DOCKET NO. D

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1 BEFORE THE DEPARTMENT OF PUBLIC SERVICE REGULATION MONTANA PUBLIC SERVICE COMMISSION DOCKET NO. D01.. Electricity Supply Tracker Colstrip Unit Generation Asset Variable Cost Adjustments Dave Gates Generating Station Variable Cost/Credit Adjustments Spion Kop Wind Generation Variable Cost Adjustments Hydro Generation Assets Variable Cost Adjustments July 1, 01 to June 0, 01

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7 AL BROGAN NorthWestern Energy 0 N. Montana, Suite 0 Helena, Montana 01 Tel. (0) 0 al.brogan@northwestern.com ANN HILL NorthWestern Energy 0 N. Montana Ave., Suite 0 Helena, Montana 01 Tel. (0) 0 ann.hill@northwestern.com Attorneys for NorthWestern Energy DEPARTMENT OF PUBLIC SERVICE REGULATION BEFORE THE PUBLIC SERVICE COMMISSION OF THE STATE OF MONTANA IN THE MATTER OF NorthWestern Energy s ) Monthly Electric Supply Cost Rate Adjustment/ ) Application for (1) Approval of Deferred Cost ) REGULATORY DIVISION Account Balances for Electricity Supply, CU ) Variable Costs, DGGS Variable Costs/Credits, ) Spion Variable Costs, and Hydro Variable Costs; ) DOCKET NO. D01.. and () Projected Electricity Supply Cost Rates, ) CU Variable Rates, DGGS Variable Rates, ) Spion Variable Rates, and Hydro Variable Rates ) NorthWestern Energy s Application for Interim and Final Electricity Supply Rate Adjustment In compliance with its Electric Tariff, Sheets No.. through., inclusive, NorthWestern Corporation d/b/a NorthWestern Energy ( NorthWestern or Applicant ) by and through its undersigned counsel respectfully submits this Application for approval of (1) Deferred Cost Account Balances for Electricity Supply, Colstrip Unit No. ( CU ) Variable Costs, Dave Gates Generating Station ( DGGS ) Variable Costs/Credits, Spion Kop Wind Generation Project ( Spion ) Variable Costs, and Hydro Generation Assets ( Hydro ) Variable Costs for the trueup period of July 1, 01 through June 0, 01

8 ( Lookback Period ); and () projected Electricity Supply Cost Rates, CU Variable Rates, DGGS Variable Rates, Spion Variable Rates, and Hydro Variable Rates for the projected period of July 1, 01 through June 0, 01 ( Goingforward Period ) to the Montana Public Service Commission ( Commission ). In support thereof, NorthWestern states as follows: I. Applicant s full name and address are: NorthWestern Energy East Park Butte, MT 01 II. Applicant is a Delaware corporation doing business as NorthWestern Energy in the states of Montana, South Dakota, and Nebraska as a public utility. III. The Lookback Period affects the Supply Deferred Charge shown in the Electric Tariff, Schedule No. ESS1, on Revised Sheet Nos. 0.1 and 0.. These are the only tariff sheets impacted by the proposals for the Lookback Period. Recovery of electricity supply costs for the Lookback Period is governed by, MCA (01) ( Mandatory Mechanism ), which mandates full recovery of prudently incurred electricity supply costs. NorthWestern has calculated the proposed Supply Deferred Charge included in this Application in accordance with the Deferred Accounting method approved by the Commission in Order No. c in Docket No. D on June, 00, Order No. f in Docket No. D00.., Order No. a in Docket No. D00.., Order No. 1l in Docket No. D0..1, and Order No. k in Docket No. D The balance in Account No., Electric Supply Deferred Costs, for the 1month period ending June 0, 01 is an undercollection of,0,0. This balance consists of

9 ,, for the undercollection of electricity supply costs from July 1, 01 to June 0, 01, plus an overcollection of (,0,) for CU Variable Costs, an overcollection of (,0) for DGGS Variable Costs, an undercollection of,01 for Spion Variable Costs, and an overcollection of (1,1) for Hydro Variable Costs, including the April 1, 01 balance of the Hydro rebate. NorthWestern proposes to amortize this undercollection balance of,0,0 in rates over the 1month period ending June 01. The Supply Deferred Charge Rates proposed in this Application, which will be shown on Revised Tariff Sheet Nos. 0.1 and 0., are shown on Appendix B. NorthWestern will submit new Revised Tariff Sheet Nos. 0.1 and 0. containing the Supply Deferred Charge rates upon the Commission s approval of the proposed rates shown above. The proposed Supply Deferred Charge rates will replace the current Supply Deferred Charge rates in Schedule ESS1 Electric Supply Service, Sheet Nos. 0.1 and 0.. IV. While the Goingforward Period will not be subject to the Mandatory Mechanism because the provisions of House Bill 1 are effective on July 1, 01, NorthWestern must file this proposal in accordance with its Electric Tariff, Sheet Nos..,., and.. Sheet Nos.. and. were originally approved by the Commission on July 1, 00 and revised on January 1, 01 to remove references to Default. ; Sheet. was originally approved on July 1, 00. These sheets set forth provisions and procedures for Electric Cost and Deferred Accounting. In part, the Tariff provides: On an annual basis, the Utility shall submit to the Commission, a filing reflecting the accounting transactions reflected in the above accounts [Account Electric Supply Deferred Costs and Account Electric Supply Cost Adjustment] for the 1month Accounting Period, and the necessary calculations and rates in support of the upcoming period s Current and Deferred Rates.

