NWE ISG s Infrastructure Initiative

Transcription

1 NWE ISG s Infrastructure Initiative

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3 Forward Looking Statements These materials may contain several forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of Forward-looking statements often address our expected future business and financial performance, and often contain words such as anticipates, believes, estimates, expects, intends, plans, seeks, or will. The information in these materials is based upon our current methodology and estimates as of the date hereof. Our actual future business methodology and financial performance may differ materially and adversely from those expressed in any forwardlooking statements. We undertake no obligation to revise or publicly update our forward-looking statements or these materials for any reason. Although our estimates, expectations and beliefs are based on reasonable assumptions, actual results may differ materially. The factors that may affect our results are provided in these materials and listed in certain of our press releases and disclosed in the Company s public filings with the SEC.

4 Information Not Final This presentation is a work in progress and provides only estimates of data, costs and program development based upon information available to NorthWestern Energy at this time. It is not to be relied on as a decisional document. The final outcome or recommendation, if any, of this initiative is dependent upon input from all stakeholders, including members of our stakeholder groups, as well as financial considerations and regulatory treatment. Accordingly, the data, costs and program development contained herein are subject to change upon the further development of this initiative.

5 INFRASTRUCTURE STRATEGIC DRIVERS Customers Responsiveness Reasonable Costs ISG s Guiding Principles Sustainable Future Reliable Service

6 Reliable Service We value reliable electric and gas service for individual consumers and businesses. ISG s Guiding Principles-Reliable Service We recognize there may be differences between market sectors depending on the location of the domicile or nature of the business. Therefore, the following are clarifying value statements: We value a utility company that maintains its infrastructure and incorporates new technology in order to provide reliable electric and gas service to individual consumers and businesses. We believe reliability should never interfere with one s personal quality of life or impede economic growth/vitality. We believe there is a balance between maintaining reliable utility service and the expense to maximize the reliability of that service. We believe in maintaining current reliability performance as judged relative to industry peers. We value a utility company that continually reviews and incorporates new technology that is proven to increase the reliability of its services.\ We value a utility company that retains the infrastructure and employee capability to respond to ever-increasing catastrophic weather events in a manner that minimizes the length of outages and avoids system-wide failures. We believe that businesses engaged in risk-sensitive activities (such as medical facilities), industrial enterprises requiring a higher degree of reliability, as well as users who choose to locate their homes/businesses on the end of a service line, should be obliged to pay the expense associated with that elevated reliability requirement. (Relates to fourth bullet under the Reasonable Guiding Principle). We recognize the key role of our electric and gas transmission infrastructure beyond NWE s bundled retail customers, and, in particular, service to Electric Cooperatives and Local Distribution Companies. Generally, we believe that NorthWestern must have the resources to provide transmission service to these wholesale customers that meets industry reliability standards for transmission service, and should be reasonably the same as other NorthWestern major load centers. 9

7 ISG s Guiding Principles-Customer Responsiveness Customer Responsiveness We recognize that Montana is a great place to live and offers reasonable energy prices. We recognize that there is a tradeoff between maintaining low energy prices and meeting increasingly diversified customer needs and preferences. Customer Responsive We expect that gas and electric reliability should never be an impediment to economic vitality and quality of life. We expect that NWE will maintain current reliability performance judged relative to industry peers, considering that NWE is positioned with existing infrastructure and employee capability to respond to increasing numbers of catastrophic events and avoid system-wide failures. We recommend that risk sensitive and industrial customers, as well as those on the end of a line that require high degrees of reliability, pay for needed increased levels of reliability. Customer-End User Responsiveness We recommend that NWE maintain existing service levels (web, walk-in, software, etc.) as well as engaging and adapting to future services that can be cost-effectively provided. We expect that NWE will recognize the diversity of customer groups and needs We support incentives and regulatory solutions for customer responsiveness and services as markets and electricity solutions develop. This includes improving and expanding ways for customers to affect their energy usage and bills beyond traditional opportunities. We expect that NWE will respond to customer needs and goals in a collaborative, respectful, and ongoing manner. We expect that NWE will engage in the following to meet consumer needs: Provide more information Become more relationship focused Offer convenience Offer Value Options Continue to pursue cost controls Offer green and net metering options 10

