Bankruptcy filing complicates outlook for Western coal giant

By Benjamin Storrow | 06/21/2022 06:03 AM EDT

Colstrip Generating Station has come to symbolize the fight over the Western electric grid and its future.

Colstrip power plant in Montana.

Bankruptcy documents show deep divisions among the owners of the Colstrip power plant in Montana. Rachel Cernansky/SpotUs/Flickr

In the fall of 2020, one of the West’s largest coal plants was due for repairs. So the operator of Colstrip Generating Station fired off a letter to its five co-owners with a $56 million plan to fix it. The proposal quickly went sideways.

Four utilities with a stake in Colstrip balked, saying they could not support spending money on repairs that would keep the plant open beyond 2025. Instead, they demanded the plant’s operator, Talen Energy, reduce the plant’s budget and “successfully execute a strategy that provides a framework for our individual exits from the Colstrip project within the next 60 months.”

The exchange, outlined in federal bankruptcy filings, captures the fight over the future of Colstrip. The coal-burning behemoth has long sent power generated on the Montana prairie to Pacific metropolises such as Seattle and Portland. Four utilities from Oregon and Washington collectively own 70 percent of the 1,480-megawatt coal plant.


But in recent years Colstrip has come to symbolize the fight over the future of the Western electric grid. The Pacific utilities — Avista Corp., PacifiCorp, Portland General Electric and Puget Sound Energy — are seeking to close the plant to comply with state climate laws. Their efforts have been opposed by minority owners NorthWestern Corp. and Talen, which argue the plant’s closure would decimate Montana’s economy and jeopardize the future of the West’s electric grid.

Now, however, the fight over Colstrip’s future is on hold. Talen’s power division filed for bankruptcy protection last month, resulting in an automatic stay of a federal court case that was set to decide the rules for negotiating the plant’s future. Talen has resisted efforts by its five fellow owners to lift the stay and allow that case to continue.

Analysts said the bankruptcy has injected a new layer of complication into grid planning at a time when the West is grappling with how to address climate change without jeopardizing electricity supplies.

“The longer we wait, the harder it becomes,” said Diego Rivas, a senior policy associate at the NW Energy Coalition. “Some utilities have already planned for transition out of ownership either because they are required to or it’s uneconomic or both. Some of the owners are behind on that planning.”

NorthWestern, he noted, is still planning on the plant operating until 2042.

“They have not provided any notification formally or otherwise that has changed,” he said.

Colstrip is one of the largest polluters in America, emitting 144 million tons of carbon dioxide between 2012 and 2021, according to EPA data. Only eight power plants in the country belched more CO2 into the atmosphere over that time. A Washington state law requires the state’s utilities to cease supply of coal-generated electricity by 2025. Oregon’s utilities face a similar 2030 deadline.

Colstrip once boasted four generating units, but in 2020 two of its smaller units built in the 1970s were shut down as part of a settlement agreement with environmental groups.

More recently, talk of closing the two remaining units has been animated by mounting concerns over Western utilities’ ability to keep the power flowing during searing heat waves that have baked the West in recent years.

The North American Electric Reliability Corp. recently said the region is at growing risk of power outages when electricity demand surges at the same time there’s limited hydropower availability and wildfire damage to power lines.

“Overall, there is a lot of concern about the big changes to the west coast power supply and with the added reserves required for wind and solar to account for their variability,” John Fazio, a senior power systems analyst at the Northwest Power and Conservation Council, wrote in an email.

As concerns over power supplies have mounted, so have efforts to integrate power markets to share electricity across the West, he said.

“The loss of the Colstrip projects and the uncertainty surrounding the timing of their retirement is adding to planners’ concerns, but it is not the major issue facing them,” Fazio said.

Talen’s bankruptcy has strained already frayed relations among Colstrip’s owners, and it has opened a divide with its ally NorthWestern. While the two companies want to keep operating Colstrip beyond 2025, NorthWestern is increasingly pushing for a resolution on Colstrip’s future.

In bankruptcy proceedings, NorthWestern asked the court to lift the automatic stay on court proceedings in Montana triggered by the Chapter 11 filing to pave the way for negotiations to begin.

“Any delay in addressing closure would severely damage NorthWestern and create potential electricity shortfalls for the citizens of Montana — NorthWestern’s primary customers,” the utility wrote to the U.S. Bankruptcy Court for the Southern District of Texas.

NorthWestern’s position is especially notable because it supported two laws enacted by Montana lawmakers last year that sought to make it harder to close Colstrip.

