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small brandlColstrip Acquisition FAQs
In December 2019, NorthWestern Energy proposed a plan to purchase for $1 Puget Sound Energy’s 25% ownership interests in Colstrip Unit 4.

Here are answers to many of the questions we've received since the announcement and clarification on some information that has been misrepresented elsewhere.
What is the deal to acquire more of Colstrip Unit 4 and why is NorthWestern proposing this deal?
In late January or early February, NorthWestern Energy will submit an application to the Montana Public Service Commission (MPSC) seeking pre-approval of the acquisition of Puget Sound Energy’s (PSE) 185 megawatt interest in Colstrip Unit 4.

In addition, NorthWestern Energy will seek approval to sell 90 megawatts to Puget Sound Energy for roughly 5 years and allow all of the net proceeds from this sale to go into a special environmental fund dedicated to future decommissioning and remediation costs associated with NWE’s existing ownership.

NorthWestern Energy anticipates zero net effect on customer bills while setting aside the benefits from the transaction – estimated to be $4 million annually – to address environmental remediation and decommissioning costs associated with NorthWestern Energy’s existing ownership.

Puget Sound Energy remains responsible for its presale 25 percent ownership share of all costs for remediation of existing environmental conditions and decommissioning regardless of when Colstrip Unit 4 retires.

If the acquisition is approved by the MPSC, NorthWestern will also purchase 95 megawatts of PSE’s interest in the Colstrip Transmission System (CTS) for depreciate book value – estimated to be between $2.5 and $3.75 million. At the end of the 5 year sell back agreement, NorthWestern has the right to buy an additional 90 megawatts of the CTS from PSE.

NorthWestern is proposing this deal as an important step to help address a large and growing capacity shortage in Montana and the region. It will not solve the entire capacity shortage. NorthWestern will be seeking additional capacity sources of energy via an independent request for proposal (RFP) process and additional RFP’s in the future.
What is capacity?
Capacity is a term used to describe energy that can be called up 24/7 when it is needed. Think of it like a car – you can turn it on and off as needed and make it go faster or slower by pressing on the accelerator.

Availability of capacity is becoming more and more challenged in Montana and the region due to the significant amount of planned coal plant closures, starting right in Montana with closure of Colstrip Units 1 and 2. Coal plants provide the kind of energy that can be called up 24/7 when needed.
Why is this a good deal for MT customers?
There is no other source of capacity available today that can meet the needs of NorthWestern’s customers in a manner that is as affordable as acquiring PSE’s share of Colstrip Unit 4 for only $1.

As a point of comparison, if NorthWestern had owned this additional portion of Colstrip Unit at the time, NorthWestern and its customers would have saved more than $8 million over a 4 day cold snap in March 2019 when the region experienced capacity constraints which resulted in significant market price increases.
Is the Colstrip Transmission System (CTS) a big deal to MT?
Yes. This system is the backbone of the energy grid in MT. It serves not only NorthWestern customers but it also serves rural electric cooperatives and large industrial customers. It is the system that allows for energy import and export. Without the CTS, renewable energy development in Montana would be very constrained as this is the system that allows made in Montana energy to find markets to the West.
What could happen if MT and the region is short of capacity? Is the capacity shortage in MT really that big of a deal?
The most extreme outcome could be blackouts caused by not enough energy being available in Montana and the region during peak demand times. A recent study indicates that there is a 25 percent chance of blackouts in the Pacific Northwest by 2026. Capacity shortages will also result in increased and growing market price volatility including very high market prices during peak demand times. We saw this occur in late February and early March 2019 during a 4 day cold snap when market prices increased from ~ $65 per megawatt hour on February 27 to ~ $154 megawatt hour on February 28 to almost $900 a megawatt hour on March 1.
How short of capacity is NorthWestern?
NorthWestern Energy’s current resources provide about 755 MW of peaking capacity. An additional 645 MW of peaking capacity must currently be purchased from the market to meet our needs. Without new peaking capacity, the market exposure will increase to about 725 MW by 2025.

