A pair of lawsuits filed in Montana have exposed the unraveling of the Colstrip ownership group, and the inevitable collision between decarbonization policies of Pacific Northwest states and coal-friendly Montana.

Puget Sound Energy, Avista, PacifiCorp and Portland General Electric filed a joint complaint May 4 in the U.S. District Court for the District of Montana against NorthWestern Energy and Talen Energy asking that Montana Senate Bills 266 and 265 be declared "unconstitutional" because they violate both the U.S. and Montana constitutions by nullifying portions of the 40-year-old Colstrip owners and operators agreement [CV-00047-SPW-KLD].

Both bills were signed into law May 3 by Montana Gov. Greg Gianforte, who described them in a tweet as retaliation against "woke, overzealous regulators in Washington State [that] are punishing the people of Colstrip with their anti-coal agenda."

Senate Bill 266 gives the Montana attorney general power to prescribe maintenance at the twin 740-MW units, and issue fines of $100,000 a day to each owner that doesn't comply.

Senate Bill 265 forces all contract disputes between the group to be settled in Montana, rather than Spokane, Wash., where arbitration is already underway that could determine the future of the remaining units.

"This law interferes with provisions of private business contracts that we entered into to protect our customers and facilitate constructive decision-making among the Colstrip plant co-owners. We believe the law is unconstitutional and not appropriate," Lisa Kaner, PGE VP and general counsel, said in a prepared statement.

NorthWestern Energy initiated arbitration earlier this year—the first time in the 40-year history of the agreement that an owner has called for arbitration—"to answer the question whether or not a unanimous decision by all Colstrip Power Plant owners is required to close the plant," Jo Dee Black, spokesperson for NorthWestern, said in an email to Clearing Up. "NorthWestern Energy's desire is to have that question answered as soon as possible."

The complaint shows the main issue in arbitration is whether or not a majority vote among the five voting owners is enough to close one or both of the units. NorthWestern does not have a full voting share in the ownership group, instead sharing a vote with Talen, according to the lawsuit, giving Pacific Northwest utilities a clear majority.

The four Pacific Northwest utilities want to know if they can "terminate the project by voting their combined 55 percent or greater ownership shares to do so," and "whether plaintiffs may close one unit by voting their combined share of 55 percent" or "vote against budgets based on each plaintiff's own analysis," according to the lawsuit.

The Pacific Northwest utilities contend that because Talen and NorthWestern Energy "testified in support of SB 265" they have "legitimate and reasonable concern" that both companies "will seek to invalidate parts of the [owners and operators] agreement and not proceed" with arbitration.

On May 5, Talen Energy did just that.

The owner-operator of the plant filed a lawsuit in Montana's 13th Judicial District Court in Yellowstone County asking that arbitration be moved to Montana and have Montana state law apply—language that mirrors SB 265 and contradicts the owners and operators agreement [DV 21-0511].

Talen says, "Avista Corporation, PacifiCorp, Portland General Electric and Puget Sound Energy—are attempting to force Colstrip to close by the end of 2025, in obedience to Washington's ban on the sale of electricity from Colstrip and other plants that generate power from coal."

The company says the fate of the coal-fired power plant—and the fate of roughly 3,000 jobs that come with it—lies in the hands of a single arbitrator chosen by a Washington court and argues that "Montana's future must be held in Montana before a panel of three arbitrators applying Montana law."

Talen's suit says the four Pacific Northwest utilities "want Colstrip closed" and during the 2021 budgeting cycle took the "idiosyncratic and self-interested position that Talen Montana must operate Units 3 and 4 as if they are being retired before Jan. 1, 2026" (CU No. 1996 [9]).

Talen argues that under the owners and operators agreement, Colstrip must keep running as long as it is capable of producing electricity under "prudent utility practices [PUP] . . . not at an arbitrary date determined by factors peculiar to a particular co-owner or group of co-owners."

The company says, "Colstrip is vital to Montana's economy," and quotes a 2018 University of Montana study that said "negative economic effects would be dramatic and felt throughout the state" if Colstrip were to close.

The study showed that approximately 3,300 jobs would be lost, 7,000 people would leave the state, and Montana would lose $1.2 billion in tax and nontax revenue if the plant were to close in 2028.

"The consequences of shuttering Colstrip are dire and there is no good reason to do so because it is producing electricity consistent with prudent utility practices," Talen argued.

Litigation over closing Colstrip always seemed inevitable, as Washington and Oregon moved to decarbonize utility generating portfolios, while Montana remains one of the top coal-producing states in the nation.

Oregon passed the Clean Electricity and Coal Transition Act (SB 1547B) in 2016, which doubled the state's renewable portfolio standard to 50 percent by 2040 and requires PacifiCorp and PGE to stop billing customers for coal costs in 2030 and 2035, respectively.

Washington followed, enacting the Clean Energy Transformation Act in 2019 that removes coal from PSE and Avista's portfolio in 2025 and requires utilities to source 100 percent of their energy from renewable or noncarbon emitting sources by 2045.

Meanwhile, Montana has the largest estimated recoverable coal reserves in the U.S., according to the U.S Energy Information Administration. In 2019, the state produced 5 percent of the nation's coal from six mines. The Colstrip power plant was primarily built to supply Oregon and Washington with electricity.

The four Pacific Northwest utilities each say they are committed to arbitration as prescribed in the current owners and operators agreement.

"Our goal is to see the current arbitration efforts move forward under the terms of the existing [owners and operators] agreement," a spokesman for PacifiCorp said in an email to Clearing Up. "We remain an active and committed participant with our other utility owners to find a long-term resolution for Colstrip."

Jason Thackston, senior VP of energy resources at Avista, said in a statement that Avista "urged Governor Gianforte to veto the bills because we believe they are both unlawful and unconstitutional, and we have pursued legal action today with other Colstrip owners to protect the rights of our customers and shareholders under the existing contract."

A spokesperson for Puget Sound Energy said in an email to Clearing Up that "Senate Bills 265 and 266 undermine PSE's attempt at trying to find constructive solutions in a process that is already complicated."

"These bills allow a third-party to essentially re-write long-standing business contracts, which is unconstitutional and sends the wrong message to businesses putting forth good faith efforts," PSE said.

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Editor - Clearing Up

Steve began covering energy policy and resource development in the Pacific Northwest in 1999. He’s been editor of Clearing Up since 2003, and has been a fellow at the Institute for Journalism and Natural Resources and University of Texas.