Colstrip Power Plant Threatened by Westmoreland Bankruptcy

The Colstrip Power Plant, a four-unit, 2,094-MW coal-fired station located about 100 miles east of Billings, Montana, could see its coal supply contract nullified as a result of Westmoreland Coal Co.’s Chapter 11 bankruptcy reorganization.

Westmoreland operates the 25,000-acre Rosebud coal mine, among others. Rosebud is adjacent to the Colstrip plant and supplies almost all of its production to the station. According to Westmoreland, that amounts to about 10 million to 13 million tons per year.

Westmoreland filed for bankruptcy on Oct. 9, 2018. Earlier this month, the company solicited offers for the purchase of substantially all of its assets, but no qualified bids were received, other than the minimum bid from its creditors.

Coal mining operations have been hard hit by shrinking demand from the power generation industry. According to the U.S. Energy Information Administration, coal production has fallen by more than one-third since 2008 when production peaked. The number of active coal mines has decreased by more than half, from 1,435 mines in 2008 to 671 mines in 2017. However, most of the mine closures have been in the Appalachian region, not in the Powder River Basin (southeast Montana and northeast Wyoming) where large surface mines account for more than 40% of total U.S. production.

The Colstrip plant employs about 360 people and is operated by Talen Montana LLC. The facility is co-owned by Talen, Puget Sound Energy Inc. (PSE), Portland General Electric Co., Avista Corp., PacifiCorp, and NorthWestern Energy.

Talen filed an objection with the bankruptcy court on Jan. 25 over Westmoreland’s Chapter 11 plan, which would nullify Colstrip’s fuel contracts. The document says Westmoreland is attempting to “squeeze” the plant “for greater and greater profits.” According to the filing, the current fuel contracts “guarantee” profitability for Westmoreland because they are cost-plus agreements under which the plant pays the annual costs of mining operations, a return on capital investment, and a per-ton profit fee.

The Billings Gazette reported that NorthWestern Energy told the bankruptcy court, “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. The Colstrip Co-Owners will not be able to replace the coal supply right away, and the units will close.”

“The Rosebud Mine is the only viable source of fuel for the Colstrip units,” PSE’s Grant Ringel was quoted to have said. “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 reportedly said.

The Colstrip plant has been operating under financial pressure for some time. Talen and PSE, which are joint owners of Units 1 and 2, reached an agreement in July 2016 to retire the two units by July 2022. Although the deal was made to settle a lawsuit alleging violations of the Clean Air Act, PSE President and CEO Kimberly Harris alluded to difficult economics when she said at the time, “This agreement provides certainty for addressing grievous pollution issues and gives the two units six years to go offline, although the market may prove less tolerant of that length of time.” A Talen lobbyist in March 2017 told state legislators that the plant was losing about $30 million annually.

“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,” Talen Energy’s Taryne Williams was quoted by the Gazette as saying. “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 reportedly added.

Last week, legislation was introduced by state Rep. Rodney Garcia (R-Billings) that would authorize the State of Montana to issue revenue bonds for the financing and purchase of coal-fired generation facilities. Garcia was quoted in The Montana Standard, a Butte-based daily newspaper, to have told the House Federal Regulations, Energy, and Telecommunications Committee, “My intention is just keep this [Colstrip power plant] open, running, keeping the economy strong in Montana. That’s it.”

However, several groups, including the Montana Chamber of Commerce, the Montana Taxpayers Association, and the Montana Environmental Information Center, oppose the legislation, so it could face an uphill battle to become law. Meanwhile, four of the plant’s owners are reportedly planning to move away from coal power within the next 10 years. In May 2016, Talen told the other owners that it intended to exit as the plant operator by May 2018 because it was losing too much money, but it reversed course in August 2017 and continues to operate the plant today.

Aaron Larson is POWER’s executive editor (@AaronL_Power, @POWERmagazine).