8 ISG s Guiding Principles-Reasonable Costs Reasonable Cost We value reliable and quality electric and gas service at the lowest cost. We also recognize the potential conflict between quality service and low cost. Therefore, here are additional clarifying value statements: We value a utility company that maintains its infrastructure and keeps in mind both current and future generations. We value a utility that fairly pays its employees, is engaged both in presence and financially in our communities, minimizes environmental impacts of providing services, and appropriately invests in future technology. All in the context of ensuring that all reasonably accessible customers, both residential and commercial, have access to quality, affordable service. We embrace the opportunity to maximize utility assets to incent economic growth through widely available and reasonably priced service. We embrace the opportunity to maximize utility assets to develop new revenue generating business models; for example, exporting energy outside of Montana to create jobs and lower Montana customer costs. We believe that customers that use a particular service or have a more demanding level of reliability or quantity of energy usage should generally pay the associated costs for that service. However, we also recognize the complexity of the system and that is impossible to avoid some cost-sharing between users. We understand that cost allocations are policy decisions made by the Montana Legislature and implemented by the Montana Public Service Commission. We also recognize the historic policy decision that urban customers partially subsidize the costs of rural customers. We ask that policy makers and NWE carefully limit the extent to which one customer class subsidizes another. We believe this is especially important as more private distributed energy generation is developed. We encourage NWE to work closely with policy makers to better understand changes in the market (such as distributed energy generation) and develop updated regulatory structures that incents development (and associated Montana businesses) while still creating a financial incentive to NWE and customers. [See related discussion under Sustainable Future Discussion] We understand that some forms of present and future generation may be more costly and encourage regulators and NorthWestern Energy to balance these factors to provide options for more clean energy. 11

9 ISG s Guiding Principles-Sustainable Future Sustainable Future We value proactive planning for the future to protect the utility, customers, society and the environment. We recognize that it is hard to predict the future, especially with so many changing factors such as natural gas prices, climate change, distributed generation, the internet of things, smart appliances, electrification of transportation, regulation, and customer demands, THEREFORE: We recommend that NWE be proactive in planning not only for physical infrastructure needs but also for changing technologies and business structures We encourage NWE to focus on being solution-oriented even in the face of extreme changes and challenges and to act more as a partner than a provider We expect NWE to be adaptable to changes and foster a company-wide culture of adaptability NWE should remain customer-focused to stay ahead of changing customer needs (e.g. cost, technology, reliability, power quality, information, distributed and green power preference) We expect NWE to manage all assets efficiently (e.g. develop additional transmission lines in existing corridors when appropriate) We expect NWE to embrace opportunities to maximize assets, update business models and economically benefit the state from a business development and energy export perspective and a customer perspective. While keeping costs low and managing short term increases are important [See Reasonable Cost], we expect NWE to make decisions based on lowest long term cost and impact (utility, environment and social) 12

10 Infrastructure Scenarios Scenario s will be developed by focusing on guiding principles in different priorities Scenario One Reasonable Cost Reliable Service Sustainable Future Customer Responsiveness Scenario Two Reliable Service Reasonable Cost Sustainable Future Customer Responsiveness Scenario Three Sustainable Future Customer Responsiveness Reliable Service Reasonable Cost 13

11 Infrastructure Strategies Modify current five year plan and Infrastructure Categories to meet scenario strategies using technology Capacity (CP)* Reliability (RE) Asset Life (AL) Compliance (CO) The necessary delivery capabilities of the system necessary to meet operations, reliability, and growth parameters Define delivery systems expectations verses actual performance Life of an asset based on a set level of performance of a delivery system The adherence to established norms Technology 14 *Note: Capacity is broken down into Capacity Growth (CP_G) and Capacity Reliability (CP_RE)

12 Infrastructure Vision and Mission Defining a Common Language for managing our delivery systems* Project Strategic Value Analysis Optimizing Investment Portfolio Align with Corporate Drivers Meet Delivery System s Performance Targets 15 *Delivery systems are comprised of: Electric & Gas Transmission & Distribution and Substations & Gate/Compressor Stations