10 Electric Tariff, Original Sheet No... A utility must file, as part of its tariffs, all rules that in any manner affect the rates charged. 01(1), MCA. Approved tariffs have the force of law and are lawful until changed as provided in Title, Chapter. 0(), MCA. Although tariff rules are not technically the rates, tolls, and charges named in the printed schedules, because the statute requires the filing of rules as part of the tariff, the lawfulness provision and the procedural requirements for changing tariffs also apply to the rules. To comply with the Commissionapproved Electric Tariff provisions, NorthWestern requests continuation of its current cost recovery mechanism on an interim basis until the Commission approves a new mechanism in a contested case proceeding. In addition to the statutorily defined electricity supply costs, the Commission has authorized recovery of variable costs of generating resources and fixed costs of utilityowned resources through a single volumetric rate. Only the electricity supply costs and the variable costs of generating resources are updated and adjusted in each year s proceeding. The Commission approved the rates to recover the fixed cost revenue requirement for the generating assets in prior proceedings.

11 For the Goingforward Period, NorthWestern has estimated electricity supply costs and variable costs for the 1month period, July 1, 01 to June 0, 01. The following table shows the basis for NorthWestern s total supply rates for the Goingforward Period. Electricity Supply Costs Market Purchases/Sales Net Asset Variable Asset Fixed Off System CU CU,0,1, 1,0, Transactions,,0 NonQF Fixed DGGS DGGS 1,,,,0 Price,,1 QF Purchases,, Spion (,,1) Spion,, Index Priced Transactions 1,,1 Hydro,1 Hydro 1,,0 Ancillary & Other 1,1, Transmission 1,, Administrative 1,0, Carrying Costs 0, YNP Revenue (1,1,) Rounding Total,,,0,,0,0 Grand Total 01,, The Grand Total is a decrease of (,1,1) from current rates. NorthWestern proposes an overall electricity supply rate per kwh as shown in Appendix A to recover the component costs shown in the table above. The Electric Tariff also provides, Monthly Electric Costs shall reflect the current Utility average annual cost of electricity and Electricity Supply Rates shall be based on most recent 1month annual forecast of electricity supply costs divided by the most recent 1month forecasted load on a normalized basis. 1 st Revised Sheet No... Therefore, to comply with the Electric Tariff, NorthWestern proposes to continue using the monthly tracking methodology in which a forecast of 1 months is used in this annual filing for the period July 1 through June 0 of the tracking year with each subsequent monthly calculation

12 based on a rolling 1month forecast. V. The proposed new rates contained in Appendices A and B reflect: 1. The treatment of the Electricity Supply Deferred Cost Account Balance, the CU Variable Cost Account Balance, the DGGS Variable Cost/Credit Account Balance, the Spion Variable Cost Account Balance, and the Hydro Variable Cost Account Balance described in Section No. III; and. The projected overall monthly market supply and costs including electricity supply costs, CU costs, DGGS costs, Spion costs, and Hydro costs, as described in Section No. IV. Attached hereto and incorporated by reference are the following documents: VI. Appendix A Current and proposed Supply Rates for the Goingforward Period; Appendix B Current and proposed Supply Deferred Rates for the Lookback Period; Appendix C Typical bill computations; Notice of Interim Rate Adjustment Request and the Certificate of Issuance of said notice to the media; and Prefiled Direct Testimony and Exhibits of Kevin J. Markovich (five components), Michael S. McGowan, Joseph M. Stimatz, John B. Bushnell, Joseph S. Janhunen (five components), and Danie L. Williams. WHEREFORE, Applicant respectfully requests that the Commission: 1. Grant interim approval of the proposed rates included as Appendix A for the Goingforward Period to be effective on a monthly basis for service on and after July 1, 01;. Grant interim and final approval of the proposed rates included as Appendix B for the Supply Deferred Charge to be effective on a monthly basis for service on and after July 1, 01; and. Grant such other and additional relief, as the Commission shall deem just and proper.

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14 A B C D E F G H I J K L M N O P Q R S Appendix A 0/01/1 Rate Change Docket No. D01.. Page 1 of 1 Current Current Current Proposed Proposed Proposed Proposed Total Rate Without Tax Tax Portion Total Supply Rate Rate Without Tax Tax Portion Total Supply Rate Total Rate Percentage Net Electric Supply Rate (/kwh) 0/1/01 [1] 0/1/01 [1] 0/1/01 [1] 0/1/01 [] 0/1/01 [] 0/1/01 [] Change (MG) Change Residential (0.0000) 1.% Employee (0.000) 1.% GS1 Secondary NonDemand (0.0000) 1.% GS1 Secondary Demand (0.0001) 1.% GS1 Primary NonDemand (0.000) 1.% GS1 Primary Demand (0.000) 1.% GS Substation (0.000) 1.% GS Transmission (0.000) 1.% Irrigation (0.0000) 1.% Lighting (0.0000) 1.% [1] Source: Appendix F June 01 Monthly Tracker Filing. [] Source: Exhibit (JSJ)11, page, col V. [] Source: Exhibit (JSJ)11, page, col V. Note: The tax portion of rate has not changed since Jan 1, 01. [] Source: Exhibit (JSJ)11, page, col V. NorthWestern Energy Electric Utility Electricity Supply Costs, CU Fixed Cost of Service and Variable Costs, DGGS Fixed Cost of Service and Variable Costs/Credits, Spion Kop Fixed Cost of Service and Variable Costs, Hydro Fixed Cost of Service and Variable Costs Rate Change Detail Effective /1/01

15 A B C D E F G H I J Appendix B 0/01/1 Rate Change Docket No. D01.. Page 1 of 1 NorthWestern Energy Electric Utility Deferred Electricity Supply Rate Change Detail Effective /1/01 Current Proposed Rate Percentage Net Deferred Electric Supply Rate (/kwh) /1/01 [1] /1/01 [] Change Change Residential % Employee % GS1 Secondary NonDemand % GS1 Secondary Demand % GS1 Primary NonDemand % GS1 Primary Demand % GS Substation % GS Transmission % Irrigation % Lighting % [1] Source: Appendix G Feb 01 Monthly Tracker Filing. [] Source: Exhibit (JSJ)11, page 1, col N.

