Colstrip coal plant owners sue over Montana law

Four co-owners of the Colstrip coal-fired power plant in Montana are suing their partners over a new law they say invalidates a longstanding operations agreement between the companies.

Puget Sound Energy (PSE), PacifiCorp, Avista and Portland General Electric (PGE) filed a lawsuit against Northwestern Corporation and Talen Energy in the US District Court for the District of Montana on 4 May, saying SB265 violates both the US and Montana constitutions. They asked the court to declare the law unconstitutional.

The new law, which Montana governor Greg Gianforte (R) signed on 3 May, requires all disputes concerning power plants in the state be settled within Montana and be overseen by state courts. That would give NorthWestern and Talen, which supported the law, a means to invalidate part of Colstrip's 1981 ownership and operations agreement that requires arbitration take place in Washington state, PSE, PacifiCorp, Avista and PGE said.

The new law comes at a time when "there is an actual and substantial controversy between plaintiffs and defendants," PSE, PacifiCorp, Avista and PGE said.

PSE, PacifiCorp, Avista and PGE are bound by state laws in Washington and Oregon to stop supplying coal-fired generation to retail customers in those states by 2025 and 2030, respectively. They have said that a determination to close Colstrip units needs the approval of only 55pc of the owners, but NorthWestern and Talen say the vote must be unanimous.

A companion bill that Gianforte also signed into law on 3 May, SB266, also requires a unanimous vote for Colstrip's owners to close the units and would give the state attorney general the right to fine each plant owner $100,000 a day for not funding their share of operating costs.

NorthWestern, which has a 30pc stake in Colstrip unit 4, initiated arbitration over the voting dispute in March, with Talen following up with a proposal to move the venue to Montana. NorthWestern declined to discuss details of the talks with Argus but said it wants the voting question "answered as soon as possible."

Talen did not respond to a request for comment.

The plaintiffs said in the lawsuit that moving the arbitration to Montana would slow down the dispute process and be more costly since the companies or a judge would have to find three arbitrators. Colstrip's ownership and operations agreement calls for one arbitrator.

Neither the state of Montana nor Gianforte were named in the lawsuit. Avista said its does not intend to sue the state but the state attorney general may seek to intervene since the lawsuit involves a challenge to a statute's constitutionality.

The lawsuit also does not mention SB266, but Avista, PSE, PacifiCorp and PGE expressed disappointment in the measure.

The new bills allow a third party to rewrite long-standing business contracts, which is "unconstitutional and sends the wrong message to businesses," PSE said.

PSE holds a 25pc stake in Colstrip units 3 and 4, while PGE has 20pc, Avistra has 15pc stake and PacifiCorp holds 10pc. Talen holds a 30pc stake in unit 3 and operates the plant. Talen also has a vote sharing agreement with NorthWestern.

State senator Steve Fitzpatrick (R), who sponsored both bills, said the purpose of SB265 "is to ensure a fair arbitration is conducted for any issues relating to the Colstrip plant. And SB266 will "prevent the west coast utilities from prematurely closing the plant or operating the plant in a manner which will destroy the value of the plant."

"I believe there will be a market for power from Colstrip," Fitzpatrick said.

Colstrip is the largest coal plant in the US northwest. PSE and Talen closed units 1 and 2 were closed in January 2020.

The plant generated 7.9mn MWh in 2020 and received 5.1mn short tons (4.5mn metric tonnes) of coal from Westmoreland's Rosebud mine in Montana, US Energy Information Administration data shows.

By Elena Vasilyeva