Dive Brief:

• Puget Sound Energy (PSE) took the next step in selling its share of Montana's largest coal plant — raising alarm bells for environmentalists concerned the plant's majority owner NorthWestern is desperate to keep the facility online as long as possible.
• PSE filed its application with the Washington Utilities and Transportation Commission (UTC) Feb. 20 to sell its 25% share of Colstrip Unit 4 to NorthWestern Energy. The sale will need to be approved by UTC as well as Montana regulators.​
• PSE is one of several Washington utilities with a stake in the plant, and said its sale is based in part on the state's 100% carbon-free by 2045 goal, passed in 2019.​ The plant is also owned by PacifiCorp, Talen Montana, Portland General Electric Company, and Avista Corporation. Avista plans to accelerate depreciation of its share by 2025, PacifiCorp by 2027 and PGE by 2035.

Dive Insight:

Some observers in Montana and Washington are skeptical of NorthWestern's motivation behind purchasing a larger share of Colstrip's Unit 4 — which would bring the utility's total ownership to 55%.

In 2007, NorthWestern purchased its current 30% of Unit 4 for $187 million. The following year, Montana regulators turned around and approved a $407 million rate base for the 222 MW of coal-fired power, at the time arguing having that much regulated power would benefit customers in the long haul, versus buying power on the markets.

NorthWestern said the latest deal and its continued investment in Unit 4 is about securing additional capacity. Currently, its peak requirement is around 1,400 MW and the utility is 645 MW short of that, spokesperson Jo Dee Black told Utility Dive in an email. The Colstrip share could meet about 25% of that need, according to a press release.

But critics say NorthWestern's primary motivation for keeping the plant open despite rising fuel and operation costs is the payout on Unit 4's depreciation life: the utility is set to receive an 8.25% return on Unit 4 through 2042.

"Northwestern is desperate to keep the plant operating, otherwise it may not be able to recoup all of that profit," Anne Hedges, deputy director and lead lobbyist at the Montana Environmental Information Center, told Utility Dive. "It's in a unique circumstance, so it's willing to do anything, regardless of whether it's good for its customers to keep the plant running. And that includes buying an increased share, unlike every other utility in the nation that [is] moving away from coal."

"That was a grand ripoff of ratepayers in Montana and now Northwestern Energy is sitting on a cash cow. They don't care if it's not economical," Senior Beyond Coal Campaign Representative for Sierra Club Doug Howell told Utility Dive.

Other groups have been critical of the utility's continued dependence on the plant as well: in comments filed on the utility's 2019 final resource plan, Synapse Energy Economics noted the utility's modeling prevents comparing cost scenarios if some resources were retired early.

"This is important with respect to the operation of the Colstrip units. They are the most expensive resource in NorthWestern's resource portfolio … inclusive of all costs collected in rates," the group wrote, adding average electricity prices for the unit were $73.85 in 2016-2017.

NorthWestern maintains that keeping the plant online and acquiring more shares of Unit 4 is the cheapest way to make up its much-needed capacity.

"As a point of comparison, building a natural gas plant that provides the equivalent capacity would cost approximately $240 million. A wind plus battery storage combination could cost several billion dollars and still not provide equivalent capacity. Solar by itself is not currently a viable option in Montana in the winter to address this type of sustained peak capacity need," John Hines, NorthWestern Energy Vice President Supply and Montana Government Affairs said in a press release first announcing the deal in December.

The utility plans to acquire the shares for just $1, claiming a "zero net effect on customer bills." It estimated $5 million in benefits from the transaction, which it will use to "address environmental remediation and decommissioning costs" of the plant after it's shut down.

Additional operations and maintenance costs are expected to cost the utility $15 million annually, which it says will be paid for half through PSE's five year power purchase agreement, and rest will be paid off through not having to purchase power through the market.

"Our customers want clean energy. We share their commitment – we've invested billions in energy efficiency and renewable energy development," PSE spokesperson Jarrett Tomalin told Utility Dive in an email. "With the sale of Colstrip Unit 4, we can move further and faster on behalf of our customers."

There may be economic benefits to giving up their share as well — Units 1 and 2 of Colstrip were shuttered at the beginning of this year, two years ahead of schedule, after financial negotiations with the units' fuel supplier Westmoreland Rosebud Mining proved unsuccessful. Fuel costs were expected to continue rising, according to PSE and Talen Energy, the units' owners, as the bankrupt suppliers proposed increased fuel costs moving forward, rendering the units uneconomic.

NorthWestern and PSE signed a new agreement with Westmoreland in December for six years of fuel to power Units 3 and 4, which are about a decade younger than the original two units, but have not disclosed the prices of those contracts. 

Both utilities said the contract terms were confidential, and they could not share the numbers with Utility Dive.