While Northwest utilities are accelerating coal-fired power plant retirements, NorthWestern Energy hopes to nearly double its stake in Colstrip Unit 4, in a deal to buy Puget Sound Energy's 25 percent share for $1.
NWE's Dec. 10 announcement of the sale also included a pledge by the investor-owned utility to cut its carbon emissions by 90 percent of its 2010 levels, by 2045, three years after it plans to fully depreciate the 30 percent share of Colstrip Unit 4 it already owned.
NorthWestern is the only owner of Colstrip that plans to operate the plant after 2030. If the deal with PSE is approved, NWE will have a 55 percent share of Unit 4. Even so, critics of the sale question whether NWE can shoulder operating and maintenance costs to run the unit.
The sale still faces numerous contentious issues before Montana and Washington regulators. The deal also could face challenges in state or federal courts.
The deal gives NorthWestern Energy 185 MW of much-needed capacity, while allowing PSE to exit one of the dirtiest coal-fired power plants in the West in time to comply with Washington's 2019 law mandating utilities rid coal-fired electricity from their generating portfolios by the end of 2025. That deadline has created capacity concerns for PSE. To mitigate those, the Colstrip deal includes a power purchase agreement whereby PSE will receive 90 MW from Unit 4 through 2025.
NorthWestern said the five-year PPA with PSE will pay for about 50 percent of the estimated $15 million annual fixed operation and maintenance costs and property taxes associated with the additional 25 percent share in Unit 4. The other 50 percent will be offset by the reduction in market purchases.
The Montana utility said it plans to set aside about $5 million a year to address environmental remediation and decommissioning costs when Unit 4 retires, based on its 30 percent stake in the plant.
Divvying up remediation and decommissioning costs could be a major obstacle to obtaining regulatory approval of the sale. Cleanup costs just for Colstrip's ash ponds are estimated at between $400 million and $700 million, according to the Montana Department of Environment Quality.
NorthWestern executives said at a Dec. 10 press conference PSE is on the hook for 25 percent of all such costs, regardless of when Unit 4 closes.
However, a Puget Sound Energy spokeswoman used slightly different wording, but perhaps critically different, when describing the utility's future cost responsibility.
"PSE will remain responsible for the pre-sale ownership share of existing environmental conditions and decommissioning costs," PSE's Janet Kim told Clearing Up in an email.
Nailing down who owes what and when will likely be a contentious issue before the Washington UTC and the Montana PSC.
PSE plans to ask the WUTC to approve the sale in the next four to six weeks. NWE said it expects to file with the MPSC in late January or early February.
NorthWestern also announced a separate deal to buy a 95 MW capacity stake from PSE in the 500 kV Colstrip Transmission System, if the Colstrip Unit 4 sale is approved. NWE would pay net book value—estimated to be between $2.5 million and $3.75 million—at the time of the sale. When the power purchase agreement with PSE ends in 2025, NorthWestern would have the option to buy PSE's remaining 90 MW capacity in the transmission system based on its net book value at the time.
The transmission capacity sale will be handled in a separate docket.
A likely contentious issue in the Unit 4 docket could come from the criteria set by Montana law for preapproving the sale. The statute requires state regulators determine the deal to be "in whole or in part" in the "public interest." The law—passed in 2003 and amended in 2007 and again in 2009 to speed along NorthWestern resource acquisitions in the wake of the state's now-defunct attempt at electric deregulation—does not define either of those terms.
"As far as I know, there isn't a decision in any district court or supreme court that has addressed those definitions," said Justin Kraske, who leads MPSC's legal staff.
The commissioners will consider intervenor testimony in parsing the phrases, he said.
"I've assigned all four attorneys" to the sale, Kraske said.
Given the $1 price tag, NWE will not ask the PSC to rate base the acquisition. The utility said in its announcement that it expects the sale will have no effect on customer rates. However, the question of future investments will likely be an issue.
If the PSC preapproves the deal, "the commission may not subsequently disallow the recovery of costs related to the approved electricity supply resource based on contrary findings," according to the statute.
