NW Energy chased Montana dam purchase from PPL for more than a year

2013-12-31T15:35:00Z 2014-04-04T16:03:07Z NW Energy chased Montana dam purchase from PPL for more than a yearBy MIKE DENNISON Gazette State Bureau The Billings Gazette
December 31, 2013 3:35 pm  • 

HELENA – NorthWestern Energy is calling its proposed $900 million purchase of 11 hydroelectric dams in Montana a “once-in-a-lifetime” chance — but the company worked many months to make it happen, and almost lost the deal.

In documents filed with the state Public Service Commission, NorthWestern executives reveal that they had their eyes on buying the dams from PPL Montana since 2009 and began negotiating seriously for the purchase some 18 months ago.

Although the deal came together late last summer, negotiations had broken off entirely earlier in the year, after NorthWestern made it clear it did not also want to buy PPL Montana’s coal-fired power plants at Colstrip.

In fact, NorthWestern attached a negative value to the Colstrip plants, worried that any buyer eventually would have to shut down the plants and bear the cost of “remediating” the sites.

But NorthWestern and PPL resumed talks on the hydro plants last spring and eventually cinched the deal in September at the $900 million price.

NorthWestern is asking the state Public Service Commission to “pre-approve” the deal, calling it a huge benefit for the company and its customers. It also wants an electric rate increase to cover the costs of the purchase.

“Commission approval of this application to acquire the hydros represents the necessary ‘green light’ for NorthWestern to consummate a once-in-a-lifetime transaction and continue to evolve as a fully integrated utility, for the long-term benefit of its customers,” the company wrote in its Dec. 20 application to the PSC.

The PSC has nine months to examine that application, hold a hearing, examine testimony from other parties in the case, such as the Montana Consumer Counsel, which represents consumers, and make its decision.

In nearly 600 pages of documents filed with the application, NorthWestern asks for PSC approval and outlines its rationale for the purchase and the rate increase. Highlights of the application include:

Recovering the cost of the purchase means a 4.22 percent increase in electric rates for NorthWestern’s Montana customers. For the average residential customer in Montana, that’s about $42 a year.

Electricity from the 11 hydroelectric dams will provide 38 percent of the power NorthWestern needs to supply its Montana customers. NorthWestern currently buys that power on the open market, through contracts with suppliers.

If the deal is approved, NorthWestern would need to buy on the open market only 10 percent of the electricity it needs to supply Montana customers.

NorthWestern says it will cancel the deal if the PSC does not allow the company to recover its full cost of the purchase, leading to any “significant negative impact” on the company.

At the $900 million purchase price, the cost of the power works out to about $60 per megawatt hour — just slightly less than what most NorthWestern electric customers are paying now for their power.

Perhaps the most intriguing part of NorthWestern’s lengthy application is its retelling of how it came to acquire the dams from PPL Montana, which bought all of the old Montana Power Co. power plants in 1999, in the wake of Montana’s utility deregulation law of 1997.

NorthWestern, a South Dakota-based firm that bought what was left of MPC’s utility operations in 2001, several years later began rebuilding the Montana electric-and-gas utility into what it had been before deregulation: A traditional utility that owned the power plants and gas production that provided much of the energy it needed for customers.

Brian Bird, chief financial officer for NorthWestern, said he, NorthWestern CEO Bob Rowe and another company executive visited PPL officials in Allentown, Pa., in May 2009, saying NorthWestern was interested in buying the 11 dams.

But it wasn’t until May 2012 that PPL said it “wanted to get out of Montana entirely,” Bird said, and asked for bids on its coal-fired and hydro plants in the state.

NorthWestern, however, wanted only the hydro plants, and offered a “non-conforming bid” of $740 million for those assets in January 2013. It also offered a bid for the entire package – of $400 million, or lower than the price for only the hydro plants.

Bird said the company considered the coal-fired plants a liability because of expected future regulation of greenhouse gases. Including the coal-fired plants also would give NorthWestern more power than it needed for its Montana customers, he added.

“NorthWestern was concerned that not only would it be required to shut the (coal-fired plants) down, but that it would be responsible for remediating the sites,” he wrote.

PPL broke off negotiations last February, but three months later decided to market the coal and hydro plants separately.

NorthWestern got back into the talks and eventually reached a deal, agreeing to pay more than its initial offer on the hydro plants because it feared other, nonregulated buyers would snap up the desirable assets and because analysis by its financial advisers showed the $900 million price was fair.

David Hoffman, spokesman for PPL Montana, said Monday the company is not trying to sell the coal plants now, but would consider a sale if the right buyer and price came along.

As for the hydro plants, “this (transaction) just seemed to work out well for both of us,” he said.

NorthWestern believes the hydro plants are a great asset that will strengthen the company while also benefiting customers, providing clean, stable power and increased financial stability for the company.

“Hydro is really the most coveted (power) asset now and they don’t come up for sale very often,” company spokeswoman Claudia Rapkoch said Tuesday. “And if they do, you basically have one shot at it … and if you don’t buy it, someone else will.”

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