THEWAANER ABU DHABI 

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WASHINGTON, D.C. BEUING 

20004-2400 DAUAS 

DUBAI 

TEL +I 202.639.7700 HONG KONG 

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www.bokerbolls.com LONDON 

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NEWVORK 

PAl.O AlTO 

RIYADH 

William M. Bumpers WASHINGTON 

January 4,2012 TEL +1 (202)639-7718 

FAX +112021585-1008 

william. bumpersDbokerboHs.com 

Mr. James Martin 

Regional Administrator 

U.S. Environmental Protection Agency, Region 8 

1595 Wynkoop Street 

Denver, Colorado 80202-1129 

Ms. Janet McCabe 

U. S. Environmental Protection Agency 

Mail Code: 5426K 

1200 Pennsylvania Avenue, N.W. 

Ariel Rios Building 

Washington, D.C. 20460 

Re: Montana Regional Haza Regulations 

Dear Mr. Martin and Ms. McCabe: 

On our last call, we discussed with you the importance ofthe Colstrip power plant 

to the Montana economy. I am attaching for your review and consideration "The Economic 

Contribution of Colstrip Steam Electric Station Units 1 - 4," Final Report, by Patrick Barkey and 

Paul Polzin (November 2010). As you will see, Colstrip accounts for a significant quantity of 

jobs, income, and taxes in Montana and its impacts extend well beyond the generating plant and 

eastern Montana. 

Thank you for your consideration ofthis study. Feel free to contact us if you have 

any questions about the report. 

Sincerely, 

~;~ William M. B~s 

Counsel to PPL Montana 


Enclosure ~i.,-~erv~::....

:;.:~t~. :.,,;..,....,:.~j';~-E'~ 2, 

OC01:641570.! 
The Economic Contribution of Colstrip Steam Electric Station Units 1-4 


FINAL REPORT 


November 201 0 


Prepared by: 	 Patrick M. Barkey, Ph.D. 

Paul E. Polzin, Ph.D. 

1222 Lincolnwood Road 


Missoula, MT 59802 


Prepared for: 	 The Colstrip Steam Electric Station Owners 
Acknowledgements 

The authors of this study would like to acknowledge the cooperation of the managers and 

employees of PPL Montana who took the time from their busy jobs to make the data available 

for this study. We would like to thank in particular Neil Dennehy for his prompt and thorough 

responses to our requests for information. All errors and omissions in this report are, of course, 

our own. 
Table of Contents 

Executive Summary ..................................................................................................................... 1 


Chapter 1. Introduction and Overview ........................................................................................3 


Chapter 2. Policy Analysis with the REMI Model .....................................................................7 


Chapter 3. The Direct Economic Contribution of Colstrip.........................................................11 


Chapter 4. The Western Energy Coal Mine ................................................................................. 13 


Chapter 5. Economic Impacts ...................................................................................................... 14 


Chapter 6. Tax Impacts ................................... n ..........................................................................
25 


Chapter 7. Summary and Conclusions .........................................................................................30 


References....................................................................................................................................31 

Executive Summary 

This report describes an independent analysis of the economic contribution of the Colstrip 

electric generating facility operated by PPL Montana, and jointly owned by PPL Montana, LLC, 

NorthWestern Energy, LLC, Puget Sound Energy, Inc., Portland General Electric, Avista 

Corporation, and PacifiCorp. Puget Sound Energy, Inc. owns 50% each of Units 1 and 2 and 

25% of Units 3 and 4, respectively. PPL Montana owns 50% each of Units 1 and 2 and 30% of 

Unit 3. Portland General Electric owns 20% each of Units 3 and 4. Avista Corporation owns 


15% each of Units 3 and 4, and PacifiCorp owns 10% each of Units 3 and 4. NorthWestern 


Energy owns 30% of Unit 4. Since 1986 when the final generating unit came on-line, this coalfired, zero discharge electricity generating station has provided power to Montana and the 

Northwest. 