"So expect to see Montana's utility use 'the low, low price of $1—gotta act now!' line as an umbrella to ask for all sorts of irreversible findings to shield its much larger existing investment (and the repayment of future liabilities and cap-ex by captive customers)," former PSC commissioner Travis Kavulla posted Dec. 10 on Twitter.
PSE's 25 percent stake in Unit 4 would be worth $130 million to $140 million if the plant operates for another 20 to 25 years, NorthWestern vice president John Hines said during the Dec. 10 press conference.
Testimony in PSE's general rate case in Washington revealed that Unit 4 could be facing a $20 million repair as it is "starting to show signs of metallurgical wear and degradation" (CU No. 1931 ).
During Montana's 2019 legislative session, NWE pushed lawmakers to greenlight its purchase of an additional 150 MW stake in Colstrip for $1 and passing on to customers $40 million of associated capital investments over the ensuing five years. Three of the five PSC commissioners urged lawmakers to vote for it, even though it effectively sidelined the commission. The proposed bill's language said the unnamed seller would be responsible for its share of cleanup and remediation costs stemming from operations prior to the sale. After many twists and turns, the bill died in a House vote (CU No. 1898 ).
The Colstrip Unit 4 deal comes as the MPSC considers NWE's latest electricity supply resource procurement plan [2019.08.052].
NWE expects that its already gaping peak-capacity shortfalls will only grow in the coming years. The proposed plan aims to achieve resource adequacy by 2025 (CU No. 1916 [7.5]).
Toward that end, NorthWestern on Dec. 12 issued its first all-resource request for proposals for 280 MW of "dispatchable capacity resources" to come on line by 2023. While any resource can submit a bid, the procurement plan shows natural gas as the most cost-effective new resource option (CU No. 1893 ).
NorthWestern Energy's peak load is about 1,205 MW, while its existing portfolio capacity is 755 MW, leaving it 450 MW short with no reserve margin. The deal with PSE would go a long way toward closing that gap. However, the average of its load requirements is 760 MW, and it has an abundance of light-load hours. Currently, it rarely runs Unit 4 at less than full capacity, except when maintenance is required.
Hines indicated during the press conference NWE plans to operate the additional Colstrip portion along the same lines.
"We do have surplus of light load, and we have to try to sell that to the market," he said. "This fits in pretty well."
NWE has not given many details on its goal to reduce carbon emissions by 90 percent of its 2010 levels, by 2045. The PSE deal would decrease the amount of carbon-free resources in the utility's portfolio from 61 percent in 2018 to about 58 percent after approval. NorthWestern CEO Bob Rowe and Hines told reporters the utility expects to incrementally cut emissions over the ensuing 25 years.
As more renewables and energy storage come on the grid and their cost drops, NWE expects Colstrip will dispatch less, Hines said.
Environmental and clean-energy advocates in Washington and Montana slammed the deal and carbon-reduction goal as hypocritical and financially and environmentally bad for NWE customers.
"With rapidly increasing costs to run the plant, repairs needed that will cost tens of millions of dollars, a new coal contract that will increase the cost of customers' electric bills, and massive cleanup costs on the horizon, there's nothing good about this deal for customers," Anne Hedges, deputy director of the Montana Environmental Information Center, said in a statement. "NorthWestern is trying to make its customers its indentured servants. This is greenwashing at its worst."
On Dec. 5, the five regulated utility owners of Colstrip units 3 and 4 announced a new coal-supply contract with the adjacent Rosebud Mine that will fuel the power plant through 2025. Hines and Rowe declined to state the new contract price, when asked during the Dec. 10 press conference.
By selling the plant to an out-of-state utility that plans to burn coal indefinitely rather than guiding the plant to an orderly retirement, PSE is undermining the legislative intent of the state's clean energy law, the Sierra Club said in a statement.
The Sierra Club also took issue with the proposed sale of PSE's share of Colstrip transmission system, which it said could be used to add Montana's winter-peaking wind.
PSE still retains its transmission capacity associated with its stake in Colstrip units 1, 2 and 3, the utility's Kim said.
"PSE's customers want clean energy," she said. "We share their commitment—we've invested billions in energy efficiency and renewable energy development, and we supported the passage of [Washington's Clean Energy Transformation Act]. With the sale of Colstrip Unit 4, we can move further and faster on behalf of our customers."