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NorthWestern to acquire Puget Sound Energy's share in Colstrip 4 coal plant

NorthWestern Corp. is proposing to acquire Puget Sound Energy Inc.'s 25% ownership stake in unit 4 of the coal-fired Colstrip power plant in Montana for $1, saying it would help cover a generation capacity shortage in the state.

The company, which does business as NorthWestern Energy, also pledged to cut down its carbon intensity in Montana by 90% by 2045 from 2010 levels.

"Securing more capacity for only a $1 investment is a unique opportunity that helps give us the time to continue transitioning to an even cleaner energy future without putting either our customers' safety or their ability to pay their energy bills at risk," NorthWestern President and CEO Bob Rowe said in a Dec. 10 news release.

By late January or early February 2020, NorthWestern Energy plans to file with the Montana Public Service Commission an application for preapproval for the planned acquisition. NorthWestern Energy will also seek approval to sell 90 MW of output to Puget Sound Energy, or PSE, under a five-year power purchase agreement. PSE's ownership interest in Colstrip 4 represents capacity of 185 MW.

If approved, NorthWestern Energy will own 55% of Colstrip unit 4. Customer bills are projected to remain steady as increased operating costs are expected to be offset by lower purchased power costs.

"Even with projected operating and maintenance costs factored in, purchasing more of Colstrip Unit 4 for only [$1] is by far the most affordable way to help close the gap in the capacity shortage facing our customers," said John Hines, NorthWestern Energy's vice president for supply and Montana government affairs.

Colstrip units 1 and 2, owned jointly by PSE and Talen Generation LLC and operated by Talen, will be shut down Dec. 31. PSE will still be responsible for its presale share of all costs for remediation of environmental conditions and decommissioning regardless of when Colstrip unit 4 retires.

PSE said in a separate statement that the sale will help it comply with a Washington state law that requires utilities to eliminate coal resources from their power supply portfolios by 2025. PSE retains a 25% ownership in Colstrip unit 3, equal to 185 MW.

NorthWestern's proposed acquisition of PSE's Colstrip 4 interest will only meet about 25% of the overall capacity requirement of Montana, and NorthWestern said it intends to issue a request for proposals in the coming months to address the power shortage. In a resource plan submitted to Montana regulators in August, the company said it would need an additional 400 MW. It currently has to obtain at least 645 MW from market sources.

Colstrip Transmission System

Under a separate transaction, NorthWestern Energy proposes to acquire a part of PSE's interest in the 500-kV Colstrip Transmission System, with 95 MW of capacity, for net book value at the time of sale, which is estimated at $2.5 million to $3.75 million.

This transaction is contingent on the approval of the sale of the Colstrip 4 stake.

When the five-year power contract with PSE ends, NorthWestern Energy may acquire another interest in the transmission system with an additional 90 MW of capacity. NorthWestern Energy operates and currently owns 30.8% of the transmission system, which it described as the "backbone" of the state's grid.