The research question posed in this study is: what would the economy of Montana look like if 

the Colstrip facility did not exist? Since the construction of the plant is long completed, the 

study is confined to an examination of the operation of the plant only. 

The study was. conducted by performing a comprehensive assessment of the direct contribution 

of the facility'S operations on income, production and expenditure flows in the economy. As a 

mine-mouth plant, those operations are closely linked to production at the Western Energy 

Company's mine that is adjacent to the facility. Since energy production forms an important part 

of the state tax base in Montana, special emphasis is placed on the contribution of Colstrip 

operations to state and local tax revenues as well. This information was used to construct an 

economic scenario where Colstrip operations did not take place. The difference between the 

actual baseline and this hypothetical scenario represents the total contribution of Colstrip 

operations on the state economy. 

The Economic Contribution of the Colstrip Steam Electric Station Units 1-4 

Impacts Summary 

1 

The basic finding of this report is that the economy of Montana is larger, more prosperous and 

more populous because of the operations of Colstrip. Specifically, we find that because of 

Colstrip there exist 

• 3,740 more jobs, including 2,688 private sector jobs, 

• $360 million more in personal income received by Montanans, 

• $638 million more net output produced across Montana, and 

• 7,700 more people 

than would be the case otherwise. These changes occur because of the new expenditure flows 

that come into the region and the state, at least part of which are received by Montana businesses 

and households as income, which are in tum spent again within the economy. 

The statewide impact of Colstrip is significant - the impact on the economy of eastern Montana 

is even more sizable. In an environment where good paying jobs are hard to find, the workers at 

the generating plants and the Western Energy Company coal mine enjoy wages and benefits that 

are more than three times greater than the average for Eastern Montana. Colstrip operations 

ultimately produce an eastern Montana economy with more than 7 percent more jobs, more than 

9 percent more income, and more than 17 percent higher production that would exist otherwise. 

Energy taxes form a critical part of the tax base in the state of Montana, both for state and local 

governments. Without Colstrip, significantly less tax revenues would be available for schools, 

roads, parks, and public services of all kinds. Tax revenues are an important way in which the 

benefits of Colstrip propagate to every comer of the state. 

The ultimate impact of Colstrip operations is to raise state and local tax collections by almost 

$104 million. The state of Montana's proportion of this total amounts to 4.5 percent of all state 

revenue collections. The bulk of this revenue flows into the general fund, which is used to fund 

the general operations of state government. 

Local property and natural resource taxes paid to Rosebud County and the City of Colstrip help 

to keep their tax rates among the lowest in the state. But almost two-thirds of the $104 million in 

total taxes associated with Colstrip go to the State of Montana, and these benefit persons 

statewide. For example, about $12 million is collected in property taxes intended for school 

equalization. This amount has historically been distributed to all school districts across the state. 

The fundamental conclusion of this study is that the contribution that has been made, and 

continues to be made, by the generating facility in Colstrip, Montana is larger than many 

Montanans may realize. The information in this study will hopefully be of use in policy and 

other decisions that steer Montana's economic future. 

2 

1. Introduction and Overview 

This is a study of the contribution to the Montana economy of the operations of the Colstrip 

Steam Electric Station (SES) Units 1-4. Operated by PPL Montana, LLC, and jointly owned by 

PPL Montana, NorthWestern Energy, LLC, Puget Sound Energy, Inc., Portland General Electric, 

Avista Corporation, and PacifiCorp, the coal-fired electric generation facility located in Rosebud 

County, Montana, is the largest industrial facility in the state. The authors of this report were 

retained by the Colstrip owners to conduct an independent assessment of how the operations of 

the plant interact with the economy of the region and the state to grow the economic pie. This 

report presents the results of that assessment, together with a description of the methods and 

assumption used to derive the results. 

