Talen Energy tried to put its bankruptcy in the best possible light Thursday during a meeting with Montana lawmakers about what the company’s restructuring meant for Colstrip Power Plant.
In a hearing that lasted about an hour, Debra L. Raggio, senior vice president of Talen, said bankruptcy was good for the state’s largest power plant and would have no negative impact. on environmental cleanup or employee pensions related to Colstrip.
Raggio called the decision by several senior Talen creditors to swap $1.4 billion of unsecured debt for property as an investment in a business the creditors believe in. There will be no change in how Talen works, she said.
“Talen will have owners, but the reason they invest in this business is because they believe in the plan we showed them, the business plan and the way we operate. It’s not going to be a whole new approach,” Raggio told the Interim Energy Telecommunications Committee during a live hearing. “It will not be a whole new approach there. To my knowledge, there is no desire to sell assets or change things significantly upon emergence. We can’t predict what’s going to happen but given that they want to be involved after hearing the plans and our assets and how we structure and how we run things, at least I’m confident things aren’t going so well switch.
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Talen’s debt is around $4.5 billion. In its May 9 bankruptcy filing, the Texas-based company said its seven coal-fired power plants had become unprofitable in markets where electricity from gas generators and renewable energy sources was cheaper. The company’s bankruptcy consultant advised the US Bankruptcy Court for the Southern District of Texas that Talen plans to phase out coal at its wholly-owned facilities, which does not include Colstrip.
Montana’s Department of Environmental Quality pointed out Thursday that Talen’s cleanup bond to cover the company’s share of environmental costs was pending, if the state defaults to responsibility for cleaning up coal ash ponds. poisons from the power plant at a cost of hundreds of millions of dollars.
But last year, DEQ reduced the $122 million clean-up bond requirement for Colstrip’s ash ponds serving the now-closed production units 1 and 2. power plant complex assuming more money could be raised later. Talen negotiated bail over 11 months in 2021, eight of which were after hiring a bankruptcy consultant, according to court records, said Anne Hedges of the Montana Environmental Information Center.
“They keep telling us, ‘Don’t worry, we have the option to replenish the Talen bond in one-year or five-year increments, if nothing else,'” Hedges told lawmakers. “Well, what happens when a business just doesn’t have the money? What if the business doesn’t exist? We’ve seen businesses in this state, which no longer exist, which in fact owe the cleaning of DEQ bail facilities.
“We don’t want that to happen. Because what would happen is that the rest of the owners would have to get Talen’s share back. And you know who the other owners are? Part of them is us. They are customers of NorthWestern Energy,” Hedges said.
NorthWestern, the largest monopoly utility serving Montana, owns a 30% share of Colstrip Unit 4, a twin share of Talen’s 30% stake in Unit 3. Other owners are PacifiCorp and Portland General Electric, of the Oregon, and Puget Sound Energy and Avista Corp, of Washington.
In a separate lawsuit against Talen’s predecessor to Colstrip, PPL Corp, Talen claims that PPL wrongfully took $733 million of the net proceeds from the sale of PPL’s hydroelectric dams in Montana before divesting its properties in Montana. coal power in Talen Montana in 2015.
Talen alleges that PPL’s actions have left the current operator and co-owner of Colstrip Power Station “unable to fund its significant obligations both for environmental remediation, as well as obligations to other creditors such as the pension plan for its employees and former employees”.
Raggio told lawmakers that a report from last quarter showed the pension was 94% funded.
On Wednesday, Talen Energy told Lee Montana Newspapers that Talen expects the repo to be fully funded by the end of 2025.
Earlier in the week, past and current Colstrip employees received letters from Talen CEO Alex Hernandez outlining how the bankruptcy of Talen Energy Supply and its subsidiaries would affect pensions. Hernandez told employees that payments to the pension fund would continue during the bankruptcy.
Court records show Talen sought approval to spend up to $14.7 million on an interim basis to pay his Colstrip co-ownership obligations, including pension and payroll obligations during the bankruptcy. He noted that the US Pension Benefit Guaranty Corporation, a federal agency that bails out struggling private pensions, was available as backup.
In the same letter, non-union employees were told that lump sum payments were not an option during bankruptcy. Talen clarified to Lee that the suspension of lump sum payments applied to non-Colstrip employees, who did not have the option.
