Northwestern Energy and an irrigation district seeking to build a hydroelectric facility were dropped over the price of electricity at a hearing this week by the Montana Board of Public Utilities.

Northwestern, the largest monopoly utility operating in Montana, is at odds with the Greenfields Irrigation District over a nearly 40-page purchase agreement that NorthWestern filed with state regulators over early this year.

Greenfields Irrigation District, which distributes water to more than 500 irrigators across a 93,000-acre portion of the Sun River Basin in central Montana, argued during a hearing before the state Public Service Commission that NorthWestern’s proposed contract would stifle competition for power generation by making projects too risky to obtain financial support. Without a revision to the contract specifying how much potential project developers will be paid for the electricity they produce, loans will be nearly impossible to obtain, argued GID attorney Lowell Chandler.

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GID wants to install turbines in an existing dam to generate up to three megawatts of electricity and help fund the improvements needed to keep the nearly 100-year-old district operational.

NorthWestern said its proposal would ensure it pays competitive electricity prices, benefiting the hundreds of thousands of utility customers it serves in Montana. It also argued that it has enough power generation in its hopper and that it should not have to pay small power producers for power it does not need.

The parties outlined their positions during a quasi-judicial hearing that began Tuesday and continued through Wednesday morning. The PSC, the five-member elected board created to balance the financial health of the investor-owned utility and the interests of its customers, is expected to decide the issue next year.

Many elements of the power purchase agreement in question are governed by the Public Utilities Regulatory Policy Act, or PURPA, a law passed by Congress in 1978 to increase grid reliability and introduce more competition on energy markets dominated by monopolistic utilities.

Chandler said the commission’s role is to act as a “neutral arbiter” of PURPA to ensure that NorthWestern will maintain some degree of competition from small power producers.

“You must decide whether to encourage this competition, as PURPA requires, or to rely on NorthWestern’s proposed (pricing) methodology which will virtually eliminate this competition and give NorthWestern complete control over production in Montana,” Chandler said.

One of the main points of contention in NorthWestern’s proposed contract concerns how it calculates its “avoided energy cost” – the amount of money the utility would not have to spend on electricity from other sources in under a contract established with a small electricity producer.

NorthWestern argued that the pricing structure should be based on the price regional utilities pay merchant power producers for electricity in near real time to reflect market prices.

NorthWestern also argued that it should not have to pay GID an additional amount for its ability to serve as a “capacity” resource, or a generator that can add electricity to the grid as needed to meet peaks. of use.

“When NorhtWestern added the Yellowstone County Generating Station to its portfolio and added additional shares of Colstrip to its portfolio, the avoided costs decreased,” said Ann, NorthWestern’s attorney. Hill told the commission. “NorthWestern has reduced its avoided capacity costs and this should be reflected in tariff rates.”

Chandler countered that eliminating a more predictable pricing structure is part of NorthWestern’s deliberate attempt to stifle competition in an industry the utility already has control over. Erling Juel, director of the GID division, testified that a pricing framework established to govern the payment structure over the life of the 20-year contract creates something that should be desired by all parties: certainty. Having a pre-established pricing structure in place will protect NorthWestern and its customers from market volatility, Juel argued.

The parties also disagreed on how transportation infrastructure improvements should be distributed among them. NorthWestern argued that GID should bear part of the costs associated with these investments, while GID said that any expenditure it plans for the network upgrade should be reimbursed to it in order to establish consistency with the way in which NorthWestern deals with large electricity producers.

Each party will have the opportunity to submit two more sets of arguments to the commission in the coming months.