13 Capital Budget Five Year Plan- Base Scenario $920M of Capital Investment over 5 years for MT T&D year Total MT Total $191,034,953 $165,449,437 $169,025,877 $180,568,234 $213,902,499 $919,981,000 MT T Gas $19,396,584 $24,449,774 $26,785,230 $20,253,456 $18,638,666 $109,523,710 MT T Electric $50,366,659 $50,177,503 $50,177,503 $62,587,268 $81,830,956 $295,139,890 MT D Gas $9,809,573 $9,637,534 $9,397,510 $17,632,696 $20,844,253 $67,321,566 MT D Electric $72,962,138 $81,184,625 $82,665,634 $80,094,813 $92,588,624 $409,495,834 DSIP $38,500,000 $0 $0 $0 $0 $38,500,000 16

14 7% $13.1M 38% $74.4M 2017 MT Capital Budget by Infrastructure Categories Risk Driven Performance Metric and/or Value Additional Drivers Blankets and Programs 49% $95.5M 3% 3% $5.5M $6.2M Outside Infrastructure Parameters Blankets/Programs and Risk account for 87% of the capital budget Risk Driven- all projects with a risk level 3 or less in one or more of the five categories Performance Metric or Value- projects not identified by risk that add to performance goal (only identified in Electric Distribution) Additional Drivers- projects not identified as risk or performance that have a high score or SY Outside Parameters- projects that fall outside of this process that need further review or add value beyond identified targets (ie- Big Sky projects) 17

15 Infrastructure Scenario One Strategy Reasonable Cost Reliable Service Sustainable Future Customer Responsiveness Maintain capacity margins Reduce current capital capacity growth budget. Explore other rate recovery methods for high growth areas driving abnormal investments. Replace capacity reliability projects with technology Maintain reliability by increased technology Increase technology driven programs (coordination, automation, etc) Extend asset replacement cycles Reduce asset management program funding accepting more risk but managing reliability through technology Decrease risk budget by 50% increasing project schedules and accepting greater short term risk 18 *Note: 2017 funding levels do not change

16 Scenario One Summary - Reasonable Cost Total Budget Decrease $157M over five years, $60M in technology Maintain capacity levels o Reducing capacity growth funding by $25.4M Improve reliability through advanced technology o Reduce cap reliability and reliability funding by $37.3M and move $53M to technology Increase replacement cycle and accept additional risk o Reduce asset management programs by $33.7M and move $7M to technology Increase risk appetite (postpones some investment but does not eliminate o Reduce risk driven projects by $68.4 by increasing project schedules 19

17 Technology Investment Opportunities Grid Modernization Initiative Scenario 1 Technology Category System Focus Costs ( $ ISG principle Expected benefits Electric Segmentation Transmission $ 15 Reliability 5 SAIDI Minutes Distribution $ 30 Reliability 15 SAIDI Minutes Circuit Coordination Distribution $ 5.0 Reliability 1.25 SAIDI Minutes Equipment Monitoring Substations $ 0.6 Reliability Deferred assets replacement Total $ 50.6 Gas Updated Hydraulic Modeling Software Transmission $ 0.1 Sustainability Capacity planning deferrments Improved SCADA System Transmission $ 2.0 Reliability Reliability/Operations SD/MT Gas Scheduling System Transmission $ 0.8 Customer OptioImproved Scheduling Process System Pressure Monitoring Distribution $ 2 Reliability Deferred capacity upgrades Total $ 4.9 Communication Fiber Control network (urban) Distribution $ 4 Sustainability DG integrations Total $ 4 Customer Experience 0 20 Grand Total $ 59.45

18 Infrastructure Scenario Two Strategy Reliable Service Reasonable Cost Sustainable Future Customer Responsiveness Improve reliability by increased technology Increase technology driven programs (segmentation, coordination, automation, etc) Replace capacity reliability projects with technology Maintain capacity margins Reduce current capital capacity growth budget. Explore other rate recovery methods for high growth areas driving abnormal investments. Maintain capacity reliability budget Maintain asset replacement cycles Fund established asset management programs at historical levels Decrease risk budget by 25% increasing project schedules and accepting greater short term risk 21 *Note: 2017 funding levels do not change

