The proposed sale by PPL Corp.’s (NYSE: PPL) PPL Montana LLC subsidiary of hydroelectric dams in Montana does not include PPL Montana’s coal-fired assets in Montana.
PPL Montana said Sept. 26 that it has reached an agreement to sell its hydroelectric facilities to NorthWestern Energy for $900m in cash, subject to certain adjustments.
The agreement includes PPL Montana’s 11 hydroelectric plants, which have a combined capacity of more than 630 MW, as well as the company’s Hebgen Lake reservoir. The sale is expected to close in the second half of 2014, assuming receipt of regulatory approvals.
“This is an opportunity to secure attractive shareowner value for high-performing, non-carbon assets,” said William Spence, chairman, president and CEO of PPL Corp.
The agreement does not include PPL Montana’s interest in the coal-fired Colstrip facility or its J.E. Corette coal plant located near Billings. The Colstrip plant is jointly owned by PPL Montana and five other companies, including NorthWestern Energy. PPL Montana noted that it has previously announced that it plans to mothball the Corette coal plant in April 2015 for clean-air compliance reasons.
Said PPL Corp.’s Aug. 2 Form 10-Q statement about Mercury and Air Toxics Standards (MATS) compliance in Montana: “With respect to PPL Energy Supply‘s Montana plants, modifications to the air pollution controls installed on Colstrip may be required, the cost of which is not expected to be significant. For the Corette plant, PPL Energy Supply announced in September 2012 its intention, beginning in April 2015, to place the plant in long-term reserve status, suspending the plant’s operation, due to expected market conditions and the costs to comply with the MATS requirements.”
The Form 10-Q added about regional haze compliance in Montana: “In Montana, the EPA Region 8 developed the regional haze plan as the Montana Department of Environmental Quality declined to develop a BART state implementation plan. In September 2012, the EPA issued its final Federal Implementation Plan (FIP) for the Montana regional haze rule. The final FIP indicated that no additional controls were assumed for Corette or Colstrip Units 3 and 4, but proposed tighter limits for Corette and Colstrip Units 1 and 2. PPL Energy Supply expects to meet these tighter permit limits at Corette without any significant changes to operations, although other requirements have led to the planned suspension of operations at Corette beginning in April 2015. Under the final FIP, Colstrip Units 1 and 2 may require additional controls, including the possible installation of an SNCR and other technology, to meet more stringent nitrogen oxide and sulfur dioxide limits. The cost of these potential additional controls, if required, could be significant. In November 2012, PPL filed a petition for review of the Montana Regional Haze FIP with the U.S. Court of Appeals for the Ninth Circuit. Environmental groups have also filed a petition for review. The two matters have been consolidated, and litigation is on-going.”
In a related transaction to the hydro sale, PPL Montana said Sept. 26 that it will pay $271m to terminate a sale-leaseback arrangement for its interest in the Colstrip coal facility. Termination of the lease is expected to be completed by the end of 2013 and is subject to approval of the Federal Energy Regulatory Commission.
NorthWestern says this deal gives it a pretty clean generating mix
“This is a unique opportunity to acquire hydroelectric facilities dedicated to serving our Montana customers for generations to come,” said Bob Rowe, NorthWestern president and CEO, about the deal with PPL Montana. “These facilities were originally built as part of the integrated system that we own today and complement our existing set of supply resources. The addition of Montana-regulated, clean, sustainable and reliable hydro power will provide supply diversity to our portfolio and will reduce risks associated with variable fuel prices.”
Most generating capacity in Montana used to belong to Montana Power, which broke itself up in the late 1990s due to utility deregulation in the state.
This transaction is expected to allow NorthWestern to reduce its reliance on third-party power purchase agreements and spot market purchases, more closely matching NorthWestern’s generation resources with forecasted customer demand.
“In joining our portfolio of wind, natural gas and coal assets, these hydroelectric facilities will increase our energy capacity and provide NorthWestern with greater certainty about our energy supply,” said Rowe.
The Colstrip plant, located east of Billings, Mont., operates four coal-fired units capable of producing a total of up to 2,094 MW. Units 1 and 2 each have about 307 MW of capacity, with PPL having 50% ownership of each. Units 3 and 4 each have about 740 MW of generating capacity. PPL has 30% ownership in Unit 3 and no ownership in Unit 4. PPL’s share in the plant’s generating capacity is 529 MW. The plant is owned by PPL Montana, Puget Sound Energy, Portland General Electric, Avista Corp., PacifiCorp and NorthWestern Energy. It is a minemouth facility taking coal from the nearby Rosebud mine of Westmoreland Coal.
Located along the Yellowstone River on the outskirts of Billings, the J.E. Corette plant has a generating capacity of 153 MW. The one-unit, coal-fired plant began commercial operation in 1968.