This peaking need assumes continued development of cost effective demand side management (conservation) and small distributed generators (net-metering).

Meeting peak load with market purchases means being exposed to the market at the worst possible time – when the market is volatile, increasingly lower quantities for sale, and prices are high.
What typically causes peak demand times to occur?
Peak demand periods are typically weather driven – hot and cold spells – and in Montana the most critical and serious peak demand periods occur when the temperatures are sub-zero. For anyone who lives in Montana, you know sub-zero cold snaps can last for days and not merely hours. Peak demand can also occur during hot spells.

Capacity shortages can occur for other reasons, such as not enough wind or solar energy being produced due to lack of wind or the presence of clouds, but the most serious peak demand times typically occur during extreme weather events when it can be a matter of life and death.
Why is NorthWestern so short of capacity in MT?
Deregulation in Montana of electric supply in 1997, and the subsequent sale of Montana Power’s generation fleet, left customers entirely exposed to the prices in the unregulated power markets beyond Montana’s borders. NorthWestern Energy has worked to address this vulnerability and made great progress but more work is needed.

Since acquiring the distribution and transmission system from Montana Power in 2002, NorthWestern has been able to make some progress in rebuilding a generation fleet that can provide 24/7 capacity driven primarily by the placement of the company’s existing ownership of Colstrip Unit 4 into rate base dedicated to serving Montana customers, building the Dave Gates Generation Station and the purchase of the hydro dams.
What other options are there for acquiring more capacity and what would they cost?
NorthWestern will use a staged approach, issuing a solicitation for short term capacity resources, an initial solicitation for up to 480 of long term capacity, followed by additional solicitations.

NorthWestern Energy will evaluate all resources which can meet customer needs, including renewable and thermal based generation, power purchase agreements, and owned energy resources comprised of different structures, terms, and technologies with the long term objective of a lowest cost, stable, and reliable energy portfolio.

NorthWestern’s incremental approach will provide opportunities for different resource types and new technologies while also building a reliable portfolio to meet local and regional conditions and minimizing customer impacts.

As a point of comparison regarding costs, consider the following:

Building a natural gas plant that provides the equivalent capacity of a 185 megawatts at Colstrip Unit 4 would cost $240 million or more. A wind plus battery storage combination could cost over one billion dollars and still not provide equivalent capacity. Solar by itself is not currently a viable option in Montana in the winter to address this type of sustained peak capacity need.
Why can’t NorthWestern just rely on the market to purchase capacity?
We believe relying on the market to meet peak demand is risky and getting riskier. The region is already starting to experience signs of energy constraints during peak times and we expect this to worsen as more coal plants close. Coal plants are able to provide 24/7 energy that can be called upon when needed. We saw market stress in late February and early March 2019 during a 4 day cold snap when market prices increased quickly from an average of ~ $65 to almost $900 per megawatt hour in less than 48 hours.
Can NorthWestern solve the capacity shortage using 100 percent wind, solar and energy storage?
We are not aware of any utility announcing or attempting to build the amount of wind, solar and energy storage that is required to supply the capacity our customers need for the time period it is needed – in Montana we see peak demand times that last for days not hours.

Building a natural gas plant that provides the equivalent capacity of this acquisition would cost $240 million or more. A wind plus battery storage combination could over one billion dollars and still not provide equivalent capacity. Solar by itself is not currently a viable option in Montana in the winter to address this type of sustained peak capacity need.
Does NorthWestern believe in climate change and care about reducing carbon?
NorthWestern cares deeply about the environment and the climate. We have worked hard to reduce the carbon intensity of our Montana generation mix by more than 50 percent since 2010 and have committed to a 90 percent reduction in carbon by 2045 compared to 2010. We look forward to working with the citizens of Montana to meet or even exceed this goal.

While we don’t know all of the technical details about what our generation mix will look like by 2045, no utility can or does, we believe that improving our resource adequacy situation over time with newer and cleaner technologies can get us there. The good news is we are starting from a great spot with a Montana carbon intensity that is more than 2 times better than the industry national average.

