cycle natural gas turbine generator designed toincrease or decrease ramp in response to variations in NorthWestern's load on amoment-by-moment basis.

NorthWestern testified that the plant's unique controlmechanism was needed to ramp up or down at least 15 MW per minute per unit tooffset continuous variation between system generation and system load, thecourt said. This fluctuation was needed largely because of variable windresources on the utility's system.

While NorthWestern purchased an extended warranty from themanufacturer to cover the innovative technology, the utility did not evaluateor purchase outage insurance to cover power replacement costs in case the plantfailed.

On Jan. 13, 2012, about 13 months after NorthWestern broughtthe plant online, the facility had a complete outage, the court said, althoughNorthWestern's account at the time was that it did not bring the fullplant down until the week of Jan. 30, 2012. Unit cycling caused thermalstresses by going from a cold state to a very high temperature and this damagedrotating equipment. PW Power Systems concluded that the outage resulted frommuch greater ramp rates than had been anticipated.

Over the next 15 weeks, the manufacturer repaired thedamaged turbines but was not obligated to pay for replacement power due to acontract waiver of consequential damages. The plant came back fully online onMay 2, 2012

Meanwhile, NorthWestern incurred charges from and for regulationservice. NorthWestern argued that it obtained regulation service at competitivemarket rates and worked quickly with the manufacturer to get the plant back inservice.

Also, the court recounted the utility's argument that, forall its generation resources, the company had never purchased power replacementinsurance but had always relied on the market. In consulting with otherutilities, NorthWestern said it learned that outage insurance could cost $1million a year and thus could have cost more than the replacement power itself.

NorthWestern spokesman Butch Larcombe said by email that thecompany did not have any comment on the court's decision.