Published: January 31, 2019 |

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Plans are in the works to end the supply contract between Colstrip power plant and the coal mine that’s kept it firing for more than 40 years.

Ending the contract could result in the power plant shutting down, utility owners said, either because the power plant lost its only coal source, or because a new agreement with higher coal prices made Colstrip uneconomical.

Owners of the four-unit southeast Montana power plant filed objections Friday in U.S. Bankruptcy Court, where debt-plagued Westmoreland Coal Co. is trying to pass Rosebud Mine to creditors. The mine is practically across the street from the power plant.

The power plant owners Puget Sound Energy, Avista Corp., NorthWestern Energy, PacifiCorp, Portland General Electric and Talen Energy had balked at an earlier supply offer from Westmoreland. Now they’re being told to take the deal or else.

“Westmoreland’s most recent offer to the Colstrip owners would very likely make operation of Colstrip Units 3 and 4 uneconomic for not only Talen Montana but all of the fellow Colstrip owners,” said Taryne Williams, of Talen Energy, a power plant co-owner, who also keeps Colstrip running. Units 3 and 4 are the power plant’s workhorse units with the longest life expectancy.

“Additionally, while at the present time, there has been no decision to shut down Units 1 and 2 prior to the previously announced closure date of July 1, 2022, we continue to experience financial challenges related to keeping the units open,” Williams aid.

There are already concerns about Colstrip power plant’s operating costs and mine bankruptcy in Washington State, where 1.8 million customers receive Colstrip power. Regulators have voiced concerns about the risks feeding Colstrip power plant from a single mine.

Colstrip power plant is exclusively fed Rosebud coal — it’s designed for it, according to NorthWestern Energy. Montana’s largest monopoly utility, NorthWestern told the court that it would take up to three years of planning and permitting to begin feeding Colstrip with coal from another mine. During that time, the power plant would be shut down.

“If the Court allows (Westmoreland) to reject the Coal Supply Agreement, the Colstrip Complex will cease operation, and the Units will shut down and cease generating electricity in the middle of the Montana winter,” NorthWestern told the bankruptcy court. “The Colstrip Co-Owners will not be able to replace the coal supply right away, and the Units will close.”

The balance of electricity in the Pacific Northwest will be at risk, NorthWestern said.

“The Rosebud Mine is the only viable source of fuel for the Colstrip units,” said Grant Ringel, of Puget Sound Energy. “There are existing permit conditions that require local coal to be burned in those units.”

Puget evenly splits ownership of Units 1 and 2 with Talen and has 25 percent ownership of Units 3 and 4, making the Seattle-area utility Colstrip’s largest stakeholder. Asked if higher coal prices could push Units 1 and 2 into earlier retirement, Ringel said it would be challenging.

“The Colstrip units are under strong economic pressure from other sources of electric generation, especially natural gas. Anything that raises costs for Colstrip further weakens their competitiveness,” Ringel said.

Talen is the most vulnerable of the utility owners to a rise in coal prices. The Pennsylvania-based utility sells its power on the open market, where cheap electricity generated by natural gas or renewable energy are already eroding coal’s competitiveness. A decade ago, coal-power accounted for 40 percent of U.S. electricity, but today that number has fallen into the 28 percent according to the U.S. Energy Information Administration. In 2018, U.S. coal consumption fell to its lowest point in 39 years, EIA reports.

“Talen Montana has made hard-won progress to improve the financial condition of Units 1 and 2. However, if Westmoreland rejects our current contract or increases our cost, the financial issues associated with the operation of Units 1 and 2 will likely get worse,” Williams said.

Talen aside, the other five Colstrip owners are regulated utilities with captive customers who pay higher-than-market prices, though they would need approval by state regulators to pass on higher coal costs to customers. Some regulators have already expressed concern about the price of Colstrip power.

It’s unlikely Rosebud Mine coal would go anywhere other than Colstrip power plant, said Seth Feaster, data analyst for the Institute for Energy Economics and Financial Analysis. The most likely non-Colstrip buyers for Rosebud Mine coal are probably in the Asian Pacific, where Powder River Basin companies like Cloud Peak and Aubre Energy already ship coal more affordably than Rosebud would.

The mine’s more probable play is leveraging a higher price from the Colstrip power plant. The challenge is raising coal prices without driving utilities toward gas or renewable energy, Feaster said.

Source:  Billings Gazette

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