A bleak future for Colstrip Units 1 and 2
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Key Findings
PPL Montana attempted to sell its Colstrip assets (which include a share of Unit 3 as well as 50% of Units 1 and 2) for several years. However, these efforts were unsuccessful even when they were packaged with PPL Montana’s profitable hydro assets.
The collapse of natural gas prices has driven down wholesale electricity prices in markets like that at the Mid-Columbia Hub in the northwest. Low natural gas prices have allowed natural gas units to reduce their operating costs and displace coal as the marginal fuel during much of the year.
Executive Summary
The purpose of this report is to inform policymakers and stakeholders on the future of Colstrip Generating Facility’s Units 1 and 2 in Rosebud, Mont. Colstrip has four units. This report focuses on the older Units 1 and 2. The analyses presented in the report are based on plant filings with the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Energy’s Energy Information Administration, PPL’s quarterly earnings presentations, Puget Sound Energy filings with the Federal Energy Regulatory Commission (FERC), and published industry information and analyses from SNL Financial L.L.C. and UBS Investment Research.
Colstrip Units 1 and 2 are each rated at a nominal 358 megawatts (MW) of nameplate capacity, with 307 MW of net capacity.2 . Unit 1 will be 40 years old in November 2015. Unit 2 will be 39 years old in August 2015.
Colstrip Units 1 and 2 are now jointly owned by Puget Sound Energy and Talen Montana, each of which owns 50% of each unit. Until May 31, Talen’s share of Colstrip 1 and 2 was owned by PPL Montana, a subsidiary of PPL Corporation. However, on June 1, PPL Corporation spun off its merchant power business (that is, PPL Energy Supply) in a merger with the merchant assets of Riverstone Holding LLC to form Talen Energy Corporation.
PPL Montana operated, and Talen Montana will continue to operate, as a merchant company selling the power from Colstrip 1 and 2 either through bilateral contracts or the MidColumbia Hub energy market. Puget Sound Energy is a regulated utility in the State of Washington. Although there are important differences between merchant energy companies and regulated utilities, the results of our analyses are significant for both of the owners of Colstrip 1 and 2.
PPL Montana attempted to sell its Colstrip assets (which include a share of Unit 3 as well as 50% of Units 1 and 2) for several years. However, these efforts were unsuccessful even when they were packaged with PPL Montana’s profitable hydro assets. For example, NorthWestern Energy, a prospective buyer, announced that the value of the entire package of PPL Montana’s Colstrip and hydro assets was worth less than the value of the hydro assets alone. This meant that NorthWestern Energy believed that Colstrip had a long-term negative value.
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