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Colstrip operator Talen Energy files for bankruptcy

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Colstrip Power Plant

Talen Energy, who own the Colstrip Power Plant, are filing for bankruptcy. 

Colstrip Power Plant operator and co-owner Talen Energy has filed for bankruptcy citing debts of $4.5 billion.

In court filings Monday and Tuesday, Talen said natural gas prices that prior to 2021 were more affordable than coal, coupled with cheaply priced renewable energy resources, had made the company’s seven coal-fired power plants unprofitable.

“The previously low price of natural gas has meant that coal-fueled assets are no longer economical to run or keep updated. Thus, in many markets in the United States, generating capacity is transitioning from a coal-dominated generation base to a mix that incorporates larger amounts of natural gas and renewable units,” testified Ryan Leland Omohundro, Talen’s restructuring advisor.

Reuters reports that Talen is committed to removing coal from all of its facilities. The company's list of generating assets involved in the bankruptcy includes only one non-fossil fuel power plant, the Susquehanna Nuclear Power plant in Pennsylvania. Of the seven coal-fired power plants on the list, only two, Colstrip included, aren't undergoing conversions to other fuel sources.

Simply put, Colstrip is in trouble. Oregon and Washington, states that consume most of the power plant’s energy, have set deadlines for their utilities to get out of coal in order to cut heat-trapping carbon dioxide emissions from the atmosphere. Washington’s deadline is the end of 2025. Oregon's deadline begins in 2030.

Talen has presented itself as one of the only owners advocating for keeping Colstrip operational beyond carbon emissions deadlines in the Pacific Northwest. But Talen has also struggled for years, at one point telling the state that operating the power plant was a money loser and Talen needed out, though it later changed its mind.

In 2020, Talen and Puget Sound Energy, which evenly split ownership of Colstrip Units 1 and 2, shuttered the units because the generators were no longer profitable.

The costs of running and updating the 1,480-megawatt power plant in Colstrip has been a legal flashpoint for several years between Talen and the power plant’s utility owners in the Pacific Northwest, who hold a 70% share. A fifth owner, NorthWestern Energy has been content to stick with coal power until 2042. 

In an email from communications director Taryn Williams, Talen Energy Supply said the bankruptcy wouldn't disrupt business at Colstrip. TES has taken steps to secure wages, health care and other worker benefits by asking the court's permission to pay critical vendors throughout the bankruptcy.

"All TES generating facilities are operating in the normal course of business, including the Colstrip Steam Electric Station, and no changes to TES' asset portfolio are anticipated. Further, no changes to Talen Montana's role as operator and a co-owner of Colstrip Steam Electric Station are anticipated. In fact, by greatly strengthening TES's financial position, this action will help bolster Talen Montana's ongoing commitment to Colstrip and the State of Montana, and TES intends to move as quickly as possible through the process."

Creditors holding 62% of Talen's unsecured debt support the restructuring and, according to Talen, will accept company equity as compensation for $1.4 billion of that debt. There's no word on how the other 38% of Talen's debt will be resolved. The company reports it is also borrowing $1.76 billion to fund the bankruptcy process.

Specific to Colstrip, Talen in its bankruptcy filing identified $22.8 million that will need to be spent at Colstrip during the bankruptcy to keep Units 3 and 4 operating safely and to cover decommissioning and environmental costs of the now shuttered Units 1 and 2.

Talen’s $113 million cleanup bond for Colstrip environmental liabilities remains with the state Department of Environmental Quality.

Additionally, Talen is moving forward with Silverthorn Wind, a 600-megawatt capacity project in Rosebud and Treasure counties. Silverthorn is being developed under a portion of Talen that isn't part of the bankruptcy, Williams said. Construction is scheduled to start in 2024. 

The company lists two Montana lawsuits in the bankruptcy. It is suing Pennsylvania Power and Light, former Talen owner, over the $733 million in net proceeds from PPL's sale of Montana hydroelectric dams to NorthWestern Energy in 2014. Talen said the money is needed to cover commitments to Colstrip workers' pensions and environmental cleanup costs. The second lawsuit is PPL's countersuit against Talen.

Talen is one of the biggest employers in southeast Montana with 264 power plant workers.

Not listed among litigation disclosures are lawsuits stemming from two Montana laws overriding portions of contract concerning ownership and operations of Colstrip. Talen persuaded the 2021 Montana Legislature in April 2021 to empower the state attorney general to enforce maintenance at the plant and impose daily fines of $100,000 on owners who didn't comply. The company also persuaded Montana to require all Colstrip arbitration take place in Montana. Both new laws nullify portions of the private business contract and put Talen at odds with Colstrip owners located in Oregon and Washington.

Testimony in the bankruptcy filing indicates that Talen was formulating bankruptcy plans in early 2021 as the state of Montana made key decision's concerning Colstrip, the first two being the creation of laws nullifying portions of the private business contract concerning Colstrip. The third decision involved cutting more than $120 million from the Colstrip owners' bond requirement to cover the cleanup of the toxic coal ash ponds.

Omohundro, in his deposition, said he was hired in April 2021 to work on Talen's restructuring. It was the same month Montana's Legislature passed laws concerning maintenance enforcement and arbitration.

In October 2021, the Montana Department of Environmental Quality agreed to cut the bond amount for the cleanup of he Colstrip Units 1 and 2 coal ash ponds from $285 million to $163 million. Talen had been in negotiations to lower the amount for 11 months.

The cleanup is a massive undertaking for the waste ponds servicing what was until January 2020 a four-unit power plant. The pond complex for the coal-fired units involves nine waste ponds that have leaked roughly 200 million gallons of contaminated water into the ground every year for more than 30 years. One day’s leakage equals an Olympic-sized swimming pool’s worth of contaminants, including boron, sulfates, selenium and heavy metals.

Combined with the Unit 3 and 4 ash ponds, the pollution complex spans 800 acres, with an estimated cleanup cost of $400 million to $700 million. Remediation is expected to take decades.

Talen's bankruptcy is only the latest for southeast Montana's energy economy. Three out the four coal mining companies doing business in Montana have gone bankrupt since 2019. The last company to do so, Lighthouse Resources, was unable to find a buyer for its Montana mine.



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Related to this story

The what-if questions came from all directions as a roomful of attorneys argued what the Montana Legislature meant when it passed laws rewriting a 40-year-old contract governing two aging Colstrip power plants.

Talen Energy attempted to put its bankruptcy in the best possible light Thursday in a meeting with Montana legislators about what the company’s restructuring meant for Colstrip Power Plant.

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