16 Docket No. D01.. Appendix C Page 1 of A B C D E F G H I J K 1 Typical Bill Calculation *CTCQF and Overall Electric Electric Residential Service Supply Current Rates 1 Proposed Rates kwh per month 0 Date Date 1 Effective Total Bill Effective Total Bill 1 /1/01 Amount /1/01 Amount 1 Res. Dist.Service Charge Plus: Res. SupplyEnergy Res. Deferred Supply Costs Res. Supply Taxes Res. CTCQF Res. TransmissionEnergy Res. DistributionEnergy Res. Delivery Taxes Res. USBC Res. BPACredit (0.001) (.) (0.001) (.) Total Kwh Charge Total Bill Monthly Increase (Decrease) (0.0) 1 Annual Increase (Decrease) (0.) Percent Change 0.0% 1 Column represents the proposed rate changes for CTCQF, Overall Electric Supply and Net Supply Deferred Costs effective on July 1, 01. J:\FINAL Appendix C_Typical Bill 01 1

17 Docket No. D01.. Appendix C Page of A B C D E F G H I J K 1 Typical Bill Calculation General Service Secondary NonDemand CTCQF and Overall Current Rates Electric Supply 1 Proposed Rates 1 kwh per month 00 Date Date 1 Effective Total Bill Effective Total Bill 1 /1/01 Amount /1/01 Amount 1 GS1 Dist.Service Charge Plus: 1 GS1 SupplyEnergy GS1 Deferred Supply Costs GS1 Supply Taxes GS1 CTCQF GS1 TransmissionEnergy GS1 DistributionEnergy GS1 Delivery Taxes GS1 USBC Total Kwh Charge Total Bill Monthly Increase (Decrease) 1 Annual Increase (Decrease) Percent Change 0.00% 1 Column represents the proposed rate changes for CTCQF, Overall Electric Supply and Net Supply Deferred Costs effective on July 1, 01. J:\FINAL Appendix C_Typical Bill 01

18 Docket No. D01.. Appendix C Page of A B C D E F G H I J K 1 Typical Bill Calculation General Service Secondary Demand CTCQF and Overall Electric Supply Kw 1 Current Rates 1 Proposed Rates 1 kwh per month 00 Date Date 1 Effective Total Bill Effective Total Bill 1 /1/01 Amount /1/01 Amount 1 GS1 Dist.Service Charge Plus: GS1 SupplyEnergy GS1 Deferred Supply Costs GS1 Supply Taxes GS1 CTCQF GS1 TransmissionDemand GS1 DistributionDemand GS1 Demand Delivery Taxes GS1 DistributionEnergy GS1 Energy Delivery Taxes GS1 USBC Subtotal Total Bill Monthly Increase (Decrease) (0.) Annual Increase (Decrease) (1.) Percent Change 0.0% 1 Column represents the proposed rate changes for CTCQF, Overall Electric Supply and Net Supply Deferred Costs effective on July 1, 01. J:\FINAL Appendix C_Typical Bill 01

19 Docket No. D01.. Appendix C Page of A B C D E F G H I J K 1 Typical Bill Calculation General Service Primary NonDemand CTCQF and Overall Electric Supply Current Rates 1 Proposed Rates 1 kwh per month 000 Date Date 1 Effective Total Bill Effective Total Bill 1 /1/01 Amount /1/01 Amount 1 GS1 Dist.Service Charge Plus: GS1 SupplyEnergy GS1 Deferred Supply Costs GS1 Supply Taxes GS1 CTCQF GS1 TransmissionEnergy GS1 DistributionEnergy GS1 Delivery Taxes GS1 USBC Total Kwh Charge Total Bill Monthly Increase (Decrease) (0.0) 1 Annual Increase (Decrease) (0.) Percent Change 0.0% 1 Column represents the proposed rate changes for CTCQF, Overall Electric Supply and Net Supply Deferred Costs effective on July 1, 01. J:\FINAL Appendix C_Typical Bill 01

20 Docket No. D01.. Appendix C Page of A B C D E F G H I J K 1 Typical Bill Calculation General Service Primary Demand CTCQF and Overall Electric Supply Kw 00 Current Rates 1 Proposed Rates 1 kwh per month Date Date 1 Effective Total Bill Effective Total Bill 1 /1/01 Amount /1/01 Amount 1 GS1 Dist.Service Charge Plus: 1 GS1 SupplyEnergy 0.0, ,0.0 1 GS1 Deferred Supply Costs GS1 Supply Taxes GS1 CTCQF GS1 TransmissionDemand.0 1,.0.0 1,.0 GS1 DistributionDemand. 1,.. 1,. GS1 Demand Delivery Taxes GS1 DistributionEnergy , ,1.00 GS1 Energy Delivery Taxes GS1 USBC Subtotal 1,0.1 1, Total Bill 0.0 1, ,. Monthly Increase (Decrease) (1.0) Annual Increase (Decrease) (1.0) Percent Change 0.01% 1 Column represents the proposed rate changes for CTCQF, Overall Electric Supply and Net Supply Deferred Costs effective on July 1, 01. J:\FINAL Appendix C_Typical Bill 01

21 Docket No. D01.. Appendix C Page of A B C D E F G H I J K 1 Typical Bill Calculation Irrigation & Sprinkling Service NonDemand CTCQF and Overall Electric Current Rates Supply 1 Proposed Rates 1 kwh per month 1 Date Date 1 Effective Total Bill Effective Total Bill 1 /1/01 Amount /1/01 Amount 1 Irr. Dist.Service Charge (a) Plus: Irr. SupplyEnergy Irr. Deferred Supply Costs Irr. Supply Taxes Irr. CTCQF Irr. TransmissionEnergy Irr. DistributionEnergy Irr. Delivery Taxes Irr. USBC Irr. BPA Credit (0.001) (.) (0.001) (.) Total Kwh Charge Total Bill Monthly Increase (Decrease) (0.01) Season Incr (Decr) ( Months) (0.0) Percent Increase 0.01% (a) The seasonal charge is divided by months to compute a monthly average. 1 Column represents the proposed rate changes for CTCQF, Overall Electric Supply and Net Supply Deferred Costs effective on July 1, 01. J:\FINAL Appendix C_Typical Bill 01

