The Federal Energy Regulatory Commission on Nov. 20 granted a PPL Montana LLC request to terminate lease interests that PPL has in the coal-fired Colstrip power plant so that PPL can take direct ownership in that part of the plant.
On Oct. 4, PPL Montana filed an application requesting authorization for the disposition of jurisdictional facilities, under which PPL Montana will reacquire certain undivided ownership interests in Colstrip as part of a transition from a sale/leaseback arrangement to direct ownership by PPL Montana.
Colstrip is a coal-fired facility located east of Billings, Mont., which is comprised of four units that are collectively able to produce a total of up to 2,094 MW. Colstrip Units 1 and 2 each provide about 307 MW of capacity, while Colstrip Units 3 and 4 each produce about 740 MW of capacity.
Montana OL1 LLC, Montana OL3 LLC and Montana OL4 LLC collectively own undivided passive interests in Colstrip Units 1, 2, and 3 and certain interconnection and common facilities. These interests consist of 50% of each of Colstrip Units 1 and 2 for a total of 307 MW, and 30% of Unit 3, or 222 MW.
PPL Montana controls and operates these Colstrip interests subject to sale/leaseback agreements that were executed in 1999. PPL Montana is an indirect, wholly-owned subsidiary of PPL Corp. (NYSE: PPL) and is an exempt wholesale generator (EWG) authorized to sell electricity at market-based rates.
PPL Corp. reported in its Nov. 1 Form 10-Q report that in September 2013, PPL Montana negotiated and entered into an agreement to pay $271m to terminate the sale-leaseback deal and reacquire its interests in Colstrip. This transaction is anticipated to occur by the end of the first quarter of 2014, subject to approval by the FERC. The book value of these assets was approximately $450m at Sept. 30, 2013. These lease-related assets will be written-off and the reacquired Colstrip assets will be recorded at fair value as of the acquisition date. The total loss is currently estimated at $310m-$430m, after-tax, which is dependent on the fair value assigned to the reacquired Colstrip assets.