19 Scenario Two Summary Reliable Service Total Budget Increase of $8.8M over five years, $107M in technology Maintain capacity levels o Reducing capacity growth funding by $25.4M Improve reliability through advanced technology o o Move $37.8M reliability capacity to technology. Add $68.3M to base budget for technology (offsets come from capacity budget reductions) Increase risk appetite o Reduce risk driven projects by $34.2 by increasing project schedules $220,394,125 $213,902,499 $179,035,472 $180,568,234 $169,918,547 $169,025,877 $168,429,210 $165,449,437 $191,034,953 $191,034,953 $0 $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000, Scenario Two Base Scenario

20 Technology Investment Opportunities 23 Grid Modernization Initiative Scenario 2 Technology Category System Focus Costs ( $ ISG principle Expected benefits Electric Segmentation Transmission $ 25 Reliability 8 SAIDI Minutes Distribution $ 30 Reliability 15 SAIDI Minutes Volt/Var Distribution $ 5 Customer Options 5 MW's energy saved Circuit Coordination Distribution $ 15 Reliability 4 SAIDI Minutes Bank Metering/Database Substations $ 1 Sustainability Capacity planning deferrments Equipment Monitoring Substations $ 5 Reliability Deferred assets replacement Breaker Monitoring Substations $ 2 Reliability 4 SAIDI minutes Regulator Monitoring Substations $ 3 Micro Grid controls DG integrations Total $ 86 Gas Compressor Controls Transmission $ 1.0 Reliability Operations Mobile Data Transmission $ 0.5 Sustainability System Awarenes More on-line chromatographs Transmission $ 1.0 Customer Options Therm Zone Billing/Customer Updated Hydraulic Modeling Software Transmission $ 0.1 Sustainability Capacity planning deferrments Improved SCADA System Transmission $ 2.0 Reliability Reliability/Operations SD/MT Gas Scheduling System Transmission $ 0.8 Customer Options Improved Scheduling Process System Pressure Monitoring Distribution $ 4 Reliability Deferred capacity upgrades Central Equipment (Valve control) Distribution $ 4 Sustainability Teir 2 peak shaving Total $ 13 Communication Fiber Control network (urban) Distribution $ 6 Sustainability DG integrations Total $ 6 Customer Experience Web Portals Distribution $ 1.0 Customer Options Billing options Total $ 1.0 Grand Total $ 106.4

21 Infrastructure Scenario Three Strategy Sustainable Future Customer Responsiveness Reliable Service Reasonable Cost Requires Regulatory Changes Increase technology for grid Enhanced control systems for enabling customer choice (DMS, AMI) Improved customer experience software Renewable Energy pilots Improve reliability by increased technology Increase technology driven programs (segmentation, coordination, automation, etc) Maintain base budget for capacity and asset life Stable risk profile by executing current compliance budget 24 *Note: 2017 funding levels do not change

22 Total Budget Increase $278.6M over five years for Technology Electric $161M o Gas $44.6M o Improved reliability and monitoring, AMI Metering Enhanced control, scheduling, and monitoring, AMI Metering Communication $30M o Communication backbone for Electric and Gas Technology Customer Experience $43M o Scenario Three Summary Sustainable Future/Customer Responsiveness Enriched billing options, Sustainability Focused $224,699, $155,049, $253,797, $184,147, $269,629, $199,979, $247,544, $177,894, $194,857, $194,857, $0 $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000, Scenario Three Base Scenario