You can find more about our commitment to environmental stewardship at: www.northwesternenergy.com/environment/our-environment.
What has NorthWestern done already to reduce carbon?
Today, over 60 percent of the energy produced by NorthWestern Energy for Montana comes from renewable and carbon-free sources, including hydro, wind and solar. With the added Colstrip ownership, our portfolio is still twice as clean (56 percent) as the total U.S. electric power industry (28 percent).

Over the last decade, we have already reduced the carbon intensity of our energy generation in Montana by more than 50 percent.

In the last five years alone, we have invested more than $1 billion in clean energy projects, including hydro, wind and solar facilities.
Does NorthWestern have a carbon goal for MT?
Yes. To build upon the more than 50 percent reduction we have achieved since 2010, we are committed to reducing carbon by 90 percent by 2045 from a 2010 baseline.

We will do even better if we are able but we must maintain reliability and affordability.

Montana has more households living in poverty (1 out of every 7.5 people in Montana live in poverty and in Butte-Silver Bow county this number is 1 out of 5.3) than the national average, and a median household income that is about 12 percent below the national average.

And we all know how critical it is to have adequate energy when it is 40 below zero.
How does NorthWestern intend to accomplish its carbon reduction goals?
Our Montana carbon goal is living - like our electric supply plan. Our carbon goal will be updated regularly to factor in advances in technology and cost changes.

There are great opportunities to work with communities and customers to achieve their goals and our shared goals and responsibilities. This work is already beginning.

We anticipate significant additional renewable energy resources coming online in coming years. These resources typically do not make significant cost-effective contributions to meeting our capacity needs today but are expected to become more viable over time as technology improves and costs decline.

Thermal (coal and gas) resource retirements will be driven either by economics or by public policy. All assets have useful lives regardless of type. Colstrip Unit 4:
• In the current supply models, Colstrip dispatch peaks in the late 2020s and then falls over time.
• The Colstrip acquisition addresses about one quarter of the current capacity deficit, which creates an additional opportunity for carbon free resources to meet that need when the plant is retired.
• Greater Montana control at Colstrip allows thoughtful consideration of how the transmission and other assets in the area could be used in the future.

The present capacity deficit is real and urgent:
• Like a pyramid, as long-duration dispatchable resources, such as Colstrip Unit 4, are included there will be increasing opportunities for shorter-duration resources, such as wind and solar, to be added to help meet the remaining shorter-duration needs.
• Technologies will continue to improve and prices should continue to decline, particularly for shorter-duration needs – wind, solar and energy storage.
• There are also opportunities for efficiency, grid automation, and new policies in areas such as dispatch, load shifting, and pricing designed to incent smart and efficient energy use.
• Upgrading the metering system in Montana to a system that is capable of two way communications and providing real time data will be a critical component to building the energy grid of the future. We plan to start this work as early as 2020.
Why did NorthWestern pick 2010 as its baseline year?
2010 was the first year that NorthWestern owned generation in Montana that was in rate base dedicated to serving Montana customers. Recall that deregulation in Montana of electric supply in 1997, and the subsequent sale of Montana Power’s generation fleet, left customers entirely exposed to the prices in the unregulated power markets beyond Montana’s borders.

The Montana legislature effectively repealed deregulation in 2005, thereby allowing NorthWestern to own generation. The first piece of generation that was placed into rate base to serve customers at cost was our existing portion of Colstrip Unit 4. We have since built the Dave Gates Generating Station located by Anaconda, purchased the hydro system and added some owned wind and solar.
What will acquiring more of Colstrip Unit 4 do to NorthWestern’s carbon output in MT?
It will increase it slightly for a period of time. In the short-term, the percent of carbon free generation in our Montana portfolio goes from a little above 60 percent to roughly 56 percent, which is still significantly better than the national average. We will, of course, rely first on our carbon free sources of energy if they are producing what we need.
What will happen to customer bills with additional ownership in Colstrip Unit 4?
We expect no impact on customer bills as a result of this acquisition. We anticipate this additional 185 megawatts for only $1 to yield substantial value for customers over time, compared to any other alternative for this type of 24/7 energy. The value to customers over the first 5 years is expected to be between around $40 million compared to an alternative for this same amount and type of power. The value to customers over a 20 year time frame is estimated to be about $ 160 million compared to an alternative for this same amount and type of power.
Will NorthWestern address future remediation and, if so, how?
Yes. Part of the proposal we will file with the MPSC includes placing the proceeds from the 5 year sell back agreement with Puget into a fund to be used to address future remediation and decommissioning costs associated with our existing ownership.

