Testimony House Energy Committee

Testimony of Puget Sound Energy to Montana Senate Bill 338 (Ankney)

Montana House of Representatives Energy Committee

Testimony as Prepared for Delivery

April 7, 2017

INTRODUCTION

Mr. Chairman and members of the Committee: For the record my name is Melissa Lewis, a resident of Helena and representing Puget Sound Energy in opposition to SB 338.

BACKGROUND

Puget Sound Energy is a regulated electric and natural gas utility located in the State of Washington.

Coal generated power currently makes up for approximately 31% of PSE’s fuel mix and the largest share of that coal-fired power is located at Colstrip, Montana. The Colstrip facility consists of four separate coal-fired generating units that are owned collectively by Puget Sound Energy, Talen Energy, Portland General Electric, Avista Corporation, PacifiCorp, and Northwestern Energy. Puget and Talen each own a 50% share of Units 1 and 2, and Puget owns 25% of each of Units 3 and 4. The remaining 75% of each of Units 3 and 4 are owned by the other companies that I mentioned. Talen is currently the operator of the plants.

POLICY OBJECTION

SB 338 is bad policy for the State of Montana, the community of Colstrip and our customers. No one will be able to claim victory for passage of a bill that will result in expensive and protracted litigation.

Also, PSE will not be availing itself of the provisions of a negotiated settlement with the Governor and Attorney General as the bill provides. If this bill passes and the utility finds itself in litigation with the State of Montana, any use of this mechanism will be deemed moot.

This bill would require PSE –one of the original owners who constructed the facility more than 40 years ago, to pay an exit fee to the State of Montana without regard to the legal or potential operational requirements the owners face regarding closure of the facility, or the market conditions that make coal more expensive than natural gas generated power today. In effect, the policy embodied in SB 338 is that the state condones punishing businesses for making a perfectly legitimate (and legal) business decision based on market conditions. This is the wrong message for the state to send to companies already doing business in the state, as well as companies that are considering doing business in the state.

These harsh exit fees will present additional business risks that will adversely impact future Montana economic development opportunities. Ironically, at the same time this punitive bill is moving through the legislature, there are requests for the Colstrip owners to consider buying Montana renewable generation for Washington customers.

SB338 also singles out a specific industry and a specific facility and owners while other corporations have closed or reduced workforce in Montana with no similar requirement being made by this legislature.

SB 338 is especially egregious in the case of Puget Sound Energy. Puget has been fully engaged as an owner of the Colstrip facility since the first day that Units 1 and 2 began operating in the 1970s, and their customers have purchased millions of tons of Montana coal and invested millions of dollars in operation and maintenance of four thermal units. This has resulted in hundreds of millions in property tax, severance tax, and contributions to the Montana Coal Trust Fund for the benefit of all Montanans.

In fact, PSE has contributed $308 million in property taxes to the state of Montana in the last 30 years alone. Moreover, Puget plans to continue to be a part of the business community in Montana with the required environmental remediation work and Puget’s interest in Units 3 and 4 well into the future.

As a responsible corporate citizen of both Washington and Montana, PSE has ensured the responsible remediation of the site.

To this end:

PSE worked for two sessions to help pass a bill (SB 6248) in the Washington Legislature to create a stable source of funding for Puget to fulfill its remediation obligations at the plant. This legislation allows the WA Utilities and Transportation Commission to reserve existing customer assets, such as their production tax credits to pay for prudent, Commission-approved remediation costs. As stated in the bill that passed in Washington, these assets must “not be used for any purpose other than the funding and recovery of prudently incurred decommissioning and remediation costs.”
This remediation work is significant and will provide an economic lift for the community of Colstrip. As we show in our current rate case materials now before the Washington Utilities and Transportation Commission, Colstrip owners will invest more than an estimated $200 million for remediation that will continue for many, many years after the eventual closure of operations. Additionally, between 2020 and 2023, approximately $77 million will be invested to design and construct a new water treatment facility to be built in Colstrip. Nothing in this bill changes the already existing remediation obligations. From a remediation perspective, the bill is utterly redundant and unnecessary to accomplish eventual remediation.

We have entered into an Administrative Order on Consent – commonly referred to as the AOC - with the Montana Department of Environmental Quality. The AOC embodies a good-faith effort by Puget and the other owners to get ahead of remediation issues at the plant and not push them off until the facility closes, which has been problematic with other natural resource companies in the state.
PSE did not oppose Montana’s participation in Puget’s General Rate Case. Understanding the importance of this issue to Montana, Puget did not object to Montana’s intervention in a proceeding that is about the rates that Puget charges its customers in Washington State. The rate case is currently in process, and a decision is expected in December of this year.
Finally, Puget has been working in good faith to support the remediation bill (SB 339) that was introduced by the Senate Natural Resources Committee.