22 Docket No. D01.. Appendix C Page of A B C D E F G H I J K 1 Typical Bill Calculation Irrigation & Sprinkling Service Demand CTCQF and Overall Electric Kw 1 Current Rates Supply 1 Proposed Rates 1 kwh per month Date Date 1 Effective Total Bill Effective Total Bill 1 /1/01 Amount /1/01 Amount 1 Irr. Dist.Service Charge (a) Plus: Irr. SupplyEnergy Irr. Deferred Supply Costs Irr. Supply Taxes Irr. CTCQF Irr. TransmissionDemand Irr. DistributionDemand Irr. Demand Delivery Taxes Irr. DistributionEnergy Irr. Energy Delivery Taxes Irr. USBC Irr. BPA Credit (0.001) (.) (0.001) (.) Subtotal 1,00. 1, Total Bill 0.0 1, ,1.1 Monthly Increase (0.0) Season Increase ( Months) (0.) Percent Increase 0.00% (1) The seasonal charge is divided by months to compute a monthly average. 0 1 Column represents the proposed rate changes for CTCQF, Overall Electric Supply and Net Supply Deferred Costs effective on July 1, 01. J:\FINAL Appendix C_Typical Bill 01

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24 DEPARTMENT OF PUBLIC SERVICE REGULATION BEFORE THE PUBLIC SERVICE COMMISSION OF THE STATE OF MONTANA IN THE MATTER OF NorthWestern Energy s ) Monthly Electric Supply Cost Rate Adjustment / ) Application for (1) Approval of Deferred Cost ) REGULATORY DIVISION Account Balances for Electricity Supply, CU ) Variable Costs, DGGS Variable Costs/Credits, ) Spion Variable Costs, and Hydro Variable Costs; ) DOCKET NO. D01.. and () Projected Electricity Supply Cost Rates, ) CU Variable Rates, DGGS Variable Rates, ) Spion Variable Rates, and Hydro Variable Rates ) Notice of Interim Rate Adjustment Request NorthWestern Corporation d/b/a NorthWestern Energy ( NorthWestern ) issues notice pursuant to ARM..0 that it has filed with the Montana Public Service Commission ( MPSC ), via its Application, a request for an interim rate increase in electric supply rates in this Docket to reflect forecast overall Electric Supply Costs and the net Electric Supply Deferred Cost Account Balance. This Interim request includes the use of monthly electricity supply cost adjustments, annual Colstrip Unit No. ( CU ) Variable Cost trueups, annual Dave Gates Generating Station ( DGGS ) Variable Cost/Credit trueups, annual Spion Kop Wind Generation Project ( Spion ) Variable Cost trueups, and annual Hydro Generation Assets ( Hydro ) Variable Cost trueups. Applicant requests that the proposed rates become effective for service on an interim basis on and after July 1, 01 pending a final decision on its Application. The rate changes are required to: 1) reflect a decrease in the projected electricity supply costs, a decrease in the projected CU variable costs, a decrease in the projected DGGS variable costs/credits, a decrease in the projected Spion variable costs, and an increase in the projected Hydro variable costs and ) amortize the amounts in the 1

25 Deferred Cost Account Balances for Electricity Supply, CU Variable Costs, DGGS Variable Costs/Credits, Spion Variable Costs, and Hydro Variable Costs for the 1 month period ending June 0, 01. The net adjustments proposed in this filing result in the following: Overall electric supply per kilowatt hour ( kwh ) rate decrease, with the property tax rate component, as shown in the table below: Overall Electric Supply Rate (/kwh) Current Proposed Rate Change % Change Residential (0.0000) (1.)% Employee (0.000) (1.)% GS1 Secondary NonDemand (0.0000) (1.)% GS1 Secondary Demand (0.0001) (1.)% GS1 Primary NonDemand (0.000) (1.)% GS1 Primary Demand (0.000) (1.)% GS Substation (0.000) (1.)% GS Transmission (0.000) (1.)% Irrigation (0.0000) (1.)% Lighting (0.0000) (1.)% The electric supply deferred costs balance for the 1month period ending June 0, 01 is an undercollection of,0,0. This balance consists of 1,, for the undercollection of electricity supply costs plus the CU variable costs overcollection of (,0,), the DGGS variable costs/credits overcollection of (,0), the Spion variable costs undercollection of,01, and the Hydro variable costs overcollection of (1,1), including the April 1, 01 balance of the Hydro rebate. NorthWestern proposes to amortize the undercollection balance in rates over the 1month period ending June 01. The resulting net electric deferred cost rates are shown below:

26 Net Electric Supply Deferred Charge Rate (/kwh) Current Proposed Rate Change % Change Residential % Employee % GS1 Secondary NonDemand % GS1 Secondary Demand % GS1 Primary NonDemand % GS1 Primary Demand % GS Substation % GS Transmission % Irrigation % Lighting % The interim request and supporting documents can be examined at NorthWestern s Montana General Office, East Park Street, Butte, Montana; at the office of the Montana Consumer Counsel ( MCC ), 1 North Last Chance Gulch, Suite 1B, Helena, Montana; or at the office of the MPSC, 1 Prospect Avenue, Helena, Montana. The MCC is available to assist in the representation of consumer interests in this matter, and its phone number is 01. Any response that any person wishes to have the MPSC take into consideration in its decision with respect to this matter should be delivered to the MPSC at the above address as soon as possible or mailed to the MPSC at P.O. Box 001, Helena, MT 001. Any portion of the interim adjustment approved by the MPSC pending hearing and final decision would, pursuant to 0, MCA (01), be subject to rebate or surcharge if the final decision in this docket is to approve a final revenue level which is different than the interim level. DATED: May 1, 01