The first would change where and how arbitration proceedings would occur — shifting the venue from Washington to Montana and installing a three-person arbitration panel instead of the one person called for in the plant’s operating agreement. The second law would impose a $100,000 a day fine on owners who refused to contribute to the plant’s upkeep.

But the future of both laws is now in question. A federal judge in Montana issued a preliminary injunction staying the twin pieces of legislation after they were challenged by the Pacific owners. They argued the laws violated the owners’ preexisting contract. In issuing a preliminary injunction, the Montana court said the Pacific owners had shown they were likely to prevail on the merits of the case.

NorthWestern, in the meantime, has sought to force Colstrip’s owners to the bargaining table by seeking to compel arbitration via the courts. At an April hearing before the U.S. District Court for the District of Montana, the company argued Colstrip’s owners “need help” to decide the rules of arbitration.

“The delay — and God bless us for supporting the legislation and creating the whole mess that brings us here in part today — but the delay hurts us and potentially hurts the citizens of the state of Montana that rely upon us to provide electricity,” NorthWestern attorney David Jackson told the court.

‘Another wrench, another hurdle’

One key question in Colstrip’s future is whether the contract requires unanimity among the owners to shut down the plant. If arbitration proceedings find a unanimous vote to close Colstrip is not needed, “we need to find another source of electricity to meet our duty and obligation and to provide electricity to the citizens and the customers in the state of Montana, and that takes a while to plan for,” Jackson said.

Talen did not provide an on-the-record comment for this story. In court proceedings, it argued the Montana court case would divert resources at a time when the company is trying to reemerge from bankruptcy. It estimated its monthly legal costs could rise to $300,000 during arbitration hearings.

Talen secured a $1.76 billion loan to finance its operations during bankruptcy.

A NorthWestern spokesperson expressed disappointment “that some Colstrip Power Plant owners have chosen to file multiple lawsuits in multiple jurisdictions” delaying negotiations over the plant’s closure.

“The Colstrip Power Plant is a reliable on-demand resource, providing a cost-effective resource to provide energy for our Montana customers during critical times,” Jo Dee Black, the NorthWestern spokesperson, wrote in an emailed statement.

The Pacific owners said they were committed to safely operating the plant until 2025, when they would begin transitioning to cleaner forms of electricity generation. A spokesperson for Puget called Talen’s bankruptcy a “troubling development” and said the Washington-based power company was awaiting further information.

Portland General Electric struck a similar tone, saying: “Uncertainty and delays are not in the best interest of co-owners, the community and our customers. Talen’s bankruptcy proceeding is a significant source of uncertainty, which may preclude any agreement on transition.”

The bankruptcy filings add a new level of detail to an already bitter public fight over Colstrip.

As the plant’s operator, Talen is charged with proposing a budget for Colstrip. In 2020, Talen’s budget for the following year identified the need for an overhaul at Unit 3 to maintain its safety and compliance standards. Overhauls refer to extended outages for maintenance. Each of Colstrip’s units was on a four-year overhaul cycle, according to Talen’s budget proposal.

In past years, the Pacific owners likely would have signed off on the repairs. But in 2020 they balked, saying they “cannot support any work that is to be performed to extend the life of Colstrip Unit 3 beyond the end of 2025.”

Specifically, the group called for cutting Colstrip’s proposed 2021 operating budget by nearly $15 million,, decreasing spending on capital projects by $10 million and implementing annual $10 million reductions in the operating budget over the next three years.

The correspondence does not give exact details on the agreed-on budget or the scope of the work. But a follow-up letter from Talen indicates Colstrip’s operator conceded to some of the Pacific owners’ demands, including a $10 million reduction in the Unit 3 repair budget.

“Because an agreement appears to be within reach, let’s please put aside our disagreement about whether any of these capital projects would extend Unit 3’s life beyond the scheduled 2025 overhaul and whether that is a reasonable basis to oppose a capital project,” Neil Dennehy, Colstrip’s plant manager, wrote in a Jan. 18, 2021, letter.

For now, Colstrip continues to churn out power. In the first three months of the year, federal statistics show the plant generated more than 3,000 gigawatt-hours of electricity — its highest first-quarter total since 2019. But how much longer it will operate is anyone’s guess.

“Certainty is necessary to make sure the plant closes in an orderly fashion,” the NW Energy Coalition’s Rivas said. “It’s necessary not just for the utilities but the community to know what they’re planning for.”

Talen’s bankruptcy, he added, is “another wrench, another hurdle in an unfortunately delayed and already complicated process.”