PSE has been a strong contributor to the prosperity of Montana and Colstrip since it started doing business in the state, and has acted fairly and responsibly throughout its many decades in Montana by following all laws and regulatory requirements, providing direct financial support to the state in the form of significant tax revenue, and supporting good paying jobs with benefits in the Colstrip community. It is important to note that when Units 1 & 2 are retired by 2022, Units 3&4, the newer, larger, and more cost effective of the Colstrip facilities will continue to operate and employ workers for many years to come. Puget has a long history of being a fair and responsible company in the state of Montana. In return, this bill proposes measures that are egregious and unabashedly punitive and retaliatory.

LEGAL OBJECTION

In addition to being a bad policy direction, SB 338 suffers from a significant legal flaw: it is essentially a tax directed at a single business. In essence, the Colstrip owners are being assessed a financial penalty for the perfectly legal activity of closing a portion of their business. As such, it seems to be a special act in violation of the Montana Constitution.

Is this the vehicle the Montana legislature is choosing to punish businesses for making legal economic decisions? This is a dreadful precedent, and business owners should be deeply concerned that this or other punitive legislation to “pay to leave” can be imposed.

BILL STRUCTURE OBJECTIONS

Aside from the misguided policy and legal underpinnings of the bill, SB 338 also suffers from several flaws, and is confusing at best in certain sections. From a conceptual perspective, the bill requires owners to pay for “decommissioning requirements” that include vague and arbitrary social costs, and makes the ultimate arbiter of those costs the Montana Department of Environmental Quality – an agency with exclusive authority for environmental matters. The process is stacked against the owners from the outset because there is nothing stopping the DEQ from hiring outside consultants - at the expense of the owners nonetheless - to come up with estimates that are higher than those presented by the owners, and adopting those estimates without specific knowledge of the plant.

Moreover, “decommissioning requirements” as currently defined in the bill seems to make PSE and the other owners underwriters of both real estate values and municipal bond repayment obligations. State policy that favors saddling businesses with these obligations creates a further disincentive to businesses seeking to locate in Montana.

The bill also gives the DEQ unilateral authority over the retirement plans submitted by the owners with respect to the non-social cost aspect of “decommissioning requirements” as that term is defined in the bill. In its current form, the bill requires owners to file a retirement plan for this activity, and then gives the agency significant authority to modify those plans when the owner or operator has committed significant time and effort to provide a workable plan.

SB 338 is also unclear in several important respects: what happens if owners submit differing plans for “decommissioning requirements”? Whose plan will be followed? What if the amounts for these requirements are different? How will the agency make this determination? The statute is vague and provides no guidance for the DEQ in this regard.

The legislation is also not clear about whether liability for these “decommissioning requirements” would be joint or several. Joint liability certainly seems inappropriate in this instance, where an ownership agreement determines each owner’s respective ownership interests in the facilities at Colstrip.

What happens if this legislation is tabled or not passed?

Proponents of legislation like this said over a year ago we need a definite closure date. There is a closure date of July 1, 2022 and by all public and written statements including a submission to the Washington Utilities and Transportation Commission, PSE intends to keep that date. The rate case will continue and Montana is a limited intervenor.

Statements made in the Senate Committee that this bill is necessary in order to access remediation funds as a result of passage of SB 6248 are not accurate. We have previously stated that these accounts have not even been established yet and there is no money in them.

Regardless of whether this bill passes or not, Puget will be investing millions for remediation efforts in Colstrip. As part of that effort, we are committed to leveraging the current work force through job re-training to ensure steady employment for Colstrip employees well beyond our currently anticipated shutdown date of 2022, in addition to the employees that are redeployed into Units 3&4.

CONCLUSION

In conclusion, PSE strongly opposes SB 338. This bill is the wrong way to address the legislature’s concerns about the retirement of Colstrip units 1 and 2. First, it unfairly punishes a company that has been a strong contributor to the prosperity of the community of Colstrip and State as a whole, and sends the wrong message to other businesses that are considering doing business in Montana.

Second, it ensures litigation that will prevent any discussions between the parties outside of the court system, which would prohibit any opportunity to start a dialogue for a realistic and workable solution for all parties.

Please oppose this bill, so that Puget Sound Energy may continue to work directly with Montana officials and the Washington Utilities and Transportation Commission to find a constructive solution that appropriately balances the interests of PSE and its ratepayers with those of Montana.