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28 Department of Public Service Regulation Montana Public Service Commission Docket No. D01.. Annual Electricity Supply Tracker NorthWestern Energy PREFILED DIRECT TESTIMONY OF KEVIN J. MARKOVICH ON BEHALF OF NORTHWESTERN ENERGY ANNUAL ELECTRICITY SUPPLY TRACKER TABLE OF CONTENTS Description Starting Page No. Witness Information Purpose of Testimony NorthWestern s Electricity Supply Activities 01/01 Tracker Period Activities Tracker Presentation in this Docket Update to the 01/01 Electricity Supply Tracker Period Components of the 01/01 Electricity Supply Tracker Period 1 01/01 Forecast Electricity Supply Tracker Period 0 Introduction of Other Testimony and Witnesses Tables Summary of 01/01 Tracker Period 0 Summary of Forecasted 01/01 Tracker Period Exhibits Tracker for the 01/01 Period Exhibit (KJM1)11 Tracker for the 01/01 Period Exhibit (KJM)11 Copyrighted Tradition MidC Forward Pricing Exhibit (KJM)11 KJM1

29 Witness Information Q. Please state your name and business address. A. My name is Kevin J. Markovich and my business address is East Park Street, Butte, Montana 01. Q. By whom are you employed and in what capacity? A. I am employed by NorthWestern Energy ( NorthWestern ) as Director of Energy Supply Market Operations Q. Please summarize your educational and employment experiences. A. I attended Montana State University, graduating in 1 with a Bachelor of Science degree in Business, Accounting option. Upon graduation, I went to work for Marathon Oil Company in Casper and Cody, Wyoming as a production accountant. In 1, I enrolled at the University of Wyoming in Laramie where I earned a Master of Business Administration degree in December 1. In 1, I went to work in the Treasury Department of Entech, Inc., a wholly owned subsidiary of The Montana Power Company ( MPC ). In 1, I transferred to the Montana Power Trading & Marketing Company ( MPT&M ) where I worked in various capacities including realtime electric scheduler, gas marketer, and executive director of retail marketing. In 000, prior to the sale of MPT&M to Pan Canadian, I transferred to MPC, now NorthWestern Energy, where I worked on numerous energy supply activities. In January 00, I became the KJM

30 Director of Risk Management, and in September 00, I assumed my current position Q. What are your responsibilities as Director of Energy Supply Market Operations? A. I am responsible for NorthWestern s energy supply market operations including daily, weekly, monthly, and term trading and scheduling activities. This involves developing and maintaining relationships with suppliers, brokers, and other market participants; executing and managing term contracts; negotiating and approving supply arrangements that are consistent with regulatory guidelines and internal policies; and developing and implementing overall supply strategies to ensure there is adequate supply to meet demand at all times. I also provide information and testimony on utilityrelated matters before the Montana Public Service Commission ( Commission ) Q. Do you hold any professional certifications? A. Yes. I am a Certified Public Accountant and a Certified Cash Manager Purpose of Testimony Q. Please describe your Annual Electricity Supply Tracker testimony. A. In this testimony, I present the following information: I provide a framework for NorthWestern s electricity supply service; KJM

31 I provide a brief overview of significant 01/01 tracker period activities; I provide an outline of the various tracker components included in this filing; I identify and explain certain line items in the tracker; I provide updates to the costs included in the 1monthended June 01 tracker period with months of actual numbers and months of estimated numbers consistent with NorthWestern s electric tariff; I discuss the 01/01 tracker period using the Commissionapproved methodology that is included in NorthWestern s electric tariff; I provide the 1monthended June 01 tracker period forecast and explain how the volumes and costs were derived; and I identify additional testimony I am providing and introduce the other NorthWestern witnesses who are providing testimony in this filing and briefly describe the topic(s) covered by each NorthWestern s Electricity Supply Activities Q. Please describe the general framework that guides NorthWestern s electricity supply planning and acquisition activities. A. Montana statutes and Commission regulations provide the framework for NorthWestern s energy supply planning and operating activities. See 1 through 1, MCA, and ARM..01 through..01. KJM

32 These laws and regulations guide NorthWestern s planning and operating activities ARM..(1) requires NorthWestern to file a comprehensive longterm portfolio management and electricity supply resource procurement plan ( Plan ) in December of oddnumbered years. Since 00, NorthWestern has produced and filed seven biennial Plans. The Plans, and the accompanying Commission and stakeholder comments, provide guidance to the resource planning and acquisition processes that NorthWestern follows in order to costeffectively and reliably serve its customers electricity supply needs. NorthWestern s 01 Electricity Supply Resource Procurement Plan ( 01 Plan ), filed in March 01, in Docket No. N01..1, was the document that helped direct energy supply activities during the 01/01 tracker period The 01 Plan is a comprehensive analysis of NorthWestern s electricity loadserving obligations for its retail customers in Montana. Chapter 1 of the 01 Plan identifies and discusses key initiatives and baseline activities that NorthWestern will address as part of its threeyear action plan going forward. As these activities progress, NorthWestern will communicate the results to the Commission and stakeholders. The Prefiled Direct Testimony of John B. Bushnell ( Bushnell Direct KJM