In addition, Puget will retain the responsibility for 25 percent (equal to its current 25 percent ownership of Unit 4) of the final remediation and decommissioning costs when the times comes for Unit 4 to close.
Will NorthWestern and its customers pay for any of Puget Sound Energy’s remediation costs?
No. Puget will remain responsible for its costs and will retain the responsibility for 25 percent (equal to their current 25 percent ownership of Unit 4) of the final remediation and decommissioning costs.
How long does NorthWestern plan to operate Colstrip Unit 4?
We have no current closure plans. Current modeling shows Unit 4 being economical over the next 20 year horizon. We update our modeling on an on-going basis. We also know that no plant runs forever and that there are significant social and political issues surrounding carbon.
Why is NorthWestern taking on more ownership of Colstrip Unit 4 when other owners are going the opposite direction?
No other utility in the region faces the capacity shortage that we do and that is because of Montana Power’s sale of its generation assets: this left Montana wholly dependent on obtaining energy from the market. In times of an energy shortage, as was the case this past winter, this means that energy might not be available or if it is, the price is sky high. NorthWestern has been acquiring generation assets on behalf of its customers, but we still rely on the market a large percent of the time. Under peak demand times, we can be close to 50 percent short of the energy needed to meet customer needs. This is not a good place to be when the weather is below zero for multiple days in a row.
How can NorthWestern ensure the other owners cannot shut down Colstrip Unit 4?
Even with this additional purchase, NWE can’t ensure the continued operation of Colstrip. While it takes a unanimous vote by all owners to close Unit 4, owners do have litigation as well as budget approvals as means to try and achieve their regulatory obligations. However, increasing our ownership to 55 percent of Unit 4 gives NorthWestern and Montana a greater voice in the future of Unit 4, including its eventual shutdown.
What is NorthWestern’s vision for delivering a cleaner energy future?
Our vision for the future builds on the progress we have already made. We commit to reducing the carbon intensity of our electric energy generation 90 percent by 2045, from a 2010 baseline.

This goal is anchored by projected advances in renewable generation technology that will enhance our ability to provide reliable energy 24 hours a day, 7 days a week in all weather conditions.

The foundation of our energy generation is our carbon-free hydro system that is available 24 hours a day, 7 days a week. There are those who will criticize our purchase of the hydro system but, rest assured, there are other utilities who would love to own a set or assets like our hydro system – a system capable of providing carbon-free, around the clock energy.

Wind generation is a close second and continues to grow and likely to exceed our hydro capacity in the near future.

Utility-scale solar energy is not a significant portion of our energy mix today. We are unsure of its role in the future; growth of this resource is likely to be linked to growth of energy storage.

Plants such as Colstrip Unit 4 and the Dave Gates Generating Station provide valuable, on-demand energy that can be called upon, or backed down, as customer demand for energy increases or decreases within an hour, and on an hourly and daily basis.

Energy efficiency, demand side management small-scale renewable energy play and will continue to play an important role. We lead energy efficiency in Montana and have for more than 40 years.

Since the late 1970s, we have performed energy audits and offered services to assist customers with the wise and efficient use of energy.

In total, NorthWestern Energy and its customers have invested more than $121 million in energy efficiency, demand side management and small-scale renewable energy development support since 2006 and this number will continue to grow.

Over the last 13 years alone, energy savings have totaled almost 685,041 MWhs of energy. That is enough to power over 76,000 homes for a year.

We support training and continuing education for renewable energy installers. Our work in small-scale renewables has helped foster an industry that has grown from 700 private generation customers in 2010 to almost 3,000 today on NorthWestern Energy’s Montana system.