This is an economic impact study of a facility which has already been built. The time span of the 

1970's and the 1980's when Units 1 and 2, followed by Units 3 and 4, were built, was a period of 

strong economic activity and growth in Colstrip as well as Rosebud County. The impacts of 

plant construction, while significant, were also temporary. They are not included in any of the 

estimates presented in this report. The impacts we report represent the continued, ongoing 

contribution to the economy that is due to the operations of the plant. The basis for these 

estimates is the actual, historical experience of its operation over the last decade. 

The purpose of this study is to achieve a better understanding of how the operations of the 

Colstrip generating facility affect the economic well-being of Montanans. As will be shown 

below, not only are the ultimate economic impacts of Colstrip'S operation sizable in magnitude, 

but they also propagate throughout the entire state economy. 

Background 

The Montana Power Company (MPC) conceived the Colstrip complex in the late 1960s as a 

mine-mouth generation facility. In conjunction with Puget Sound Energy (PSE), construction of 

Colstrip units 1 and 2 were begun in the early 1970s and completed in 1975 and 1976. Each unit 

has a net generating capacity of about 307 megawatts. A transmission line was built from 

Colstrip to Broadview (north of Billings) and the electric power was fed into the MPC'S grid and 

to the Bonneville Power Administration for transfer to the PSE's service area. 

After lengthy regulatory hearings, Colstrip units 3 and 4 were begun in the late 1970s. Unit 3 

began operation in 1984 and unit 4 came on line in 1986. Each unit has a net generating capacity 

of 740 megawatts. Colstrip 3 and 4 were owned by MPC plus a number of other utilities in the 

Norwest. A transmission line was constructed from Colstrip across central and western Montana 

to connect the generating plants with the BPA distribution system and deliver the electricity to 

the service areas of the other utilities. 

During the deregulation heyday of the 1990s and early 2ooos, MPC sold its ownership interests 

in the Colstrip complex to PPL Montana. The associated coal mine was sold to Westmoreland 

Resources, but retained the Western Energy Company name. Northwestern Energy, the 

successor to MPC, purchased a 30 percent interest in Colstrip 4 in 2008. 

3 

Objectives of this Study 

The objective of this study is to derive and present the economic contribution of the operations of 

Colstrip, to better infonn decisions that impact its competitiveness and viability. 

As the state's largest industrial facility by both output and employment, the footprint of Colstrip 

is large, both in the local and state economies. Its wages are significantly above the state 

average, and its contribution to state and local taxes is significant. The state taxes directly and 

indirectly paid by Colstrip mean that residents far from eastern Montana receive benefits. At the 

local level, the small city of Colstrip still has the third highest taxable property tax base among 

incorporated areas statewide. Presenting the difference the facility makes to the economy aids in 

understanding its value as part of our economic landscape. 

The Research Question 

The fundamental question asked by this study is, what would the economy of eastern Montana, 

as well as the state as a whole, look like if the Colstrip generating facility did not exist? This 

counter-factual scenario is not a shut-down of the actual facility. Rather the scenario considered 

is one where it never existed. To answer this question, we need to construct an economy where 

the employment, purchases, maintenance and capital spending, and taxes paid by the plant are 

removed. This is accomplished with the aid of a dynamic economic model, the REMI model. 

(The REMI model is more fully explained in Chapter 2). 

In a no-Colstrip scenario, the generation of electric power and all of the activities associated with 

that activity do not take place. Thus the employment of regular and contract employees, both 

full time and temporary, the purchases of the full spectrum of intennediate goods and services, 

the purchases of coal from the Western Energy mine, spending on plant overhauls and 

maintenance, capital spending, as well as tax payments, are no longer present. We refer to this 

as the direct impact of Colstrip. 

There are additional activities which, while not directly part of the process of producing 

electricity, are fundamentally linked to that process. By far the most significant of these is the 

operations of the Western Energy Company's (WECo) coal mine which serves the plant. 