33 Testimony ) discusses NorthWestern s progress addressing action items in NorthWestern s 01 Plan pertaining to the 0101 tracker period /01 Tracker Period Activities Q. Please provide an overview of the 01/01 tracker period. A. During the 01/01 tracker period no new major changes or events affected energy supply service, but the continuation of certain initiatives that began in prior tracking periods, namely Asset Optimization and Reliability Based Control ( RBC ), remained primary focus areas. RBC is a mandatory North American Electric Reliability Corporation performance standard. NorthWestern s Asset Optimization initiative is aimed at creating efficiencies in NorthWestern s dispatch and operation of its generation resources in order to facilitate RBC compliance. The Prefiled Direct Testimonies of Joseph M. Stimatz and Michael S. McGowan ( Stimatz and McGowan Direct Testimonies ) provide more details on Asset Optimization and RBC Q. What is the status of the hedging strategy that was in place prior to the 01 acquisition of the hydroelectric generating facilities? A. In Docket No. D01.., NorthWestern and the Montana Consumer Counsel ( MCC ) entered into a stipulation agreement, which the Commission approved, which, among other things, precluded NorthWestern from entering into future MidC electric hedging purchases KJM

34 after the acquisition of the hydroelectric facilities ( Hydros ). The hedging strategy that NorthWestern had traditionally described in an appendix to the biennial Plans no longer exists. The 01 Plan detailed necessary forecasted capacity and resource additions, but traditional hedge transactions are currently not needed for the supply portfolio and are not discussed in the 01 Plan. Q. Have any new MidC hedge purchases been made since the Hydros A. No. acquisition? Q. Did NorthWestern make any new term purchases of onsystem energy during the current tracker period that will provide energy in future tracker periods? A. Yes. In May 01 we conducted a Request for Proposals and procured 0 megawatts ( MW ) of onpeak energy to be delivered to NorthWestern s transmission system during the period July 01 through March 01. The contract for this energy replaces contracts for MW of onsystem supply that expire on June 0, Q. Did this transaction violate the terms of the stipulation mentioned above prohibiting additional Mid Chedge purchase transactions after the Hydros acquisition? KJM

35 A. No. This energy is to be delivered on the NorthWestern transmission system and it is based on future index prices, both of which conditions are allowed under the stipulation agreement with MCC Tracker Presentation in this Docket Q. Please summarize the tracker presentation filed in this docket. A. By statutory definition, Electricity supply costs means the actual costs incurred in providing electricity supply service through power purchase agreements, demandside management, and energy efficiency programs (), MCA. While this proceeding includes other costs for which the Commission has approved tracking, the electric tracker only addresses electricity supply costs. I provide testimony and exhibits in this docket separated into five components: (1) Electricity Supply Tracker, () Colstrip Unit ( CU ) Trueup, () Dave Gates Generating Station ( DGGS ) Trueup, () Spion Kop Wind Generation Asset ( Spion ) Trueup, and () Hydro Asset Trueup. All testimony is filed jointly to facilitate a retail customer total supply rate calculation Update to the 01/01 Electricity Supply Tracker Period Q. Please summarize the estimated 1month electricity supply tracker period ending June 01, as it was filed in Docket No. D01... A. The tracker period ending June 01 in Docket No. D01.. included 1 estimated months, July 01 through June 01. Interim Order No. KJM

36 authorized rates reflecting the 01/01 tracker period estimates effective on July 1, 01. NorthWestern filed monthly rate adjustments for each month, from August 01 through June 01 in Docket No. D01... Q. How has NorthWestern incorporated the CU generation that is reflected in the 01/01 tracker? A. NorthWestern has included the full ratebased volume of unit contingent energy associated with MW of capacity in the tracker. The variable costs associated with CU are included in the CU Trueup Q. How has NorthWestern incorporated the DGGS regulation service in the 01/01 tracker? A. The variable costs associated with the provision of regulation service by DGGS are included in the DGGS Trueup. NorthWestern has included MW of baseload energy from DGGS in the tracker to serve retail load Q. How has NorthWestern incorporated the Spion generation that is reflected in the 01/01 tracker? A. NorthWestern has included the variable energy volumes generated by Spion s 0 MW of capacity in the tracker. The variable costs associated with Spion are included in the Spion Trueup. KJM

37 Q. How has NorthWestern incorporated the Hydro generation that is reflected in the 01/01 tracker? A. NorthWestern has included the unit contingent energy associated with MW of capacity in the tracker. As identified in the 01 Plan the capacity at Ryan Dam was increased by MW due to two generator rewinds and three turbine replacements Q. How has the regulation cost associated with United Materials of Great Falls ( UMGF ) been adjusted in this filing? A. Consistent with consolidated Docket Nos. D00.. and D00.., Final Order No. c, in this tracker filing, NorthWestern reduced regulation costs associated with wind energy contracts that do not serve retail load. Accordingly, NorthWestern removed all associated wind regulation charges for the UMGF project from the 00/00 tracker period forward for the periods that NorthWestern was not purchasing the output from this facility. The removed regulation charges are not part of the Transmission Business Unit rate NorthWestern charges its retail customers, but are instead paid by NorthWestern s equity shareholders Q. How has the 1monthended June 01 electricity supply tracker period been updated from the forecasts originally filed in Docket No. D01..? KJM

38 A. The 01 electricity supply tracker filing, Docket No. D01.., was submitted under cover letter dated June, 01. The Prefiled Direct Testimony of Frank V. Bennett in the 01 filing included information for two tracker periods. Actual and estimated information was submitted for the first tracker period, July 01 through June 01. Forecast information was submitted for the second tracker period, July 01 through June 01. The July 01 through June 01 tracker period will be updated with 1 months of actual information in response to the first data requests in this docket The forecast information for the July 01 through June 01 period has been updated in this filing with actual information 1 for July 01 through March 01, and estimates for April, May, and June of 01, and is included as Exhibit (KJM1)11. The actual numbers identify the load, specific monthly resource quantities bought and sold, and related costs for each month in NorthWestern s electricity supply portfolio. The exhibit was previously updated in the December 01 monthly Electric Supply Cost Rate Adjustment to remove Lost Revenues as required by Final Order No. a, in Docket No. D01.. including a Lost Revenue trueup, and also in January 01 to reflect the property tax changes submitted in the 01 Annual Property Tax Tracker filing. 1 Actual information is provided with the exception of transmission (e.g., load following and imbalance costs) in which there is a lag of actual costs by a number of months. KJM

