The Legislature is considering Senate Bill 278, which would give Montana an opportunity to manage the future of a part of the Colstrip coal-fired power plant.
The energy landscape is transitioning and Colstrip’s future, along with the community and employees, needs to be addressed. Additionally, the Colstrip transmission system is a critical asset for Montana and must be preserved. NorthWestern Energy is a logical partner to help lead a Colstrip transition. Our customers depend on this vital source of always-available electricity when, like this winter, demand is high. However before taking on this role, we must be sure Montana is aligned with this direction and that our customers’ and shareholders’ interests are addressed.
Senate Bill 278 has been described as “a bill of possibilities,” providing a framework to facilitate a more predictable future for Colstrip’s transition, focusing on Unit 4, and also addressing the Colstrip transmission system. This would be accomplished by decreasing the number of owners at Colstrip to those who share an interest in operating a smaller portion into the future. We believe greater certainty for this reliable, affordable energy is in the best interest of our customers.
NorthWestern Energy currently owns 222 megawatts of Unit 4. If this legislation passes and a transaction can be agreed to, we would buy no more than an additional 150 megawatts from Unit 4. This amount helps reliably serve our customers at a very cost-effective price. Other parties would continue to own the rest of Colstrip Unit 4.
Senate Bill 278 provides that the purchase price can’t be greater than $1. A Billings reporter wrote that we placed a negative value on Colstrip when we were purchasing the hydro system. In fact, the analysis placed a negative value on Units 1 and 2 (the two oldest units), while a 30 percent share of Unit 3 (similar to Unit 4) was valued at $100 million. We would purchase 20 percent of Unit 4 for $1. Any additional Colstrip Transmission System acquisition would be based upon depreciated book value of the asset.
Many of Colstrip’s other owners want to exit, following their states’ policy directives. Those owners share responsibility for Colstrip’s future environmental remediation costs. SB278 specifically keeps that liability with them. NorthWestern Energy’s future remediation costs for an incremental purchase are estimated at $22 million to $31 million, which would be less than $0.001 per kilowatt hour.
The cost of generating electricity from Colstrip Unit 4 is below $20 per megawatt hour. By comparison, two recent wind Qualifying Facilities contracts, which NorthWestern Energy is required to enter, cost about $50 per megawatt hour. Because they are wind, these contracts do relatively little to help meet customers’ peak demands. Instead, we must turn to the regional power market when demand is high, which is the worst possible time to purchase electricity. The market price for electricity in February averaged more than $80 per megawatt hour. On March 1 the market spiked and electricity was selling for nearly $900 a megawatt hour.
SB278 doesn’t give NorthWestern Energy a blank check. As a regulated company, NorthWestern Energy can only earn a profit on the portion of investments funded by shareholders, in this case $1, and earns no profit on expenses. NorthWestern Energy is willing to discuss a capped dollar amount for future maintenance investments, which can earn a profit, in any additional share purchased of Colstrip Unit 4.
The Montana Public Service Commission will have important oversight. As with all state agencies, the Legislature establishes policy direction that the PSC is charged to implement. Now, legislators and governors in other states are driving Colstrip’s future. SB278 provides the policy guidelines for a key Montana resource.
If Montana wants to thoughtfully manage the Colstrip transition, NorthWestern Energy is a willing partner. If not, we will continue to identify and pursue other certainly more costly resources to meet the energy needs of our Montana customers.