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Power Plant Risks Early Closure in Westmoreland Bankruptcy

Feb. 11, 2019, 11:30 AM

One of the largest power plants in the West could be at risk if Westmoreland Coal raises the price of coal at the utility’s sole supplier as part of its bankruptcy proceedings.

Nearly three-quarters of the Colstrip Power Plant’s electricity production could grind to a halt, its owners say, if Westmoreland’s potential new owners raise the price of coal from its Rosebud Mine.

Shutting down two of Colstrip’s four boilers would effectively remove 1,480 megawatts of power from the market in the West, which could be damaging to the power grid, said Bud Clinch, executive director of the Montana Coal Council. With a generating capacity of about 2,100 megawatts, the massive plant near Billings, Mont., delivers power to California, Idaho, Montana, Oregon, Utah, Washington, and Wyoming.

“The Colstrip power plant plays a tremendous role in the northwestern U.S.,” Clinch said, adding that he didn’t know how long it would take to find a replacement for the lost power—or if that would be possible.

But others said plenty of other power providers could pick up the slack, and consumers would actually stand to gain.

Bankruptcy Battles

The issue is playing out in federal bankruptcy court where Westmoreland is trying to restructure and sell off some of its mines, including Rosebud, Colstrip’s sole coal supplier.

The two Colstrip boilers in question were already slated for likely retirement in 2027, when the plant is set to be paid off.

The owners of the plant say retiring the two boilers could come much sooner if the bankruptcy court allows Westmoreland to tear up the existing coal contract and renegotiate for a higher price.

Several of the plant’s owners say that’s the plan pitched by the group that appears likely to buy Westmoreland Coal. That group, consisting of Westmoreland’s creditors, declined to comment on the record.

‘Ransom’ Prices

Talen Energy, one of the Colstrip plant’s six co-owners, told the bankruptcy court that the creditors “confirmed that the current intent is to reject the Colstrip coal supply agreements.”

Because Colstrip only gets coal from Rosebud, the mine’s new owners can squeeze the utilities “for greater and greater profits,” leaving them no choice but to pay “exorbitant ransom prices for many years” to get the coal, Talen said. It added that a higher price could force Colstrip to cut back operations, or speed the plant’s shutdown.

Ron Roberts, director of generation and natural gas storage at Puget Sound Energy, one of Colstrip’s other owners, also told Bloomberg Environment Feb. 7 there were credible concerns the mine owners would end the 2019 coal contract during bankruptcy proceedings.

Colstrip’s other owners said in the court filing that the threat to renegotiate the current contract is simply a tactic to force the utilities into unreasonable terms on a new contract, set take effect in 2020, and there’s no justification for rejecting the existing agreement.

Avista Corp., one of the Colstrip owners, has talked to the Westmoreland ownership group about extending the current contract, said Jason Thackston, Avista’s vice president of energy resources.

Life After Colstrip

Clinch pointed to other benefits of keeping the Colstrip plant open.

Both the plant and the mine “provide high-paying jobs, a huge stream of tax revenues at both the state and local level, and quite a broad-reaching benefit through those taxes,” he said.

But Anne Hedges, lead lobbyist for the environmental group Montana Environmental Information Center, said she wasn’t concerned about the closure of the Colstrip because the coal from Rosebud is the most expensive in the Powder River Basin.

“It already costs the owners about $150 million a year just for fuel. That is a big cost when it’s compared to the fuel cost of wind or solar,” she said.

Effect on Ratepayers

Colstrip was the most expensive source of power in NorthWestern Energy’s portfolio in 2017, costing more than $75 per megawatt hour to generate, according to the Montana Consumer Counsel.

Moreover, Colstrip has been offline “many times over the past decade, and the lights haven’t gone off, so it is possible for all of these utilities to function without Colstrip,” Hedges said. “And it will probably be less expensive to switch to something else than to continue to operate that facility. There’s a very good chance that ratepayer bills will go down.”

The plant has some coal inventory on hand if the coal supply agreement is rejected, as well as “a few different options that it would need to assess,” said David Eskelsen, a spokesman for PacifiCorp, one of the utilities that jointly owns the plant.

NorthWestern later in 2019 will start soliciting bids to provide alternative generation to the coal from Rosebud, said Jo Dee Black, a company spokeswoman.

To contact the reporter on this story: Stephen Lee in Washington at stephenlee@bloombergenvironment.com

To contact the editors responsible for this story: Gregory Henderson at ghenderson@bloombergenvironment.com; Susan Bruninga at sbruninga@bloombergenvironment.com; Anna Yukhananov at ayukhananov@bloombergenvironment.com