39 1 1 1 Pages and of Exhibit (KJM1)11 show that during the 1month tracker period ending June 01, NorthWestern expects Total Delivered Supply to be,, megawatt hours ( MWh ) of electricity. A total of,0, MWh of this electricity comes from NorthWestern s ratebased assets. The remaining,,0 MWh of electricity is projected to be purchased at a cost of 1,, to NorthWestern s electricity supply customers. The July 01 beginning Deferred Account balance was a,0, undercollection for the marketbased supply portion of this exhibit. Incorporating this undercollection with months of actual and months of estimated information, the 1monthended June 01 Deferred Account balance is forecasted to be a 1,, undercollection (refer to Exhibit (KJM1)11, page ). For further discussion of the Deferred Account, please refer to the Janhunen Direct Testimony Electricity Supply Tracker Components of the 01/01 Electricity Supply Tracker Period Q. Describe the Electricity Supply cost components of the 1monthended June 01 tracker period as shown in Exhibit (KJM1)11. A. NorthWestern s tracker exhibits in this filing reflect the expanded data analysis requested by the Commission staff and initially incorporated for the 0/01 tracker period with Frank Bennett s testimony in Docket No. D01... There are three basic cost components that make up the Electric Supply portfolio for the 1month tracker period of July 01 KJM1

40 through June 01: Electric Supply Expenses, Transmission Costs, and Administrative Expenses I. Electric Supply Expenses A. Off System Transactions These fixed and indexed price transactions have a delivery point outside of NorthWestern s service territory. These transactions are at the MidColumbia trading hub and are used for hedging purposes; they were consummated prior to the Hydros acquisition and remain only until their expiration. B. On System Transactions These fixed and indexed price transactions have a delivery point on or within NorthWestern s service territory and include the following: 1. Fixed Price Transactions a. RateBased Assets This includes any energy contributed to the Supply Portfolio by NorthWestern s owned generation assets, described below. This energy reduces market purchases that would otherwise be made to balance loads with resources. i) CU is a generation asset approved for inclusion in rates in Docket No. D00.., Order No. f at the volume of unit contingent energy associated with KJM1

41 ii) iii) iv) MW of capacity. This asset was originally included as a ratebased facility in January 00. DGGS is a generation asset approved for inclusion in rates by Order No. e in Docket No. D00... NorthWestern includes MW of baseload energy as a result of minimum turndown from generating unit operations. This asset was included as a ratebased facility starting January 1, 0. Spion is a generation asset approved for inclusion in rates by Order No. 1l in Docket No. D0..1. NorthWestern includes the variable energy volumes generated by Spion s 0 MW of capacity. This asset was included as a ratebased facility starting December 1, 01. Hydro includes generation assets approved for inclusion in rates by Order No. k in Docket No. D01.1., at the volume of unit contingent energy associated with MW of capacity. These assets were originally included as ratebased facilities on November 1, b. Base Fixed Price Purchases i.) The variable energy generated from the Judith Gap Energy, LLC ( Judith Gap ) wind turbine facility with KJM1

42 ii.) iii.) iv.) 1 MW of capacity. Judith Gap achieved commercial operation on February 1, 00. This contract expires on December 1, 0. The energy generated by two hydroelectric power purchase agreements totaling approximately 0 MW of capacity. The energy associated with approximately 0 MW of capacity from Qualifying Facility ( QF ) contracts entered into prior to 1. Under Tier II settlements, only a portion of the costs of these contracts is recovered from retail customers through the tracker. The months actual and months estimate shows that these Tier II QFs might not meet the 0, MWh target included in the Stipulation attached to Final Order Nos. w and c under combined Docket Nos. D..0 and D The volumes will be monitored through the estimated months for adjustments as required. The variable energy generated under various QF supply agreements that are segregated into two primary groups. The first group includes agreements for approximately MW of capacity that convey Renewable Energy Credits ( RECs ) to NorthWestern, KJM1

43 1 v.) which then uses them to meet its renewable energy requirements. The second group includes approximately 1 MW of generation under which the associated RECs remain with the QF (UMGF, plus other small QFs). Short and mediumterm market power purchases and sales transacted with various suppliers to balance variable customer demand with electricity supply. The energy requirements vary in part due to customer use and seasonal weather impacts that affect demand Index Price Transactions a. Base, shortterm, and mediumterm market power purchases and sales transacted with various suppliers to balance variable customer demand with electricity supply. The energy requirements vary in part due to customer use and seasonal weather impacts that affect demand. b. Imbalance charges in three categories, including current month estimates of purchases and sales, prior month trueups of the earlier estimated values, and accounting and Balancing Authority Area ( BAA ) expenses that adjust accounts not tied directly with a specific meter or customer. KJM1

44 C. Ancillary and Other The following are portfolio supplyrelated costs that are not actual energybased power purchase agreements but are required to address the needs of the retail supply portfolio: 1. Approximately 0 MW of dispatchable capacity from Basin Creek Equity Partners, LLC ( Basin Creek ). The Basin Creek plant achieved commercial operation on July 1, 00. This contract will expire on July 1, 0, unless extended for up to two fiveyear terms in accordance with the contract terms Operating Reserves which are the contingency reserves required to be in place under NERC Standard BAL00WECC and NorthWestern s Open Access Transmission Tariff. This line item includes the actual costs of operating reserves that are not supplied by the portfolio of resources Expenses related to wind other costs incurred by NorthWestern to fully incorporate wind supply contracts into NorthWestern s energy supply portfolio. These other wind costs include Judith Gap costs, wind forecasting, TIER services, Fergus Electric service at the met tower site leases, Western KJM1