23 Technology Investment Opportunities 26 Grid Modernization Initiative Scenario 3 Technology Category System Focus Costs ( $ ISG principle Expected benefits Electric Segmentation Transmission $ 30 Reliability 10SAIDI Minutes Distribution $ 30 Reliability 15 SAIDI Minutes Volt/Var Distribution $ 15 Customer Options 15 MW's energy saved AMI Metering Distribution $ 50 Customer Options Billing options Circuit Coordination Distribution $ 20 Reliability 5 SAIDI Minutes Bank Metering/Database Substations $ 1 Sustainability Capacity planning deferrments Equipment Monitoring Substations $ 10 Reliability Deferred assets replacement Breaker Monitoring Substations $ 2 Reliability 4 SAIDI minutes Regulator Monitoring Substations $ 3 Micro Grid controls DG integrations Total $ 161 Gas Compressor Controls Transmission $ 1.0 Reliability Operations Mobile Data Transmission $ 0.5 Sustainability System Awarenes More on-line chromatographs Transmission $ 1.0 Customer Options Therm Zone Billing/Customer Bar Coding System for Materials Transmission $ 1.0 Sustainability Material Tracking PHMSA Updated Fuel system/panels Transmission $ 1.2 Sustainability Reliability/Emissions Updated Hydraulic Modeling Software Transmission $ 0.1 Sustainability Capacity planning deferrments Improved SCADA System Transmission $ 2.0 Reliability Reliability/Operations SD/MT Gas Scheduling System Transmission $ 0.8 Customer Options Improved Scheduling Process Enhanced Physical Security Remote Sites Transmission $ 2.0 Sustainability Security System Pressure Monitoring Distribution $ 4 Reliability Deferred capacity upgrades Central Equipment (Valve control) Distribution $ 6 Sustainability Teir 2 peak shaving AMI Metering Distribution $ 25 Customer Options Billing options Total $ 45 Communication Fiber Control network (urban) Distribution $ 30 Sustainability DG integrations Total $ 30 Customer Experience Web Portals Distribution $ 1.0 Customer Options Billing options Customer Experience Software Distribution $ 6 Customer Options Billing options Demand Repsonse Distribution $ 20 Sustainability 20 MW's saved LED Street lights Conversion Distribution $ 16 Sustainability 2.64 MW's/ 10,312 MWhrs/yrs Total $ 43.0 Grand Total $ 278.6

24 Scenario Three Summary Major technology investments AMI metering- Gas and Electric ($75 Mil.) Improve communication network ($30 Mil.) Demand Response ($20 Mil.) LED Lighting initiative ($16 Mil.) Customer Experience ($ 7 Mil.) 2021 $155,049, $224,699, Electric $161M 2020 o Gas $44.6M Improved reliability and monitoring, AMI Metering o Enhanced control, scheduling, and monitoring, AMI Metering 2019 Communication $30M o Communication backbone for Electric and Gas Technology Customer Experience $43M o Enriched billing options, Sustainability Focused $184,147, $199,979, $177,894, $194,857, $194,857, $253,797, $269,629, $247,544, $0 $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000,000 Scenario Three Base Scenario 27

25 Infrastructure Scenario Strategy Three Major technology investments AMI metering- Gas and Electric ($75 Mil.) - Asset life issues begin in Improved outage response and system monitoring - Allows new billing options and energy usage information - Improve allocation of service modeling Communication network ($30 Mil.) Required- Future system grid modernization AMI backhaul Distributive Generation Demand Response integration Integration of the Internet of things

26 Major technology investments Infrastructure Scenario Three Strategy LED Lighting initiative ($16 Mil.) -Energy savings and improve lighting performance -Improve asset life performance Demand Response ($20 Mil.) Defer peak capacity requirements Improved existing generation utilization Customer Experience ($ 7 Mil.) -Improve customer information and energy usage information -Improve customer experience with more integrated web portal

