Sour taste 

The continued costs of Colstrip, NorthWestern's "lemon"

A temporary $32 million rate increase for NorthWestern Energy customers in Montana has rekindled longstanding criticism over the utility's continued reliance on the coal-fired Colstrip power plant. For average residential consumers, the increase will materialize as an extra $5.03 per month—or roughly $60.36 per year—according to the interim order approved 4-1 by the Montana Public Service Commission last month. For Montana Environmental Information Center Deputy Director Anne Hedges, it's just one more bit of proof that the future of Colstrip is increasingly in question.

"It's not fair that Montana ratepayers are getting stuck paying the bill again and again for a plant that keeps breaking down, and provides expensive power to boot," Hedges says.

The rate increase stems in part from a seven-month shutdown last year at Colstrip Unit 4, of which NorthWestern owns 30 percent. According to a July 2013 press release issued by the utility, Unit 4 went offline due to damage to its stator/rotor assembly. Repair costs were initially estimated at $30 million, with NorthWestern on the hook for about $4.5 million.

The latest rate increase isn't a reflection of those expenses; NorthWestern Energy spokeswoman Claudia Rapkoch says capital expenditures for the actual repairs will appear in a separate filing with the PSC later. Rather, ratepayers are paying for energy NorthWestern had to purchase to replace what Colstrip would otherwise have generated. It isn't the first time. Unit 4 suffered a similar breakdown not long after NorthWestern purchased its share of the plant in 2009. In five years, Hedges says, NorthWestern's stake in Colstrip has been offline one-fifth of the time.

"Wouldn't it be nice if every time your car broke down, somebody else had to pay for it?" she says. "That's exactly what's going on. They're just shifting the cost onto somebody else."

Public Service Commissioner Travis Kavulla, R-Great Falls, echoed such concern as the sole dissenting vote on the current rate increase. He feels NorthWestern failed to adequately explain why the Colstrip outage occurred, what was done to resolve the situation and how the utility went about purchasing energy on the open market to replace Unit 4's output. Of the 222-megawatt-hour output NorthWestern receives when Colstrip is at full capacity, only an estimated 111 megawatt hours come from Unit 4 itself; the rest comes from a 15-percent share the utility has in output from Colstrip Unit 3. But Kavulla takes issue with the fact that, regardless of whether Colstrip is operating, NorthWestern continues to profit.

click to enlarge Colstrip, Montana, Public, Service, News, NorthWestern Energy, News
  • photo courtesy PPL Montana
  • The Montana Public Service Commission recently approved a $32 million rate increase for NorthWestern Energy customers relating to a seven-month outage at Colstrip Unit 4 last year, fueling criticism of the utility’s investment in the coal-fired plant.

"It is certainly annoying that whether or not the plant operates—very well or not at all or somewhere in between—the utility is made whole," Kavulla says. "They make the same profit either way, and I certainly think there's something perverse when you have a plant that's delivering no value over a seven-month period to consumers because it's down that the utility is nonetheless making a profit on that plant just the same as it would if it were operating at 100 percent."

PSC staff estimated that roughly $11 million of the $32 million in the rate increase was directly attributable to the Unit 4 shutdown. Rapkoch says NorthWestern can't vouch for that figure.

Kavulla is particularly frustrated by the fact that, when NorthWestern pitched its Unit 4 acquisition to the PSC in 2008, the Montana Consumer Counsel—an entity that advocates for ratepayers—voiced concerns about the plant's age. At the time NorthWestern argued that capital expenditures by other Colstrip stakeholders had improved functionality at the plant. Only a few years down the road, Kavulla says, that initial apprehension has already been realized.

"It certainly looks like, in retrospect, the some $400 million that was committed to pay for this plant several years ago is well in excess of what the market would value the plant at currently," he says. "You add to that this dimension of the plant's evident performance problems and, you know, it seems we bought something of a lemon."

Hedges' Colstrip criticism isn't founded exclusively on breakdowns and rate increases. Last year, NorthWestern approached PPL Montana about purchasing 11 hydroelectric dams in the state for $740 million. PPL Montana refused to hand over the dams without including its stake in Colstrip Units 1, 2 and 3 in the deal. NorthWestern agreed on the condition that the price be reduced to $400 million.

"In order to get any of PPL's Colstrip assets, they were going to have to reduce that price tag by hundreds of millions of dollars," Hedges says. "NorthWestern Energy understood that Colstrip is a liability, not an asset."

Rapkoch says the response by NorthWestern to PPL Montana's Colstrip offer shouldn't be taken as a negative valuation of the plant itself. NorthWestern didn't need an additional stake in Colstrip, she explains. Such an acquisition would have made the utility "long in the market," or in ownership of more than it needed to meet demand. Plus, Rapkoch says, with the unknowns relating to new EPA regulations of greenhouse gas emissions, NorthWestern had no choice but to assign some liability in taking on shares in all four units.

"Even with these occasional incidents that Colstrip has had, it's track record is it's available 82 percent of the time when we need it, and that's pretty remarkable," Rapkoch says. "When you compare that against other assets, it's actually the most available unit that's out there for us."

NorthWestern and PPL Montana finally settled on a deal of $900 million for just the dams—a cost that, pending PSC approval, will eventually trickle down to NorthWestern customers.

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