45 Renewable Energy Generation Information System fees, and other direct wind costs.. DemandSide Management ( DSM ) program implementation costs directly involved with DSM programs and projects, which are included as expenses. Refer to the Prefiled Direct Testimony of Danie L. Williams ( Williams Direct Testimony ) for further explanation regarding DSM program costs II. Transmission Costs These are costs of network transmission service and those associated with moving electricity offsystem via pointtopoint transmission service for resource balancing as well as other ancillary services required for system integrity and reliability. Regulation and Frequency Response Service is an ancillary service which provides instantaneous voltage and energy regulation to balance load and resources. Because this service has been provided by DGGS since January 1, 0, these costs are included in the DGGS portion of this filing. Additionally DGGS also provides support for RBC operations as detailed in the Stimatz Direct Testimony. Costs of the transmission facilities utilized to transmit and distribute energy to electric supply customers are included in delivery rates and, KJM1

46 as such, no additional revenue is collected for these costs in this tracker filing. As explained previously, Final Order No. c reduced regulation costs associated with wind energy contracts that do not serve retail load III. Administrative Expenses Incremental administrative and general ( A&G ) costs which are in addition to those recovered in the last general rate case filing (Docket No. D00..1), total 1,0,1 or 0.% of total electric supply expenses and are also included in electricity supply costs. As explained in the Bushnell Direct Testimony, NorthWestern believes these costs should be included in the electricity cost recovery mechanism. These costs include MPSC and Montana Consumer Counsel taxes, modeling costs, trading and marketing costs, and other administrative costs including such items as scheduling, software, broker services, and other incremental expenses directly related to the electricity supply function (such as outside consultants used in conjunction with procurement activities). Q. Please summarize the results of the 1monthended June 01 tracker period. KJM1

47 A. The results of the 01/01 tracker period are summarized in the following table: Electricity Supply Cost Tracker 01/01 Beginning Deferred Account Balance () UnderCollection,0, Energy Supply/Service MWh Cost () /MWh Off System Transactions Fixed Price,,,. Index Price (,) (1,1,1) 1. On System Transactions Rate Based Assets,0, Base Fixed Price 1,01,0,,0. Index Price 0,0 1,1,. Imbalance,01 (1,,00) Ancillary and Other, 1,, Transmission Costs, Administrative Expenses 1,0,1 Carrying Cost (,1) Total Expenses: 1,, Electricity Sales MWh Revenue () Electric Cost Revenue 1,,1 Prior Deferred Expense,1,1 Total Revenue: 1,,0 Ending Deferred Account Balance () UnderCollection 1,, 01/01 Forecast Electricity Supply Tracker Period Q. How is NorthWestern treating the 01/01 forecast period? A. As explained in NorthWestern s Application in this docket, although HB 1 will become effective on July 1, 01, provisions in NorthWestern s current Electric Tariff mandate how the forecast period is to be filed. NorthWestern has filed the information and requested interim rates for the KJM0

48 01/01 forecast period in compliance with the Electric Tariff provisions. NorthWestern recognizes that the Commission may require an adjustment when it finalizes the rates for the 01/01 period. Q. What tracking periods that began prior to July 1, 01 are still open and have yet to be finalized? A. In addition to the tracking period addressed in this docket, July 1, 01 through June 0, 01, the prior tracking period, July 1, 01 through June 0, 01 (Docket No. D01..), is still open and has yet to be finalized Q. Please summarize the 1month electricity supply tracker period ending June 01 as filed in this docket. A. The June 01 Deferred Account marketbased supply undercollection ending balance of 1,, as described above is the July 01 beginning balance. July 01 through June 01 information is based on forecast numbers and includes the following sources of existing electric supply: multiple offsystem and onsystem fixed and index priced transactions that are comprised of a combination of certain ratebased assets, QFs, various base purchase contracts, as well as term and competitive solicitation contracts. Please see Exhibit (KJM)11 pages and for supply volume and cost details of the 1month forecast tracker period. KJM1

49 Basin Creek plant output in this forecast has been modeled using recent operational experience and expectations of future dispatch based on forward market prices. The actual daily operation of the plant will take into consideration market conditions and the total Electric Supply Portfolio environment. As explained previously, Final Order No. c reduced regulation costs associated with wind energy contracts that do not serve retail load. NorthWestern removed a portion of regulation costs attributable to the UMGF wind project. This adjustment is reflected in the transmission cost section on page 1 of Exhibit (KJM) Q. Explain the costs included in Exhibit (KJM)11. A. These exhibits include trackerrelated A&G costs for taxes, pricing information, broker services, and miscellaneous administrative costs. The following provides a short description of each cost category included in A&G and the basis for the costs: ) Taxes include payments of MPSC and MCC taxes; estimates are based upon currently established tax rates. 1 ) Pricing information costs, which include Intercontinental Exchange ( ICE ), Telvent DTN LLC, and TFS Energy LLC. ICE includes several combined electricity and natural gas reports, and those costs are KJM

50 allocated 0% to electric supply and 0% to natural gas supply. The electric portion of these costs are included in the trading and marketing category of the tracker model. ) Costs for broker services from Tullett Prebon Americas Corporation ( Tullett ). These costs are included in the trading and marketing category of the tracker model. ) Modeling costs have been removed from the tracker model in response to Docket No. D01.., Final Order No. 1d. ) Open Access Technology Int l, Inc. ( OATI ) software costs are estimates based upon historic invoice amounts. OATI costs are allocated between electricity supply (%), and the following shares that are not included as costs within the electric supply tracker: natural gas supply (%), Colstrip Unit No. (%), and NorthWestern s South Dakota operations (1%), consistent with the use of the software as reflected in NorthWestern s prior tracker filings. These costs are included in the general administration category of the tracker model. ) Sapere Consulting, Inc. ( Sapere ) costs are estimates based upon budgeted amounts. Sapere invoices relating to administration of Community Renewable Energy Project Requests for Proposals are included in the general administration category of the tracker model. KJM