27 Deeper Dive into Technology Within Five-Year Plan

28 ADMS= Software + Model + SCADA + HMI (Enabling Future Applications) What is an ADMS?

29 Montana Benefits at Go Live (2019)

30 Electric Systems Gas Systems Customer Options Grid Modernization Initiative Scenario Summation Scenario One Scenario Two Scenario Three Technology Category Cost ($ M) Benefits Cost ( $M) Benefits Cost ($ M) Benefits Transmission Segmentation $ 15 5 SAIDI Minutes $ 25 8 SAIDI Minutes $ SAIDI Minutes Distribution Segmentation $ SAIDI Minutes $ SAIDI Minutes $ SAIDI Minutes Volt/Var $ - $ 5 5 MW's energy saved $ MW's saved AMI Metering $ - $ - $ 50 Billing options Circuit Coordination $ SAIDI Minutes $ 15 4 SAIDI Minutes $ 20 5 SAIDI Minutes Bank Metering/Database $ - $ 1 Capacity Deferment $ 1 Capacity Deferment Equipment Monitoring $ 0.6 Deferred replacement $ 5 Deferred replacement $ 10 Deferred replacement Breaker Monitoring $ - $ 2 4 SAIDI minutes $ 2 4 SAIDI minutes Regulator Monitoring $ - $ 3 DG integrations $ 3 DG integrations Total $ 50.6 $ 86 $ 161 Compressor Controls $ - $ 1 Operations $ 1 Operations Mobile Data $ - $ 0.5 System Awareness $ 0.5 System Awareness More on-line chromatographs $ - $ 1 Therm Zone Billing $ 1 Therm Zone Billing Bar Coding System for Materials $ - $ - $ 1 Material Tracking Updated Fuel system/panels $ - $ - $ 1.2 Reliability/Emissions Updated Modeling Software $ 0.1 Capacity $ 0.1 Capacity $ 0.1 Capacity Deferment Improved SCADA System $ 2 Rel/Operations $ 2 Rel/Operations $ 2 Rel/Operations SD/MT Gas Scheduling System $ 0.8 Improved Scheduling $ 0.8 Improved Scheduling $ 0.8 Improved Scheduling Enhanced Physical Security $ - $ - $ 2 Security System Pressure Monitoring $ 2 Capacity Deferment $ 4 Capacity Deferment $ 4 Capacity Deferment Central Equipment (Valve Con) $ - $ 4 Teir 2 peak shaving $ 6 Teir 2 peak shaving AMI Metering $ - $ - $ 25 Billing options Total $ 4.9 $ 13 $ 45 Fiber Control network (Urban) $ 4 Segmentation $ 6 Segmentation $ 30 Segmentation DG Comm Total $ 4 $ 6 $ 30 Web Portals $ - $ 1 Billing options $ 1 Billing options Customer Experience Software $ - $ - $ 6 Billing options Demand Repsonse $ - $ - $ MW's saved LED Street lights Conversion $ - $ - $ 16 Total $ - $ 1.0 $ 43.0 Grand Total $ $ $ MW's/10k MWhrs/yrs 33

31 Reduced Performance Level Improved Scenario Comparison Cost Rate Impact Reliability Impact Capacity Impact Asset Life Impact Compliance Impact Technology Base $932M Elec- $0.71 to $8.07 Gas- $1.18 to $11.75 Electric: stable, 120 SAIDI Little automation and segmentation Gas: moderate risk for outages Increase Electric and Gas reserve Capacity Add 100 MW a year (25-30% increase) Increase historical funding on gas (30-50%) Maintain current replacement schedules Fund Substation Infrastructure plan at 100% Maintain Current Compliance Schedules SDNE AMI DMS Scenario One $762M Elec- $0.71 to $7.04 Gas- $1.18 to $8.47 Electric: slight improvement, decrease 3 SAIDI minute/year Transmission Segmentation Distribution Automation and Coordination on 20% of circuits, focus on urban Gas: slight risk for outages Maintain Electric and Gas Reserve Capacity Add 72 MW a year to electric Maintain historical gas budget Increase replacement schedules by 33% Reduce Substation Infrastructure plan by 50% Increase compliance schedules by 2x, moderate short term risk $60M SDNE AMI, DMS Reliability improvements through technology on transmission segments and some urban circuits Improved monitoring on assets Technology for gas peak shaving Scenario Two $928M Elec- $0.71 to $8.30 Gas- $1.18 to $12.17 Electric: great improvement, decrease 14 SAIDI minute/year Transmission Segmentation Distribution Automation and Coordination on all of circuits, urban and rural Gas: improve current reliability with monitoring Maintain Electric and Gas Reserve Capacity Add 72 MW a year to electric Maintain historical gas budget Maintain current replacement schedules Fund Substation Infrastructure plan at 100% Increase compliance schedules by 1.5x, slight short term risk $107M SDNE AMI, DMS Enhanced Communication Reliability improvements through technology on transmission segments and all distribution circuits Improved asset monitoring Tech for gas peak shaving Scenario Three 34 $1.2B Elec- $0.71 to $10.61 Gas- $1.18 to $17.75 Electric: great improvement, decrease 14 SAIDI minute/year Transmission Segmentation Distribution Automation and Coordination on all of circuits, urban and rural Gas: improve current reliability with monitoring Increase Electric and Gas reserve Capacity Add 100 MW a year (25-30% increase) Increase historical funding on gas (30-50%) Improved data to defer investments Maintain current replacement schedules Fund Substation Infrastructure plan at 100% Improved monitoring Maintain Current Compliance Schedules $278M SDNE and MT AMI, DMS Enhanced CIS Enhanced Communication Renewable Energy Pilots Reliability improvements on transmission segments and all distribution circuits Improved asset monitoring Tech for gas peak shaving, monitoring and controls