Approximately 89 percent of the output of the WECo mine goes to Colstrip. In a no-Colstrip 

scenario, this mine is sharply reduced in scale. The mine is part of what we refer to as the 

indirect impact of Colstrip. 

The direct and indirect impacts of Colstrip propagate and reverberate throughout the local and 

state economies. Compensation to employees is spent, in part, in the community on goods and 

services which employ others. Spending on vendors impacts the economy as well, to varying 

degrees. These induced impacts are estimated with the use of the REMI model, as described in 

the next Chapter. The economic impact of Colstrip is the sum of direct, indirect, and induced 

impacts. 

4 

In this study we have made no effort to represent how the loss of the generating capacity located 

within Montana would impact price levels and price stability for electric power for the state's 

residential, commercial and industrial customers. This essentially amounts to the assumption 

that the loss of Colstrip has no impact on prices or reliability of power. This is not a realistic 

assumption, yet our limited access to the tools to allow us to credibly analyze and incorporate the 

impacts produced by markets for electric power left us with no other alternative. The assumption 

of no disruption or change to electric prices tends to make actual impacts of Colstrip larger than 

those presented in this study. 

The Eastern Montana Economy 

The contribution of the Colstrip generating facility to the economy of the region and the state 

needs to be understood in the context of the performance and characteristics of the economy as it 

exists today_ The eastern Montana (see the next chapter for a precise definition) economy is 

characterized by a large land area with a small population. As shown in table 1.1, the total 

population is approximately 74,300 persons. There are about 49,000 jobs in the area, including 

proprietors and the self-employed. The driving economic activities are agriculture, oil and gas 

exploration and extraction, and coal mining. 

The dominant economic development issue in eastern Montana, as in many rural areas in the 

west, is the lack of good paying jobs. Table 1.1 presents four measures of well-being and 

average job quality that can be used to evaluate the Colstrip jobs. Per capita income is total 

income (wages, dividends, retirement, etc) divided by total population. Average annual wages 

are the amounts received by people who work for wages. Average annual compensation 

includes wages plus employer paid benefits. Earnings are compensation plus the earnings of the 

self-employed (which includes many farmers and ranchers). 

Table 1.1 


The Eastern Montana Economy 


This study will demonstrate the significant impact the operations at Colstrip have on both 

employment levels and on average wages in eastern Montana. As can be seen from the table, 

compensation levels today are lower in eastern Montana than in the rest of the state. Without 

Colstrip, these differences would be even larger, as we will demonstrate. 

5 

Figure 1.1 


Employment as a Percent of 1991 Employment, 


Eastern Montana and the Rest of the State, 1990-2010 


140 

130 

120 

110 

100 

90 

-Eastern 

-Rest of State 

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 

Relative to the remainder of the state, economic growth has been slower in eastern Montana. 

Over the last two decades, employment growth has been significantly faster in the rest of the 

state, as shown in Figure 1.1. Even though employment in both parts of the state has declined 

due to the recession, there are 40 percent more jobs in the remainder of the state today than there 

were in 1991. The comparable figure for eastern Montana is only 8 percent. 

Organization of this Report 

The remainder of this report details the methodology and the results of this study. Since the 

characteristics of an economy without Colstrip cannot be observed directly, they must be 

estimated with the use of an economic model. In the next section we describe the nature and the 

capabilities of the model leased for this study from Regional Economic Models, Inc. We then 

detail the direct contributions of Colstrip operations and the closely linked Western Energy 

Company mine to the economy in terms of income, production, jobs and other economic 

variables. The findings of the study are reported in full detail in Chapter 5. This is followed by a 

chapter with full detail on the tax impacts of Colstrip operation. Chapter 7 ends the report with a 

summary and conclusions. 

6 

2. Policy Analysis with the REMI Model 

Economic impacts occur because of events or activities that create new expenditures. Spending 

which is new - which is over and above existing expenditures and does not simply displace 

spending elsewhere in the region - not only adds to economic activity in its own right, but it also 

induces further spending as the recipients of wages, sales and tax revenues spend a portion of 

their income in the local economy. Changes in the path of investment, migration, and prices and 

wages are possible as well. 

