Colstrip deal would reward NorthWestern Energy shareholders at customers’ expense

Today, NorthWestern Energy asked the Montana Public Service Commission (PSC) for pre-approval to buy an additional 25% stake in Colstrip Unit 4 from Puget Sound Energy (PSE), potentially locking its customers into even higher electricity bills to pay for the aging, costly plant for the next 20 years.

The sale would give NorthWestern 55% ownership of the unit, obligating Montana families and businesses to pay more for coal power when cleaner electricity options are more affordable. PSE and Talen Energy recently closed Colstrip Units 1 and 2 two years early because of the escalating costs of operating the units. 

The high price for Colstrip power has invoked increased scrutiny. In 2007, NorthWestern spent $187 million to buy rights to 222 megawatts of power from Colstrip Unit 4. A year later, company officials convinced the PSC to allow them to recoup the investment from customers as if it were worth $407 million. This higher rate means Montana consumers are paying as much as $74 per megawatt hour for Colstrip power -- more than 3 times the cost of Montana wind projects -- according to the Montana Consumer Council. NorthWestern earns an 8.25% rate of return on its share of the plant, which translates to windfall profit for shareholders coming from the electricity bills of Montana families and businesses.

The latest Colstrip acquisition bid follows NorthWestern’s unsuccessful attempt to circumvent PSC oversight on Colstrip costs in the Montana Legislature last year. Pre-approval from the PSC could signal that regulators believe it to be a prudent investment that NorthWestern can charge customers for, though in the most recent rate case PSC commissioners did reserve the right to revisit the issue of how much NorthWestern already charges customers for the company’s existing Colstrip share.

The plant is facing rapidly escalating maintenance and operations costs, including:

• A significantly higher cost for coal from the nearby Rosebud mine, following the bankruptcy of Westmoreland Coal Company and the mine’s acquisition by a collection of out-of-state hedge funds.

• At least $20 million to replace vital components of the main boiler of Unit 4.

• Costs of replacement power after Unit 4 had to be unexpectedly shut down in 2018 due to elevated emissions of cancer-causing heavy metals. The PSC is due to rule later this year on whether NorthWestern can recoup those costs from customers; the commission ruled against the company when it requested reimbursement for costs related to a 2013 outage.

NorthWestern’s continued Colstrip investments and long-term plans to build multiple new gas peaker plants garnered an unprecedented amount of public opposition at a series of listening sessions across the state in recent months. The vast majority of public comments encouraged the company to follow the lead of neighboring utilities like Idaho Power and PacifiCorp and focus on cleaner, more affordable options such as wind, solar and battery storage.

NorthWestern’s plan to double down on coal has also led to increased tension among the company’s shareholders. BlackRock, one of the world’s largest investment funds and NorthWestern’s largest shareholder, made national headlines this month after saying the company would be moving away from fossil fuel investments due to the mounting concerns about the impact that the climate crisis will have on global finance. Another NorthWestern shareholder is suing the company for refusing to consider his resolution challenging the company’s plan to buy a larger ownership stake in the Colstrip plant.

The PSC will consider the additional Colstrip acquisition in the coming months.

Mike Scott, Senior Campaign Representative for the Sierra Club, offered the following comment:

“If someone offered to sell you a used car for $1, you’d have a few questions about it. But NorthWestern seems unconcerned about the underlying costs of operating this aging, expensive coal plant. That’s because NorthWestern has double-charged Montana families and businesses for Colstrip power for more than a decade and passed that money onto its investors and highly paid executives. The Colstrip plant has been a bad deal for NorthWestern Energy ratepayers, more of it will be a worse deal.”