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Turning Out The Lights In A Power Town

Sometime around 1980, amid that era’s modest energy shortages and major national anxieties, the Montana Power Company took me on a tour of the twin coal-fired generators it had built (along with some partners) in the town of Colstrip.

Here was the solution, or at least a big part of the solution, to the nation’s energy problems for generations to come. The very name of the place came from the vast seams of coal that lay just beneath the region’s rolling shortgrass prairie. Lewis and Clark had noticed the plentiful strata of lignite, which they called “carbonated wood,” near the confluence of the Missouri and Yellowstone rivers. Farther southwest, on the uplands between the Yellowstone and the Wyoming border, the Northern Pacific railroad found better-grade bituminous coal that could be easily strip-mined to power its locomotives, and Colstrip was born.

I was a reporter for The Associated Press back when I took my tour. In those days, I spent a lot of time covering Montana’s love-hate relationship with its utility and natural resource industries. Rapacious copper mining practices had left the city of Butte environmentally burdened and economically forlorn after the big miners turned their attention elsewhere. Lawmakers enacted a 30 percent “severance tax” on most coal mining in 1975; voters soon thereafter decreed that the tax money should be put in a trust fund, requiring large supermajorities before future legislatures could spend any principal. This diverted much of the region’s coal development to nearby Wyoming, but there was still enough mining in Montana to create an endowment that has grown to more than $1 billion. That’s a lot of money in a state of barely 1 million people.

Colstrip was responsible for a lot of that development. When I visited, Montana Power and its partners were seeking approval for two additional, even larger generators. My guides wanted to show me the sulfur-capture technology at the Colstrip 1 and 2 generators, and the demonstration land-reclamation projects nearby, to bolster their argument that Colstrip 3 and 4 could be developed without permanently destroying the land or unduly polluting the air. Of course there was no discussion of climate change or greenhouse gases, which were far from the political radar at that time. Colstrip 3 and 4 were eventually built and came online in the mid-1980s.

Today, I’m still here, but the Colstrip generators, and most likely the nearby mines that supply them, may not be around for much longer. So much for the “generations to come” thesis.

The world has changed in ways nobody anticipated in 1980 – as you might expect, since nearly 40 years have passed since then, and nobody’s crystal ball is ever very accurate for very long. Coal and the energy produced from it have fallen sharply out of fashion. With plentiful natural gas and strong policy preferences for renewables, American electricity production from coal is diminishing rapidly. And now consumers and voters in the Pacific Northwest, who were the primary market for Colstrip power, are demanding that their utilities turn to other sources.

Montana Power sold the Colstrip power plants to Pennsylvania Power and Light in the mid-1990s (and subsequently went bankrupt when its transformation into a telecommunications company didn’t pan out). Today, Units 1 and 2 are jointly owned by Talen Energy and Puget Sound Energy. The latter also holds a stake in Units 3 and 4, shared with Avista Corp., PacifiCorp, Portland General Electric (PGE) and NorthWestern Energy. None of the six owners are based in Montana. But except for Talen, which is an offshoot of Pennsylvania Power and Light, they are all the state’s regional neighbors.

While Talen and Puget Sound have agreed to close Units 1 and 2 by 2022, Colstrip’s owners had originally planned for Units 3 and 4 to operate at least into the 2040s. But Washington-based Puget Sound announced it will be financially ready to pull the plug by 2027, the Billings Gazette recently reported, in the face of growing demand from Washington residents for power sources other than coal. Avista, also based in Washington state, now expects to shut down early too. The two owners based in Oregon – PGE and PacifiCorp – must stop supplying coal power to the state by 2035 and 2030, respectively due to new legislation; not coincidentally, both have now estimated Colstrip’s useful life will be over by 2030. This means that, between legal and community pressure on the power plant’s various owners, Colstrip will almost certainly be done burning coal within the next 20 years, possibly as soon as a decade from now.

So what happens to a place like Colstrip, and surrounding Rosebud County, when the main industry leaves? The best answer is that nobody knows. Puget Sound Energy has already agreed to provide $10 million for community transition. That doesn’t sound like too much, but the entire county has fewer than 10,000 people. State officials say they hope to extract more money from other Colstrip partners, and there is talk of trying to pass legislation to tax corporations that close down their operations in Montana. That idea might run into problems with the U.S. Constitution’s commerce clause, but we’ll see. One idea nobody seems to be discussing is tapping principal from the coal tax trust fund, which is now divided into multiple subfunds, for the task.

The whole discussion of how much will be paid and who will pay it strikes me as a bit backward. It would be more logical to determine what the money will be used for, and then calculate how much is necessary. This is a politically driven business negotiation, however, so logic has very little to do with it.

Consider: The goal of the discussion will be to sustain Colstrip and the surrounding county and region in some way. But what if the people who live there would be better off somewhere else?

Forsyth, the county seat, won’t disappear exactly. Not while there are highways and railroads and utilities in the area to maintain, which means there must be schools and businesses and social services for the families of workers who do such things. And not while there are nearby ranches that, while fewer and larger than in the past, still need people to work them.

But the kinds of jobs that exist today in Colstrip, such as maintaining the plants, operating the mines and managing the people who work in those facilities, can’t be easily reproduced in tiny towns with stagnant populations. Those jobs, for the most part, exist in places like Billings, Montana’s largest city, around 100 miles west of Forsyth and 125 miles from Colstrip. They exist in greater number in places like Salt Lake City and Denver and Seattle.

The money that companies are paying for the privilege of shutting down Colstrip could easily pay to relocate workers and their families to such places. It could be used to buy out their equity in homes that are about to lose much of their value. It could be used to polish the skills of older workers and to provide remedial help and scholarships to younger residents to help them transition to new communities with different school curricula. It would mean allowing places like Colstrip, having outlived their purpose, to go dormant or even to cease, as so many other ghost towns have done after their economic foundations crumbled, in the West and elsewhere. It could provide for improvements in the schools at the nearby Northern Cheyenne reservation, many of whose students now travel off reservation to go to school in Colstrip.

Embracing the change that is coming to Colstrip would allow for the best and most efficient use of the money that is being gathered to close it down. I doubt it will happen, however. The politics of these situations is typically about sustaining the status quo until the status quo becomes hopelessly unsustainable. It’s a human impulse, because we always want our work to survive us for generations to come. But in this case, the people of Colstrip could be better served by resisting it.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s most recent book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book, Looking Ahead: Life, Family, Wealth and Business After 55.

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