The basic tool used in this study to assess the economic contribution of Colstrip is an economic 

model, calibrated to represent the interactions in the Montana economy, leased from Regional 

Economic Models, Inc.. The REMI model is one of the best known and most respected 

analytical tools in the policy analysis arena, and has been used in more than a hundred previous 

studies as well as dozens of peer-reviewed articles in scholarly journals. It is a state-of-the-art 

econometric forecasting model that incorporates dynamic feedbacks between economic and 

demographic variables. The REMI model forecasts employment, income, expenditures and 

populations for counties and regions based on a model containing over 100 statistically estimated 

behavioral and dynamic relationships as well as a number of identities. A full explanation of the 

design and operation of the model can be found in Treyz (1988). 

The model used in this study disaggregated the state economy into five regions: Northwest, 

Southwest, North Central, South Central, and Eastern. It explicitly recognizes trade flows that 

exist between these regions, as well as between the regions and the rest of the world. The 

definition of the regions is shown in Figure 2.1 below. 

Figure 2.1 


Economic Regions 


7 

Table 2.1 


Eastern Montana Counties 


Figure 2.2 


Policy Analysis With the REMI Model 


/ 


The use of the model to derive the results of this study is illustrated graphically in Figure 2.2. 

First, a baseline projection of the economy is produced using the model, utilizing inputs and 

assumptions which extrapolate growth and conditions of recent history. The model is then used 

a second time, with identical inputs - except that in this alternative scenario, the activity of 

8 

Colstrip is removed. Thus the activity of Colstrip is an input that ultimately produces a different 

economy, reflecting not only the removal of the production, employment, and expenditures of 

the plant, but how the rest of the economy reacts to those changes. The difference between the 

baseline and alternative scenarios of the economy represents the economic impact of Colstrip. 

REMI Model Linkages (Excluding 


Economic Geography Linkages) 


The model utilizes historical data on production, prices, trade flows, migration and technological 

change to calibrate the relationship between five basic blocks of the regional economy as 

depicted above: output, labor and capital demand, population and labor force, wages and prices 

and market shares. The changes in production, labor demand and intermediate demand caused 

by the hypothetical cessation of Colstrip operation causes these blocks of the economy to react 

and adjust to a new equilibrium. As described above, the difference between the baseline and the 

alternate scenario is the ultimate impact of Colstrip. 

The essential philosophy of the model is that regions throughout the country compete for 

investment, jobs, and people. When events occur in a region, they set off a chain reaction of 

actions where dollars flow towards better investment and production opportunities, followed 

over time by a flow of workers and households towards employment opportunities and higher 

wages. The model embodies an 82-sector input-output matrix that describes the technological 

interdependence of production sectors of the economy, as well as extensive trade and capital 

flow data to determine the share of each sector's demand that can be met by local production. 

9 

The model is extremely well suited for the analysis described in this report. As seen in several of 

the energy studies listed in the references section, it has been used for similar analyses of energyrelated investment and opportunities. 

As powerful and flexible as the model is, the answers it provides are only as good as the 

questions posed to it. The majority of work in this study is carefully crafting the inputs used to 

construct a scenario of the Montana economy that does not include Colstrip operations. We now 

turn to this task. 

10 

3. The Direct Economic Contribution of Colstrip 

The analysis begins with a comprehensive examination of the expenditures and income flows 

that stem from the operation of the Colstrip generating facility itself. In order to produce an 

economic scenario where those operations are assumed to be absent, we must carefully and 

completely quantify the footprint of the facility's ongoing activity. 

The source for much of this information comes from PPL Montana, LLC, the operator of the 

plant. Using historical records we constructed a "typical" annual expenditure profile of the 

facility. This profile is one in which no unusual, unplanned shutdowns or outages take place, 

and in all other respects the operating levels are "normal." 

