Future of massive Western coal plant at stake in $1 sale

Source: By Miranda Willson, E&E News reporter • Posted: Tuesday, October 13, 2020

A utility’s plan for meeting the state of Washington’s clean energy standards could end up extending the life of one of the largest coal plants in the West.

Puget Sound Energy (PSE) has said it intends to sell its share in Montana’s Colstrip Generating Station for $1 to one of the plant’s co-owners, NorthWestern Energy. If approved by the Washington Utilities and Transportation Commission and the Montana Public Service Commission, the sale would allow PSE to eliminate coal-burning resources by the end of 2025 as required by Washington’s clean energy policies.

“Our customers want clean energy, and Washington’s Clean Energy Transformation Act requires us to remove coal-fired capacity from our customer rates by 2025. Selling our share of Colstrip Unit 4 enables PSE to reach those goals even before 2025, and take actionable measures on behalf of our customers,” PSE spokesman Jarrett Tomalin said in an email.

The deal would give NorthWestern Energy, based in Montana, more influence over the power plant’s future. NorthWestern has expressed interest in keeping Colstrip Unit 4 running until 2042 (E&E News PM, June 11, 2019).

“It is clear that this will increase the chance that Colstrip will continue to operate, because no other investors seem interested in buying Puget Sound’s stake,” said Joshua Macey, an assistant professor of law at the University of Chicago.

Colstrip is co-owned by six utilities and is one of the largest coal plants in the West. Four of the utilities serve states in the Pacific Northwest that have laws in place to phase out coal within a decade.

Two of the power plant’s four original units were retired earlier this year because of financial challenges. While utility co-owners have signaled their intention to sell off their stakes or retire Colstrip this decade, lawmakers in Montana are pushing to keep remaining units in operation. The facility provides state tax revenue and is the economic lifeline for the town of Colstrip.

Colstrip Mayor John Williams is among the supporters of the proposed sale, which would increase NorthWestern’s voting control over future budgets and other decisions for Colstrip.

“NorthWestern’s application is in the best interests of the Montana public and certainly the Colstrip community,” Williams told the PSC in September.

NorthWestern sees “tremendous value” in the deal for Montana customers, spokesperson Jo Dee Black said in an email.

“All generation plants eventually come to the end of their useful life, but Colstrip Unit 4 is a well-run, well maintained generation asset capable of providing affordable and reliable critically-needed capacity for our Montana customers for many years into the future,” Black said.

But analysts say the company has a big financial incentive to keep Colstrip running longer. NorthWestern purchased shares in the plant in 2007 for $187 million. The following year, Montana regulators allowed the company to collect money from ratepayers for the purchase and operation of the plant at a much higher valuation, according to testimony submitted to the PSC by former Commissioner Thomas Schneider.

That’s generated favorable rates of return for NorthWestern despite the environmental cleanup and operating costs associated with Colstrip, said David Schlissel, director of resource planning analysis for the Institute for Energy Economics and Financial Analysis.

“NorthWestern, because of the rate issue, wants it open as long as it can,” Schlissel said.

Cheaper access to dirty fuels

Critics of PSE’s $1 sale, which include Washington lawmakers and the state’s attorney general, say the sale would undermine the spirit of Washington’s clean energy policy.

Lawmakers say part of their aim was to facilitate the retirement of Colstrip by 2025. What they didn’t want was for Washington’s greenhouse gas emission limits to lead to “leakage of emissions to other jurisdictions,” according to comments submitted by more than 20 state lawmakers to the Washington Utilities and Transportation Commission.

“If PSE’s sale of Colstrip enables the long-term operation of Colstrip unit 4, it is in opposition to the intent of our new climate goals,” lawmakers wrote in a joint statement.

Anne Hedges, deputy director of the Montana Environmental Information Center, which has intervened against the proposed sale in Montana, said it amounts to “a paper-shuffling exercise” of PSE’s coal assets.

“Carbon emissions don’t decrease, but they will actually increase, because the plant is now likely to stay open for much longer than it would,” Hedges said.

Puget Sound Energy maintains that the transaction is necessary for the company to phase out coal and to lower energy prices for customers.

Macey, the University of Chicago law professor, said the utility’s interest in exiting Colstrip makes sense given the rising costs of operating Colstrip and economic trends facing coal. Macey said it’s not clear how PSE could eliminate its ownership stake without selling off its shares.

Given its interest in keeping Colstrip alive, NorthWestern may be the only willing buyer.

“This is a core challenge in state climate regulation, because it’s basically a problem of leakage,” Macey said. “Washington can reduce its own carbon emissions, but that can sometimes mean that states that don’t have as ambitious climate goals get cheaper access to dirty fuels.”