NorthWestern files proposal to buy more of Colstrip for $1 with regulators

NorthWestern files proposal to buy more of Colstrip for $1 with regulators

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NorthWestern Energy has brought its plan to buy a larger share of Colstrip Power Plant to the Montana Public Service Commission.

The 1,100-page filing asks Montana’s regulator of monopoly utilities to approve NorthWestern’s purchase of an additional 25% of Colstrip Unit 4 from Washington-based Puget Sound Energy. In approving the purchase, commissioners would also commit NorthWestern Energy customers to paying costs, currently undisclosed, related to the larger share of Colstrip Unit 4.

Those undisclosed costs are capital requirements, or long-term customer debt commitments needed to pay for future replacement and expansion costs. NorthWestern has said it will seek to recover expenses as they arise, by applying for customer rate adjustments.

As NorthWestern Vice President of Supply John Hines explained the arrangement to state lawmakers on the Legislature’s Energy and Telecommunications Interim Committee in January, “There will not be an application for additional capital requirements. We will be making those requests to the commission as those capital requests occur in the future and the Commission at that point and time will then be able to view the justification and then the validity of those costs.”

For now, NorthWestern is presenting what it’s describing as the positives of the purchase. The aggregate price of the sale is $1. Puget Sound Energy is committed to paying for 25% of the environmental cleanup costs associated with Unit 4, including cleanup costs of pollution generated possibly as long as 20 years after the Washington utility hands its ownership share to NorthWestern; Puget has made no mention of this cleanup commitment or other details potentially affecting the bills of its Washington customers. The Bellevue, Wash., company's message has focused on going coal free earlier than previously expected.

Part of the sale to NorthWestern obligates Puget to buy power from the South Dakota-based utility for up to five years. NorthWestern would purchase Puget’s 185-megawatt capacity share of Unit 4, but then sell 90 megawatts back to Puget.

In its filing this week, NorthWestern says it would take the proceeds from power sold to Puget and create a reserve fund to cover its share of environmental cleanup costs. The company has collected no money from customers thus far for its share of environmental cleanup. Montana’s Department of Environmental Quality has put the total cleanup of Colstrip at $400 million to $700 million, a bill that will be unevenly split among the four-unit power plant's six owners.

NorthWestern says it will also buy less market power as a result of the purchase. Any savings realized would be shared with customers.

The 50-page purchase agreement, which has been publicly available since Dec. 13 on the company’s Securities and Exchange Commission page, also locks Puget Sound Energy into voting in favor of the “long-term operation of Colstrip Unit 4” pending closing. This is no small matter. Colstrip owners Avista Corp, PacifiCorp and Puget all face a 2025 coal power ban in Washington State, which is prompting early exits from Colstrip. It's known the unit needs major repairs.

Avista Corp. is proposing a settlement in Washington in which it wouldn't agree to any Colstrip-related expense that prolonged the life of the plant beyond 2025.

It was Puget that identified major repairs needed to the unit it now wants to sell out of for the $1 aggregate price. Last November, Puget told regulators in Washington that the superheated section of Colstrip Unit 4 was badly damaged and needed $20 million in repairs. It said each owner of Unit 4 faced with exiting the plant in less than a decade would have to consider whether shutting down the plant made more sense than fixing it.

The “superheat section in Unit 4 is starting to show signs of metallurgical wear and degradation,” Puget's Ron Roberts told Washington regulators. The comments were included in a redacted portion of staff recommendations regarding Colstrip. “Mr. Roberts goes on to say, '[e]ach of the Colstrip owners, including PSE, must consider if an investment of this size is prudent across the useful life of the facility, especially considering other external factors that may mandate PSE remove coal generation from its portfolio by a date certain.'”

The company also told Washington’s Utilities and Transportation Commission that the next coal contract to feed the power plant would come with a significant increase in price. That contract was signed shortly before Puget said it would let its share of Unit 4 go for a buck.

In weeks leading up NorthWestern’s filing with the PSC, Montana lawmakers and environmentalists alike expressed concerns about the agreement. Rep. Denise Hayman, D-Bozeman, asked Hines during a Jan. 13 legislative meeting to disclose the new coal price. She was concerned the higher rate would mean undisclosed costs for NorthWestern’s 374,000 Montana customers.

"I need that. Everybody in this room needs that, because you're claiming that coal energy is cost effective and we have no idea how much the source is charging us," Hayman told Hines at the Jan 13 meeting. "And so, you can say whatever you want, but we can't verify it. PSC can't verify it. Consumer Counsel can't verify it and the ratepayers can't verify it. So, please come back to us with the cost of, per ton."

Hines told Hayman that she would be able to see the price once NorthWestern filed for PSC approval.

“If you’ll be patient and read the filing that we make in a couple weeks it will be in there,” Hines replied.

In a letter to the editor this week, Hayman recounted how Hines assured her the coal price would be revealed once NorthWestern filed its case with the Public Service Commission. That same week, the utility asked the PSC to keep the coal price a confidential, non-public part of the case.

The coal price was redacted in NorthWestern’s filing this week. Also shielded from the public were cost estimates for the environmental compliance, capital expenditure projections and operating budget for the power plant. NorthWestern concealed those details at the request of power plant operator Talen Energy, which asked the PSC for an order doing the same.

The Montana Environmental Information Center issued a long statement Thursday cautioning that the aging power plant was becoming increasingly more expensive. It advised the PSC not to commit customers to more Colstrip costs and instead to invest in renewable energy.

“Hold on to your wallets. There’s a reason investors and utilities are exiting coal. It’s too expensive and too dirty," said Anne Hedges, MEIC deputy director. "Furthermore, NorthWestern's refusal to be transparent about the increasing costs required to operate the plant undermine its claim that this will be good for ratepayers."

Colstrip operations and maintenance costs have increased 6.9% a year, according to the MEIC, a statistic presented last year as the group opposed an increase in NorthWestern utility rates. MEIC also pointed out that Unit 4 has broken down for several months at a time on three different occasions since 2009, when it closed for six months of repairs shortly after NorthWestern bought its current 30% share. It closed again in 2013 and was malfunctioning again for two and a half months in 2018.

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