Normal in this context does not mean that the units are in operation for the entire year. In the 

normal course of events, scheduled shutdowns for maintenance and refurbishment occur on the 

individual units of the plant in each year, which take them off line for approximately 6 weeks. 

During these times, approximately 550 contractor employees are working at the facility on unit 

overhauls and other work. There are also contractor employees at the site during ordinary plant 

operation times, both in overhaul and operations. 

The separate mechanisms through which Colstrip operations add to the income and expenditure 

flows in the Montana economy are as follows: 

Employment 

• 	 The number of employees of PPL Montana who work at the Colstrip facility in a typical 

year is 393. These include 287 union, 83 non-union, and 23 part-time employees. 

• 	 There are approximately 45 year-round contractors at the site working on overhaul 

projects, as well as 55 additional contractors working year-round on aspects of plant 

operations. 

• 	 With four generating units and a three year cycle of scheduled overhauls, there are 1.3 

units of Colstrip's facility shut down for maintenance in any given year. With 550 

contractors working on overhaul during these periods, this yields a full-time equivalent of 

an additional 84.6 employees who are contractors working at the facility. 

• 	 Thus we estimate year-round facility employment to be just over 577 workers, including 

both PPL Montana and contract employment. 

Compensation 

• 	 Total labor costs paid by PPL Montana for a typical year are $43.1 million, which 


includes wages and benefits. Benefits include health insurance, life insurance and 


pension contributions. This is an average compensation per worker in excess of 


$100,000. 


11 

• 	 Actual compensation per worker for contractor employees was not made available for 

this study. Industry averages were instead used. 

Coal Purchases 

• 	 Intermediate demand of the Colstrip facility is dominated by fuel purchases, largely coal. 

All coal for the plant comes from the adjacent WECo mine, delivered to the facility via 

trucks and conveyors. 

• 	 In a typical year the generating units consume $146.5 million in coal from the WECo 

mine. This figure is an average of actual purchases over the last four years. This is 

approximately 10.1 million tons of coal per year. 

Other Intermediate Demand 

• 	 The Colstrip facility purchases $35 million in other goods and materials each year. These 

purchases create an intermediate demand for 82 individual industries, some with a 

presence in Montana. 

• 	 PPL Montana also spends an additional $91.6 million in contracts with vendors, 

including overhaul costs. Roughly a third of this spending reflects operations and 

maintenance, and the remainder is for capital costs that take place in a typical year. 

Output 

• In a typical year the four units of Colstrip produce about 17,000 GWH of electricity. 

State and Local Taxes 

• 	 The facility and its employees pay $39.1 million in state and local taxes in a typical year. 

• 	 More detail on taxes is presented in Chapter 6. 

Each of these mechanisms was carefully crafted and implemented as a change to the economy in 

the appropriate block of the REMI model as described in the previous section. But the operation 

of the generating facility fundamentally depends on the operation of the adjacent Western 

Energy Coal mine that supplies its coal needs. Thus we must consider the operation of the mine 

as well, as described in the next section. 

12 

4. The Western Energy Coal Mine 

The Colstrip facility was conceived and developed as a mine-mouth generation plant. Its coal 

needs are currently served by the adjacent coal mine operated by Western Energy Company 

(WECo) and Colstrip and the mine are closely linked. Thus an analysis of the contribution of 

Colstrip must proceed in tandem with the contributions of the mine which are part of its 

operation. 

Approximately 89 percent of WECo coal is delivered to Colstrip, via conveyor and specially 

designed trucks. The cost of coal to Colstrip represents both the cost of the coal and the cost of 

delivery. In the no-Colstrip scenario constructed as part of this impact study, 89 percent of 

WECo operation, including the transportation of the coal, would also cease to exist. 

