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Colstrip operator Talen Energy is $4 billion in debt

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Colstrip

Colstrip units 1 and 2, left, were shut down by Talen Energy in 2020 because the units were no longer economical. Talen is a part owner in unit 3 and runs the daily operation of the power plant. 

Talen Energy, which operates Colstrip Power Plant, is $4 billion in debt and facing negotiations with creditors as its bonds are downgraded to a substantial fundamental credit risk.

What the company’s financial troubles mean for its Colstrip future remains to be seen. As the majority of the owners in the southeast Montana power plant prepare for a 2025 exit, Talen has been considered a holdout. The Woodlands, Texas, company owns a 30% share of Colstrip Unit 3. It is the unit’s only owner not to disclose plans for a 2025 exit. The $4 billion in debt was reported to Bloomberg by investors who participated in Talen's August earnings call. 

Talen didn’t respond to questions by Lee Montana Newspapers concerning what its financial troubles mean for Colstrip. Specifically, Talen was asked whether its worsening finances would compel an agreement to shutter Unit 3 by the end of 2025. The company didn’t say whether it had notified the other five Colstrip owners of its financial situation.

Six companies unevenly split ownership of the Colstrip Power Plant’s remaining two units. Four of the owners are located in either Washington or Oregon, where state climate change laws require utilities to cut the cord on coal power as early as 2025. In those states, where Colstrip’s future is considered tenuous, anything adversely affecting power plant operations is expected to be reported to utility regulators. Washington’s Utility and Transportation Commission requires regular reports.

“We are aware of the credit ratings change, as is the WUTC, and we are monitoring at this time,” said Janet Kim, spokesperson for the Puget Sound Energy.

Bloomberg charts Talen’s bonds on a steep decline since May, when the bonds were priced at 88 cents on the dollar, to a price of 43 cents on Aug. 31. Bonds are most simply understood as an interest-bearing I.O.U sold to investors by governments and businesses raising money for projects. Ratings weigh the likelihood of whether the I.O.U. will be repaid.

Tuesday, Fitch Ratings downgraded the long-term issuer default rating for Talen Energy Supply to CCC+, indicating that default is a real possibility.

Moody’s Investors Service downgraded Talen’s corporate family rating to B3 on Wednesday, meaning that lending to the company is considered speculative and a high credit risk. Talen’s outlook for the next 12 to 18 months was negative, Moody’s advised, because of low energy margins and uncertainty about Talen’s new Bitcoin mining joint venture.

The first eight months of the year have been tough sledding for Talen. In February, according to regulatory records, the company had three gas-fired power plants shut down during the Texas Big Freeze, in which coal- and gas-fired power plants with little or no weatherization failed, leaving 10 million people without power for days during freezing temperatures.

Then in June, bidders walked away from coal power in the capacity auction of the 12-state PJM, an energy market anchored by Pennsylvania, New Jersey and Maryland. Most of Talen’s coal-fired power plants are in that region. Because the auction is for power supply a year ahead of sale, the outlook for coal power in the region will remain bleak for a year. Other sources of energy priced more cheaply than coal sold much better, according to PJM reports.

Energy consultant David Schlissel told Lee Montana that if bidders snub coal power again in PJM’s coming December auction, it is likely Talen and other coal-power businesses in the region will have to consider retiring power plants that are out of demand.

Colstrip has presented Talen with challenges as well. In 2016, Talen gave two year's notice to the owners of Colstrip Units 3 and 4 that it would cease operating the plant by mid-2018. Talen lobbyist John Metropoulos said in 2017 that Talen had lost $30 million at Colstrip. At the time, state legislators were suggesting the Montana Board of Investments loan Talen $10 million.

In January 2020, Talen and Puget Sound Energy, which evenly split ownership of Colstrip Units 1 and 2, shut down the generators, explaining that the units were no longer economical. 

Talen is in a uniquely risky position among Colstrip owners because it sells power on the open market competing against merchants selling power generated with renewable energy or natural gas, which have been cheaper than coal power on average for several years. The power plant's other owners are monopoly utilities selling power to captive customers under terms that assure a predetermined rate of return and return on equity.

Schlissel notes that Talen was already pivoting away from coal before the company’s finances soured.

Bloomberg reported earlier this month that investors were doubtful about Talen’s shift to cryptocurrency mining and renewable energy. Talen has been trying to raise $800 million for two data centers, one of which would mine cryptocurrency. Both centers would be powered by electricity generated by Talen.

The Bitcoin mine involves a partnership between Talen and Terawulf Inc. Talen would power servers “behind the meter” on a digital campus next to Talen’s Susquehanna nuclear power plant in Pennsylvania, according to Talen.

Terawulf should sound familiar to Montanans. The company is the creation of Paul Prager, CEO of Beowulf, owner of the Hardin Generating Station in Big Horn County. The Hardin power plant has run infrequently in recent years after becoming host to a Bitcoin mine. The back taxes on the plant total $4.3 million, owed to the City of Hardin and Big Horn County.

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