Who should pay when a coal plant breaks down?
That was the question before the Montana Public Service Commission recently after one of the larger units at the Colstrip coal-fired power plant in southeastern Montana was out of service for almost seven months in 2013. The PSC had to decide whether shareholders or electricity customers would pick up the tab to purchase the power that was needed to replace what the Colstrip unit should have been providing. The PSC’s answer—to the surprise of some—was correct: Shareholders.
The 780-megawatt Unit 4 is owned by five utilities. All five are regulated,but only one, NorthWestern Energy, serves Montana customers. The others produce electricity for West Coast markets. During the long outage, NorthWestern’s customers had to pay $21 million in fixed costs, including an allowance for profits, for Unit 4, even though it wasn’t operating. The issue before the PSC was whether NorthWestern could charge its customers an additional $8 million to pay for replacement power.
The PSC is elected and is made up currently of five very conservative Republicans. On one side of thos issue was NorthWestern, a regulated utility with a 30 percent interest in Colstrip Unit 4. On the other side were my organization, the Montana Environmental Information Center, the Sierra Club (represented by Earthjustice) and the Montana Consumer Counsel.
In making its decision, the PSC had to determine whether NorthWestern’s costs for replacement power were prudently incurred. NorthWestern thought the decision was cut and dried—of course its customers should pay, both for the overhead costs of the electricity that wasn’t produced, as well as for the electricity that had to be purchased because of the breakdown.
But the two-day PSC hearing included expert testimony from David Schlissel, director of resources planning analysis at the Institute for Energy Economics and Financial Analysis, who argued that a prudent utility would have—and should have—done three things to avert the situation. First, it would have conducted a quick and inexpensive test to determine if the equipment was properly installed. Second, it would have at least investigated whether it should have had insurance to cover such outages, considering that the same unit had broken down for a similar length of time just a few years earlier. And third, it would have investigated whether the contractor who probably caused the outage shared in the liability. NorthWestern did none of those things.
Three of the five PSC commissioners sided with consumers, concluding that “NorthWestern failed to demonstrate that it acted prudently in managing, operating and monitoring the plant.”
“In fact, persuasive evidence exists regarding steps NorthWestern could have taken to mitigate or prevent the outage,” commissioners added.
The PSC was also displeased with NorthWestern’s attempt to hide the cause of the breakdown. That information was only uncovered when Earthjustice, at the urging of Schlissel, insisted in the pre-hearing discovery process that the company provide a “root cause” analysis. It took months, but NorthWestern eventually produced an internal report that showed that the contractor had most likely caused the outage. Despite this, NorthWestern never attempted to make the contractor pay for the cost of the outage; company executives apparently thought it would be easier just to charge its customers an additional $8 million.
When NorthWestern bought its 30 percent share of Colstrip Unit 4 in 2009, it promised the plant would be cheap and reliable. Time has proven it to be anything but. Two long outages since that purchase prove that Unit 4 doesn’t perform as has been advertised.
Montanans already pay some of the highest electricity rates in the region, and subsidizing outages at plants like Colstrip only adds to their burden. There are far better ways to spend money. Montana has some of the best wind resources in the nation, for instance, and its excellent solar potential has barely been tapped. The power plant at Colstrip, on the other hand, comes with enormous cost. It has 800 acres of leaking ash ponds, outdated air pollution control equipment, and it emits tens of thousands of tons of harmful air pollutants each year. It makes no sense for Montanan to pay a premium for electricity that causes so many problems, including that outage in 2013.
Kudos to those commissioners who were looking out for Montanans who buy electricity from a regulated monopoly and who voted in favor of consumers on this case. It’s nice to see regulators taking their jobs seriously.
Anne Hedges is deputy director of the Montana Environmental Information Center. This commentary was adapted from the original published earlier this month at MEIC.org.
Related posts:
IEEFA Analysis: Financial Condition of Montana’s Colstrip 1 and 2 Worse Than Previously Known
IEEFA Issues ‘Buyer Beware’ on Colstrip Coal-Fired Electricity Generation Units in Eastern Montana
Time Appears to Be Running Out for Colstrip Units in Montana