32 SUMMARY- Rate Impacts The MT rate impacts from the alternative T&D capital spend scenarios was developed based on models determining revenue requirements for each scenario. The revenue required annually from the capital dollars invested is based on the following: Revenue Requirement = Return on Capital (10.35% * equity portion of capital spend) + Return of Capital (depreciation amount of capital spend) + Property Taxes (3% of the capital spend) + Interest Expense (4.25% * debt portion of capital spend) + Income tax adjustment The following provides estimated impacts and could differ based on actual capital spend, allowed returns on equity and debt, and other factors 35

33 ASSUMPTIONS The Base Capital Spend scenario is the current MT T&D electric and gas total capital spend plan. The three other electric and gas scenarios were provided by Asset Mgmt. The following assumptions drove the revenue requirement development and rate impacts for the various scenarios: Cost of Equity = 10.35% Cost of Debt = 4.25% Equity % of Capital Structure = 48.0% Debt % of Capital Structure = 52.0% Property tax = 3% of capital spend Depreciable life of T&D Capital = 30 Years Depreciable life of Technology Capital = 10 Years Current Typical Monthly Bill: oelectric = $88.61 ogas = $

34 37 CAPITAL SPEND SCENARIOS

35 38 Revenue requirement scenarios

36 39 TYPICAL BILL IMPACTS

37 40 TYPICAL BILL IMPACTS

38 41 TYPICAL BILL IMPACTS

39 42 ESTIMATED TYPICAL MONTHLY BILL

40 ESTIMATED RATE BASE FROM CAPITAL SPEND Rate Base levels based on the capital spends included in the base and various scenarios. Ending Rate Base calculated as the Capital Spend less depreciation less deferred income taxes. Average Rate Base levels used to calculate the return on equity, debt, and return on rate base, and drive the revenue required. 43

41 Asset Management Strategies and Infrastructure QUESTIONS?

42 $140,000, Five Year Plan by Primary Project Driver $120,000, $100,000, $80,000, $60,000, $40,000, $20,000, $0.00 MT Total MT Total MT Total MT Total MT Total RE CP-RE CP-G CO AL 45

43 Increase Reliability Automated switching orders from real time loading information A cost effective platform for Fault Location Isolation & Service Restoration (FLISR) Near real time awareness of interruptions Identify momentary interruptions perform early diagnoses ADMS Benefits Optimize Capacity Optimum system configuration based on real time information Encourage reliable distributed energy resource (DER) integration Asset Life A cost effective platform for conditioned based monitoring (transformers/ltcs) Awareness of compromised assets before failure Reduced Risk Safety/Centralized Control Additional Business Opportunities Volt VAR Optimization (VVO) Distributed Energy Resources (DER) Integration Increase Customer Satisfaction Response to breaker and recloser outages before a customer calls. Improve estimated time of restoration through increased situational awareness. Operational Benefits Modeling improvements Automated switching plans Situational awareness 46

44 Asset Life Infrastructure CAPEX Plan Blueprint Infrastructure CAPEX Plan Blueprint Distribution Base includes Reactive and Normal Maintenance Transmission Base includes Reactive and Normal Maintenance Overall Infrastructure Electric Gas Capacity Distribution, Substations, Transmission Capacity Distribution Transmission Reliability Distribution, Substations, Transmission Distribution, Substations, Transmission Compliance Distribution, Substations, Transmission Automation & Technology Reliability Distribution Transmission Asset Life Distribution, Transmission Safety/Compliance Distribution Transmission 47

45 INFRASTRUCTURE CATEGORIES Reliability Capacity Define delivery systems expectations verses actual performance The necessary delivery capabilities of the system necessary to meet operations, reliability, and growth parameters Asset Life Life of an asset based on a set level of performance of a delivery system 48 Compliance The adherence to Corporate risk tolerance considering compliance, operational, financial, reputational and strategic risk