In 2020, we expect to begin an upgrade to our gas and electric metering system in Montana. The upgraded system will help us better assist our customers with their individual energy needs and more quickly detect and respond to power outages. The system will also provide data that will assist us in making the power grid more efficient and reliable.

To read more about our carbon reduction vision, go to: http://www.northwesternenergy.com/docs/default-source/documents/colstrip/carbon_statement_2019-12-10.pdf

You can find more about our commitment to environmental stewardship at: http://www.northwesternenergy.com/environment/our-environment
Does NorthWestern support renewable energy?
Yes. The foundation of our energy generation is our carbon-free hydro system that is available 24 hours a day, 7 days a week. Wind generation is a close second and continues to grow. While utility-scale solar energy is not a significant portion of our energy mix today, we expect it to continue to grow along with energy storage.

We support training and continuing education for renewable energy installers. Our work in small-scale renewables has helped foster an industry that has grown from 700 private generation customers in 2010 to almost 3,000 today on NorthWestern Energy’s Montana system.

In 2016, we developed a solar pilot project in partnership with the City of Bozeman and Montana State University that provides enough renewable energy to power over 60 homes.

In addition, we recently launched the Missoula Urban Active Research Solar Project that is a partnership between NorthWestern Energy, Missoula County Public Schools, and the City of Missoula which includes unique solar installations at Missoula’s four public high schools.

NorthWestern Energy collects data from each installation and uses it to analyze how small, urban renewable energy projects can integrate with the electric grid. With data made available through a website hosted by NorthWestern Energy (nwesolar.com), science, math, and CTE high school teachers have written curriculum to enable students to analyze and learn about solar energy.

We are investing in and evaluating energy storage, including a rural reliability project near Deer Lodge and a solar-plus-super capacitor project in Yellowstone Park.

We are developing a program to help communities and school districts deploy electric buses and have more certainty around the cost of charging buses by incenting charging at night when demand is generally low and wind energy is often available.

We recently entered into an agreement that will include a collaborative stakeholder process designed to evaluate and make recommendations regarding potential green product and service offerings for customers.
How much carbon does Colstrip Unit 4 produce?
The following chart depicts carbon emitted per megawatt hour of energy. One megawatt is enough to power hundreds of homes. Note Colstrip Unit 4 is not the most carbon intensive source of energy in the mix today.

Chart shwoing carbon emitted per megawatt hour of energy
The MEIC claims Colstrip is one of the dirtiest coal plants in the country. Is this true?
Ironically, the exact opposite is true. Colstrip on among the cleanest coal plants in the US. While the charts below need to be updated with recently available data from 2016, you can see how well Colstrip ranks.

Colstrip Emissions compared
Colstrip NOX

Colstrip Hg
The MEIC and others are claiming NorthWestern is planning to build either 800 megawatts of fracked gas plants or 4 new fracked gas plants, is this true?
No. At present, there are no plans to build any gas plants in Montana. We will be issuing a request for proposal in the near future seeking any and all resources which can meet customer needs, including renewable and thermal based generation, power purchase agreements, and owned energy resources comprised of different structures, terms, and technologies with the long term objective of a lowest cost, stable, and reliable energy portfolio.

The process will be administered by an independent 3rd party with oversight from the Montana Consumer Council (MCC). The MCC is the constitutional body charged with representing the interests of customers.

NorthWestern’s incremental approach will provide opportunities for different resource types and new technologies while also building a reliable portfolio to meet local and regional conditions in a way that minimizes customer impacts.
It seems like NorthWestern dislikes solar and is trying to change the net metering program to make it uneconomical for customers to have roof top solar?
Net metering is about paying for the power grid we all use and value. It is not about roof top solar or private generation – you can generate power by other means than solar and be a net metering customer. The current net metering program was put in place in the late 1990s and needs to be updated.

The basic issue with the current net metering program is that it is creating a growing cost shift associated with paying for the fixed costs of the power grid, whereby those who do not net metering are picking up costs that should be borne by those who do net meter.

