By Anne Hedges
The Colstrip power plant is an environmental and legal mess. As if the leaking ash ponds weren’t enough of a disaster, the conflicts among the plant owners are becoming even worse. And that’s not good news for Montanans, or the non-union workers at the plant and their pensions.
Talen Energy – the operator and part owner of the plant – was a company designed to fail. PPL Corp., a previous owner of the plant, created Talen in 2015 after years of complaining that its unregulated power plants were not as financially viable as its regulated plants. Thus, PPL was making more money when its power plants were subject to utility commissions’ regulation because the commissions, in general, allowed it to charge power plant costs to captive customers. Sound familiar? It’s similar to the way NorthWestern Energy — Montana’s principal utility — passes off costs to its ratepayers. In states where PPL owned power plants whose electricity was sold to the highest bidder on the open market, the business wasn’t doing as well. As a result, PPL created a new company named Talen Energy and transferred all of its unregulated power plants, including Colstrip, to the new company. At the time, it was clear that PPL was shedding its liabilities. As could have been expected, Talen sued PPL a few years later, arguing that PPL had left Talen “insolvent” and that it needed more resources to clean up the power plants and to fund worker pensions. PPL countersued. Since that time the lawsuits between the two companies have continued to stack up.
This story is all too familiar for Montanans who have seen companies shed uneconomic assets by creating new corporations and playing corporate shell games until the new company with the bad assets goes bankrupt. Sure enough, in early May 2022, Talen declared bankruptcy, saying it was $4.5 billion in debt.
What does that mean for the Colstrip plant? The plant has six owners who are barely on speaking terms with one another. Talen only owns 30% of Unit 3 but it is the operator of the entire plant and holds inexplicable sway over Montana legislators. Talen hired bankruptcy counsel in April 2021 but never told the other owners that it was preparing for bankruptcy, even after the owners requested an update about Talen’s increasingly dire financial situation.
The Pacific Northwest owners own 70% of the plant and also the transmission system that carries the electricity generated at Colstrip toward the West Coast. They want out as soon as possible, for a variety of reasons. Colstrip is an expensive power plant to operate, and the Pacific Northwest customers want to replace coal power with Montana wind power, which the transmission system could accommodate. Because of laws in their states, many of the owners will no longer be able to charge their customers for the costs associated with the plant after 2025. Finally, the owners are facing increased scrutiny from their state utility regulators who want to make sure that their utilities aren’t wasting customer money on investments that prolong the life of the plant past 2025.
Despite Talen and NorthWestern’s success in convincing the 2021 Legislature to rewrite the terms of the 40-year-old private contract between the owners regarding plant operations and dispute resolution (SB 265 and 266), the federal court in Montana has not been so sympathetic. Last year, it put one of those laws on hold while it considered whether the law was constitutional, something the court indicated was doubtful. At another hearing in April, the court again expressed its concern about the constitutionality of both new laws. This is important because the outcome will dictate how disputes among the owners will be resolved.
Last year, NorthWestern and the Pacific Northwest owners requested arbitration to resolve the dispute among the owners regarding what vote is necessary to close the plant. Before the court could rule on the constitutionality of the new laws, Talen asked it to pause the litigation until the bankruptcy was completed. The other owners fired back, telling the court that it should proceed regardless of Talen’s bankruptcy. Bankruptcy can take many months and sometimes years to resolve. The court set a hearing for early June 2022 to hear arguments on whether it is allowed to issue a decision before bankruptcy is complete.
To recap, here’s what we know:
- There can be no certainty over the plant’s future until the litigation among the owners is resolved and they know what rules will govern their disputes. Talen is doing everything in its power to stall that decision.
- Talen has told courts that it wants to move away from fossil fuels and into clean energy, yet it continues to tell Montana lawmakers that it is committed to the Colstrip plant.
- Talen has filed documents in court saying PPL owes it money so it can fund non-union worker pensions, yet it told the Montana Legislature that pensions weren’t a problem.
- Talen has filed documents in court saying PPL also owes it money so it can fund remediation at Colstrip and its other power plants. If Talen doesn’t pay its share of the hundreds of millions of cleanup costs at the Colstrip plant, the other owners and their customers could be forced to pay for Talen’s share.
- Talen will likely emerge from bankruptcy with new owners, namely the bondholders to whom it owes billions of dollars. What Talen promises today could bear no resemblance to what Talen’s future owners decide.
The Colstrip plant will close, but between now and when it does, a lot of corporate lawyers are going to get rich. MEIC will keep you informed of all the “exciting” — and potentially legally convoluted — future developments.
This article was published in the June 2022 issue of Down To Earth.
