Monday, April 11, 2016

Finding a Well Planned Path

Here, by way of a "guest post," is a letter to legislators from Tom Schneider, a former member of the Public Service Commission. Tom asks whether or not it's a good idea - for either tax or rate payers - for Northwestern Energy to buy the coal-fired power plants at Colstrip, presumably to prevent what is otherwise their likely closure. For me, the critical concern here is that we not, by locking ourselves into the Colstrip plants now, tie our hands when, some day in the future, we need to put in place an efficient, cost effective policy to cut carbon emissions. And I don't think that day is very far off. But here's Tom's take:

April 9, 2016

Dear Legislators:

I served as a Montana Public Service Commissioner from 1977-1984 and again from 2003-2006. I am deeply concerned about the rash of proposals and media flurry regarding Colstrip’s future, particularly the suggestion that NorthWestern Energy (NorthWestern) purchase a larger portion of the Colstrip plant. There are enormous economic and environmental risks associated with these coal plants. As a former Commissioner I understand what it takes to plan energy systems. I understand about protecting consumers from risks. And these proposals are absolutely heading in the wrong direction. NorthWestern’s purchase of any additional portion of Colstrip could very well put Montana ratepayers and taxpayers at risk.

The ownership structure of the Colstrip plant is complex (see table at the end of this letter). The two older units, 1 & 2 are owned by Puget Sound Energy (PSE) and Talen Energy. PSE is a regulated utility and Talen Energy is an unregulated power provider. (Talen took control of PPL’s share of Colstrip and its operating obligations last year when PPL spun off all of its unregulated assets, including Colstrip, into a new company named Talen Energy.) Recent red flags raised by regulators, financial analysts, and the owners should not be ignored. The Washington Utilities and Transportation Commission (WUTC), the entity that regulates PSE, expressed concern after it reviewed the economic viability of the two older units, 1 & 2. An analysis by NorthWestern showed significant financial liability associated with purchasing PPL’s coal plants, and particularly Units 1 & 2. Independent financial analysts who review Talen, have increasingly expressed concern regarding the significant and mounting liabilities associated with the plants. The conclusions of all three is that the older two units of Colstrip are increasingly uneconomic.

The WUTC has not only expressed concern regarding the two older units’ economic viability[i] but recently completed an analysis of PSE’s remediation obligations for units 1 & 2.[ii] PSE and UTC analyses provide a glimpse into the hefty price tag that Montana ratepayers and/or taxpayers could shoulder if ownership is transferred to NorthWestern.[iii] In its remediation analysis, largely based on data provided by PSE, the WUTC determined that the preliminary estimate of environmental remediation and decommissioning costs for units 1 & 2 would be $134 million to $195 million (the report said that the law contains no decommissioning requirements). The report said that these costs would increase the longer the plant stayed open. If either PSE’s or Talen’s share of Colstrip were to shift to NorthWestern, Montana ratepayers could be on the hook for those costs. 

Financial analysts have also issued warnings to Talen Energy about Colstrip continuing to be a highly risky investment. UBS, an international financial firm, was PPL’s financial advisor when it tried to sell all of its generation assets to NorthWestern, including the Colstrip plant.[iv] UBS issued a report on March 7, 2016, in which it called Colstrip a “money-losing” asset for Talen. It said that Talen should find a way to monetize its ownership in the plant.  This declining valuation is reflected in Talen’s property taxes to the State of Montana and local governments. In the last three years PPL and Talen have written down the value of its interest in Colstrip by 87%, meaning its share of Colstrip 1, 2, and 3 has no real value.

Ultimately, NorthWestern has already determined that purchasing any portion of Colstrip would be a risky investment. In 2013, when it purchased the hydroelectric dams from PPL, its own analysis showed that also purchasing PPL’s share of the Colstrip plant would be a major liability. At that time, NorthWestern assigned a negative $340 million value to PPL coal plants and a negative $127 million value to Colstrip units 1 and 2 specifically.[v] Since 2013, the liabilities have only increased.

In its most recent planning document submitted to the Montana Public Service Commission, NorthWestern acknowledges it does not need the additional power. That means the intent of this proposal is probably for NorthWestern to purchase additional power to serve large industrial customers that are currently buying power on the open market and likely contracting for power with Talen (because that information is proprietary it is impossible to know for certain where Montana’s industrial customers get their power). If the large industrial customers, who sought deregulation and embraced the market, believe that the Colstrip plant has value then they ought to acquire the plants themselves. This negative value means that Talen and PSE might even have to pay NorthWestern (or the large industrials) to take these plants off their hands – an absurd result.

It is likely that NorthWestern would only consider buying an additional interest in Colstrip if the state of Montana and taxpayers and/or ratepayers subsidize the financial and environmental liabilities. That scenario would be disastrous. Montana taxpayers and ratepayers should not foot the bill. Instead of placing an additional and hefty burden on Montana businesses and families, Montanans should be working on prudent Montana energy solutions. Planning a different energy future will take time and resources. It will require detailed assessments of remediation obligations, worker and community responsibilities, reliability and transmission studies, contracts, and more. Considerable progress was being made in Montana prior to the unprecedented action of the U.S. Supreme Court to stay the Environmental Protection Agency’s Clean Power Plan. The positive Montana momentum has been slowed and the uncertainties magnified. The delay has sidetracked productive efforts with a rash of half-baked ideas and political theatre from major political candidates of both parties.

Montana deserves better. We need real Montana solutions, not false hope. The workers and the community of Colstrip deserve our focused attention. Utilities need certainty. Consumers need to be protected. We don’t need to be distracted from the important challenges before us. The market is determining Colstrip’s fate. Concerns about the economic, public health, and environmental impacts of climate change are helping to drive the market. Our job is to help Montana have a thoughtful and well planned path to a cleaner, more affordable energy system. Montana has a responsibility to build a better energy future. We must not squander that opportunity.


Thomas J. Schneider

Colstrip Ownership Structure
Unit 1
Unit 2
Unit 3
Unit 4
Puget Sound Energy
Talen Energy

Portland General Electric

NorthWestern Energy



*Talen Energy and NorthWestern Energy have an agreement to share the output of units 3 & 4.

[i] Washington Utilities and Transportation Commission Comments on Puget Sound Energy’s Cosltrip Study, Docket UE-120767, Feb. 6, 2014.
[ii] WUTC, “Investigation Report. Investigation of coal-fired generation unit decommissioning and remediation costs.” UE-151500, Feb. 2016
[iii] Puget Sound Energy’s 2013 and 2015, Electric and Natural Gas Integrated Resource Plans.
[iv] NorthWestern Energy, Application for Approval to Purchase and Operate PPL Montana’s Electricity Supply Rates, for Approval of Issuance of Securities to Complete the Purchase, and for Related Relief, Testimony and Exhibits, Docket No. D2013.12.85, December 2013.
[v] Ibid. And NorthWestern Energy Submittal to Public Servic Commission, Project Mustang Valuation Spreadsheet, “PSC-066 Mustang Valuation – 2032 Case - 6-24-13.”