46 Fault Location Isolation and Service Restoration (FLISR)

47 FLISR Example 51 Golf Course Sub 400 Customer Count Eastside Sub Southside Sub 1

48 FLISR Example Auto Accident 51 Golf Course Sub 1100 Customers Out of Power Eastside Sub Southside Sub 1

49 FLISR Intelligent Auto Restoration 51 Golf Course Sub 800 Customers Restored 300 Customers Still Out Eastside Sub Southside Sub 1

50 The Value of FLISR as Demonstrated in the PNSWG Pilot FLISR Helena pilot project resulted in 53% reduction in customer minutes interrupted (CMI) on feeder/recloser outages. - Billings Estimated Savings: Billings Estimated FLISR Savings Year Outage Counts CMI Saved MT SAIDI Saved ,325, ,218, ,054, , Average ,284,

51 Conservation Voltage Reduction / Volt Var Optimization (CVR/VVO)

52 Volt VAR Optimization Overview Historical Range (118V-124V) Maintains highest reliability by ensuring adequate voltage under most loading conditions. Intelligent Volt/VAR Control Range (114.5V 120V) Increased device sophistication and controls to operate within lower portion of nominal range while continuing to deliver safe, reliable power. ANSI C84.1

53 VVO Where do the savings come from?

54 Volt VAR Optimization Operation Voltage Distance from Substation

55 The Value of CVR/VVO as Demonstrated in the PNSWG Pilot CVR/VVO 1% reduction in voltage resulted in approximately 0.8% energy savings. Helena ES kwh Savings Potential Based on % Voltage Reduction % kwh Saved 1.50% 0.50% y = x R² = % % % % % % % -0.50% % Voltage Reduction

56 Sourdough Feeder #1 Customers: 4,730 Modeled avg. customer savings: 1.12% Avg. customer kwh/yr (before): 16,213 Avg. customer kwh/yr (after): 16,032 Total kwh Savings per Customer 181 kwh/yr Bozeman Case Study Requires investment into DMS control system and infrastructure upgrades. It is balance between the cost to the consumer and its potential savings. The goal is to reduce the customers utility bill as a whole.

57 Utility Supported Microgrid Overview

58 Agenda Purpose: Review the conceptual design of a Microgrid Takeaways: High level understanding of a Microgrid Talking points for the proposed Microgrid Next Steps: Review operating procedures and commissioning steps with Butte Division Operations

59 What is a Utility Supported Microgrid? NWE Definitions: Microgrid - Powers a medium voltage line without a utility source. Utility Supported Microgrid - Benefits the utility system when the utility source is available and has the ability to intentionally island to form a microgrid.

60 Why a Microgrid? NorthWestern is investigating: How to safely integrate Microgrids A market based deployment of Microgrids o Increased reliability o Better load management o Asset deferral opportunities o Greater system efficiency For Our Customers: Increased reliability o 2-4 hours of additional power during outages.

61 Location, if approved Microgrid Site Beck s Hill Road

62 Location, if approved Customers within Microgrid Area Microgrid Site Utility Source Beck s Hill Road

63 Location, if approved

64 How Does it Work? Utility Source Recloser Closed 17 Residential Customers Fused Disconnect Microgrid: Battery Storage & Solar PV

65 How Does it Work Grid Connected Utility Source Recloser Closed 17 Residential Customers PV charges batteries and excess energy supports the grid. Fused Disconnect Batteries can be discharged to support grid, as needed. Microgrid: Battery Storage & Solar PV

66 How Does it Work Microgrid Utility Source Recloser Closed Open 17 Residential Customers 1. Loss of Source Power 2. IEEE 1547 trips A/C coupled inverters 3. Safety Checks: - Microgrid Recloser did not lock out - Microgrid Recloser is not in hot line hold - Microgrid is not disabled 4. Microgrid Recloser Opens 5. Microgrid is energized Microgrid: Battery Storage & Solar PV Fused Disconnect

67 How Does it Work Reconnect to Utility Utility Source Recloser Closed Open 17 Residential Customers 1. Source power is available 2. Safety Checks: - Microgrid Recloser is not in hot line hold - Microgrid is not disabled - Microgrid is energized 3. Microgrid is then de-energized 4. Microgrid Recloser is closed in to restore utility power Microgrid: Battery Storage & Solar PV Fused Disconnect

68 QUESTIONS?