This amount of this cost shift is growing and will continue to do so until the pricing structure for net metering is modernized.
Did NorthWestern pay too much for the hydro dams?
No. The hydro dams are the best of both worlds – they provide 24/7 energy, it is carbon free and there is no fuel cost.

NorthWestern paid $870 million for 448 megawatts of hydro generation. It would cost more than $600 million to build the equivalent in gas plants and you have the on-going cost of the natural gas needed to run the plant. It would cost several billion or more for a wind and battery storage option that could even come close to what the hydro system offers, and wind and battery storage equipment has a significantly shorter life span than the very long life span of a hydro dam.

We are not aware of any utility announcing or attempting to build the amount of wind, solar and energy storage that would be on par with what the hydro system provides day in and day out – in Montana we see peak demand times that last for days not hours.
How come NorthWestern’s initial investment in Colstrip Unit 4 was for $404 and now it can get almost the same amount for only $1?
They are two very different things. In the first instance, NorthWestern was going to sell its unregulated – never in rate base – 222 megawatt portion of Unit 4 to a third party for $404 million.

As this was happening, the legislature changed the law and allowed NorthWestern, for the first time, to own generation to serve Montana customers.

In lieu of selling to the third party, and at the request of the MPSC, NorthWestern filed a proposal with the MPSC to evaluate the merits of placing this 222 megawatt portion into rate base dedicated to serving Montana customers at cost and not market prices.

After a months-long open process that included numerous parties, the MPSC determined that placing the 222 megawatts into rate base to serve Montana customers rather than selling to the third party was in the best interest of customers.

Had the MPSC not ruled in favor of placing this 222 megawatts into rate base, it would have been sold in 2008 to a third party and NorthWestern would have no ownership in any part of Colstrip today.

The opportunity to acquire 185 megawatts of Unit 4 for $1 is a unique opportunity. Puget must exit all coal by 2025 per Washington state law and we very much need the capacity provided by Unit 4.

It took months to negotiate this deal in a manner that is fair to both sides.
What is a QF and why do I read about them in the paper? It seems like NorthWestern is anti-renewable energy?
QF stands for Qualifying Facility.

The Public Utility Regulatory Policies Act (PURPA) was enacted in 1978 as part of the National Energy Act, and in response to the 1973 energy crisis. It was meant to promote energy conservation by promoting reductions in energy demand and greater use of domestic and renewable energy by increasing supply.

A QF is a class of electric generating resources given special treatment under PURPA.

Utilities like NorthWestern are required to buy energy from QFs if the cost is competitive with other sources of energy.

NorthWestern’s issue is with PURPA. It has cost customers hundreds of millions of dollars because we have been required to sign long-term contracts with QFs that are expensive. Today, the majority of QF projects are wind or solar. Wind and solar have a role but they need to be priced appropriately considering they are not dispatchable, on-demand 24/7 sources of energy - this means that are not very helpful when it comes to solving our immediate capacity shortage.

So, when you see news reports about NorthWestern fighting a QF project – please remember we are doing this to protect customers from having to pay too much for a type of energy that they do not even need in many cases.
What is the significance of the 55% ownership of Colstrip 4?
Owning more of Unit 4 will give NorthWestern and Montana a greater voice in its future but it does not, by itself, guarantee its continued operation. Additional steps will be required.
Are you planning to expand your ownership to take over even a greater share of Colstrip Unit 4?
Right now, our focus is on getting this transaction through the MPSC approval process and issuing a request for proposal seeking up to 480 megawatts of resources, regardless of their type, as long as the proposal addresses customer need for dispatchable 24x7 capacity reliably and at the lowest, long-term cost.
Are customer bills going to go up due to the added operating and maintenance costs?
We do not expect customer bills to increase as a result of this transaction. Even if the plant only operates for 5 years, we expect customers will see a value of about $40 million, as a result of the agreement with Puget to acquire 185 megawatts for $1, compared to acquiring this type of energy from another source or on the market during peak times.
 
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