HELENA — The Montana Public Service Commission voted 3-1 Monday to support a bill that would scale back the commission’s regulatory authority over NorthWestern Energy’s operation at Colstrip. The PSC’s staff had advised commissioners to oppose the proposal.
Senate Bill 331 replaces Senate Bill 278, which the Finance and Claims Committee tabled last week. Sen. Tom Richmond, R-Billings, sponsored both bills. He asked lawmakers to table the earlier bill and said he wanted to draft a proposal that addressed concerns he heard from constituents and fellow legislators. Both bills offer similar perks to NorthWestern Energy, and PSC staff warns those perks could cost each of the utility’s ratepayers as much as $721.
First, SB 331 allows the utility to recover its current investment and cleanup costs at Colstrip, even if the coal-fired plant closes early. The legislation bars the PSC from interfering.
Second, SB 331 allows NorthWestern to buy an additional 150 megawatts at the plant for no more than $1. The utility would receive a return of up to $40 million from that new ownership without PSC oversight, regardless of when the plant closes.
NorthWestern would receive its returns through a guarantee that its Montana customers will pick up the tab.
“Senate Bill 331 removes a potentially sizeable portion of risk that was assigned to the utility and its stockholders, and it shifts that risk entirely to the ratepayers,” said PSC policy analyst Robin Arnold during a public meeting with the commissioners Monday.
The PSC typically evaluates costs that monopoly utilities want to pass on to captive ratepayers who have no other options for buying electricity.
A memo prepared for commissioners by PSC staff warns of the potential fallout if SB 331 becomes law. Among staff concerns is the erosion of fundamental principles of public-utility ratemaking.
The commission seeks balanced solutions that benefit utilities’ bottom line and protect customers from unfair costs. SB 331 disrupts that balance, the memo says.
NorthWestern paid $187 million to acquire its current Colstrip share in 2007. In 2008, the PSC allowed the utility to roll $407 million into its rate base after the company implied it would otherwise sell its share to another company.
The utility would not need to acquire additional ownership at Colstrip to receive a return on that existing investment or future cleanup costs at the plant.
That means SB 331 could provide an incentive for NorthWestern to close its operation at Colstrip early.
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Roger Koopman, the only commissioner to vote against SB 331, called that incentive “perverse.”
“I think what we’re missing here is that the primary thrust of this bill, the biggest impact of the bill, is on existing assets,” he said.
NorthWestern currently owns 30 percent of Colstrip’s Unit 4. The remaining 70 percent is held by utilities headquartered in Oregon and Washington. Those owners also own shares of Unit 3 and plan to cease their operation of Colstrip by 2027.
If NorthWestern ceased its generation the same year, PSC staff estimates, each of the utility’s Montana customers would be stuck with an extra $721 tab under SB 331, for a collective liability of $267 million.
SB 331 rolls those costs into electricity rates over the next 30 years.
“It should be noted that remediation costs are still unknown and could end up being higher than what is currently estimated” by the Department of Environmental Quality, Arnold said.
The DEQ’s latest figures peg cleanup of Colstrip’s generators and coal ash ponds at between $400 million and $700 million.
If NorthWestern chooses to purchase another 150 megawatts, it would take on a bigger share of those cleanup costs. The PSC would also be forced to allow the utility to recover up to $40 million in added operation and maintenance costs at the plant. The staff memo notes the bill includes no rationale for the $40 million figure. It estimates that another 150 megawatts could cost NorthWestern $80.5 million over five years.
Commissioners supporting SB 331 pointed to the need to secure the long-term viability of the Colstrip plant. A previous legal settlement with environmental groups means units 1 and 2 must close by 2021. Meanwhile, the plant’s remaining largest owners are looking to phase out coal-sourced energy.
“I am absolutely convinced … that the risk of leaving Unit 4 exposed to the risk of premature closure we’re seeing with [units] 1 and 2 represents a far greater risk” than the concerns raised by PSC staff, said Commissioner Brad Johnson.
Johnson conceded that SB 331 presents a number of uncertainties for the PSC and ratepayers.
“But I think there’s every reason to believe that passage of this bill and acquisition of that additional 150 megawatts of generation probably means we’re not going to see a request for a massive capital investment in a new gas-fired generating facility,” he said.
NorthWestern currently owns a 220-megawatt share in Unit 4. Building a gas plant with similar generating capacity could cost about $153 million, according to figures from the U.S. Energy Information Administration.
Commissioners Johnson, Bob Lake, and Randy Pinocci voted to support SB 331. Commissioner Tony O’Donnell was absent.
SB 331 will have its first hearing in the Senate Energy and Telecommunications Committee at 3 p.m. on Tuesday, March 19. Koopman said he plans to speak in opposition to the bill.
“If we believe in this bill, then we don’t believe in the Public Service Commission,” Koopman said. “The Legislature might as well go to work creating something new and more to their liking, because this bill is a denial of what we are here to do.”