Raggio said Colstrip’s expenses would be among those covered by $1.7 billion in debtor-in-possession financing the company had secured to cover costs during the bankruptcy.
The mostly cordial audience erupted briefly after Speaker Mary McNally, a Democrat from Billings, asked Raggio to comment on Colstrip’s recent Unit 3 outage.
“Unit 3 is not down. Unit 3 is running. Unit 4 is on maintenance shutdown, but just routine maintenance, but Unit 3 is actively operating,” Raggio said.
Senator McNally replied, “OK, thank you. I just heard that here. Then Raggio interrupted her.
“I heard a lot of things and I want to correct them, but you know,” Raggio said.
Minutes later, Rep. Denise Hayman, a Democrat from Bozeman, again raised the issue of Unit 3 operations.
“Just to be perfectly clear, three was down and it went live today, right?” Hayman said.
Raggio replied that it could have gone live a day earlier.
“I think we’re splitting hairs here,” Hayman said. “He went down. To correct?”
Raggio replied “he’s been down, representing Hayman.”
The exciter that serves the generator in Unit 3 of the power plant needs repairs, which will most likely have to be done in North Carolina.
Two of the power plant’s other owners, both with a stake in Unit 3, confirmed to Lee Montana last week that necessary repairs to Unit 3 had impacted Colstrip’s performance for several weeks. The cost of repairs, including the exciter, is expected to be significant, which is not insignificant given that the six owners of the plant have been at odds over Colstrip’s maintenance costs for several years, most owners wishing to spend less than Talen, as the power plant operator, requested.
A letter was entered into evidence on Thursday stating that the Colstrip owners with a combined 70% stake in the powerhouse had learned of Talen’s financial troubles through the news and wanted to know why Talen hadn’t told them.
“Talen’s failure to report material changes in its financial condition is inconsistent with its fiduciary duties as an operator and heightens concerns about Talen’s ability to continue in this role,” the owner wrote. Portland power plant co-owners General Electric, Avista Corp., PacifiCorp and Puget Sound Energy had released the letter.
The four owners went on to say that Talen’s actions impacted their ability to make decisions about the safe and compliant operation of Colstrip and jeopardized the continued operation of the units. The letter was published on April 12, nearly a month before Talen filed for bankruptcy.
Relations between Talen and the majority owners of Colstrip have been strained for some years due to disagreements over maintenance expenses. In 2021, Talen persuaded lawmakers to pass legislation empowering the Montana attorney general to dictate reparations and impose daily fines of $100,000 on any non-compliant Colstrip owner.
Most of Colstrip’s electricity is consumed in Washington and Oregon, where climate change laws require utilities to begin cutting coal from customer supply starting in 2025. Colstrip owners in these states oppose costly repairs beneficial to the operation of the plant after their release.
A lawmaker in 2021 likened the scenario to a divorce in which “the Pacific Northwest owners ransack the house and hug the car on their way out.”
Another law backed by Talen requires that all Colstrip arbitrations take place in Montana, voiding the arbitration terms of Colstrip’s ownership and operating agreement. With the two laws, the state of Montana is trying to override the private commercial contract that has governed the power plant for nearly 40 years. Landlords and the state are now embroiled in lawsuits over the new laws.
The only owner not to sign the letter demanding information about Talen’s financial troubles was NorthWestern Energy, the largest monopoly utility operating in Montana and a 30% shareholder in Unit 4.
In an April 29 earnings call, NorthWestern Chairman Brian Bird said the utility did not expect Talen’s financial troubles to hurt Colstrip.
“I would say this, we have been in contact with Talen and we are considering the implications. I think, make sure it’s clear, understand that Talen owns unit 3. We own unit 4. Although we have a reciprocal sharing agreement between the two units, nevertheless, how does this bankruptcy could affect operations at the plant they are operating. We’re certainly keeping our eyes on it, at this point we don’t think it will impact plant operations,” Bird said.
On Thursday, McNally called Colstrip’s situation untenable and asked Talen for assurances that he would contact the other power plant owners.
“I can commit to staying in communication as much as possible with the co-owners and would ask them to do the same with us,” Raggio said.