In total, the WECo mine represents: 

• 373 employees 

• $39 million in annual compensation 

• $74 million in intermediate demand for goods and services 

As was the case with the Colstrip facility itself, the intermediate demand is spread across 82 

industries representing the production of goods and services both from within Montana and 

elsewhere. Removing the portion of the mine's output that serves Colstrip removes that 

spending, as well as the payroll and tax contributions of the mine. 

This information on the Colstrip operation in the previous chapter and the WECo mine's activity 

as described above comprise what we have referred to as the direct and indirect impacts of 

Colstrip, respectively. The total impact of the facility is derived by generating an alternative 

projection of the state and regional economies with our economic model, taking into account the 

direct and indirect impacts described above. We now tum to the results of that analysis. 

13 

5. Economic Impacts 

The operations of the Colstrip Steam Electric Station, together with the operations of the WECo 

mine which directly serves its operation, ultimately produce a state economy that is significantly 

larger, more populous, and more prosperous than would exist in its absence. A comparison of 

income, employment, and investment between the baseline and an economic scenario with no 

Colstrip reveals the size of its ultimate contribution to the economy. 

Figure 5.1 


The Economic Contribution of the Colstrip Steam Electric Station Units 1-4 


Employment Impacts by Region 


Re90n 1 

ReQon2 

ReQonS 

o 1,000 2,000 3,000 4,000 

Most, by no means all, of the economic impacts of Colstrip are in the eastern Montana region 

which contains Rosebud County. The employment impacts of the generating facility are positive 

in all fi ve regions of the state, as shown in Figure 5.1 above. The south central region, which 

contains Billings, does see some significant increase in employment as a result of Colstrip 

operation, which is due to the significant trade flows that exist between the regions. But the 

most of the employment impacts are clearly in the eastern Montana region. 

Given the smaller size of the eastern Montana economy compared to the other four regions, this 

contrast is even more apparent when examined in percentage terms. In Figure 5.2 we present the 

impacts of Colstrip for the five regions on personal income as a percent of the baseline 

projection. Because of Colstrip, eastern Montana personal income - total income received by 

14 

person - is more than 9 percent higher than it would have been in the absence of the facility. As 

can be seen, the relative impact of Colstrip on personal income in the other regions is positive, 

but much smaller than in the east. 

Figure 5.2 


The Economic Contribution of the Colstrip Steam Electric Station Units 1-4 


Personal Income Impacts by Region, as Percent of Baseline 


R~l 

Region 2 

ReQon5 

Thus in presenting the other findings of the analysis of this study, we will focus on two 

geographic areas: eastern Montana, and the state of Montana as a whole. 

A summary of the aggregate impacts of Colstrip operation on the state and regional economy, 

presented in Table 5.1, reveals the extent of the facilities contribution to economic well-being. 

The generation of electrical power at the site is ultimately responsible for more than 3,700 jobs 

statewide - significantly more than the average of 393 employed by PPL Montana and the 373 

workers at the WECo mine. The impacts reported in Table 5.1 and throughout this section 

include those induced elsewhere in the economy as a result of the facility's operation. 

Of the total jobs impact, almost 2,700 jobs are private sector payroll jobs. The other jobs are in 

government, mostly local government workers in public schools. Those jobs are a direct 

response to the additional 7,776 people whose presence in Montana is due to Colstrip operation. 

15 

Table 5.1 


The Economic Contribution of the Colstrip Steam Electric Station Units 1-4 


There is more than $600 million of additional output produced by the Montana economy as a 

result of Colstrip. This represents about 1.1 percent of total output in the entire state, attributable 

to the operations of a facility in Rosebud County. The $621 million of total economic output due 

to Colstrip in eastern Montana is more than 17 percent of the output of the entire region. 

Much of the benefits from Colstrip go to individual Montanans as income. Personal income is 

$362.1 million higher in Montana as a result of Colstrip. As a state which relies heavily on the 

personal income tax, that represents a sizable contribution to the state's treasury, as we detail 

further in the next chapter. Almost $323 million of that income is available to persons in aftertax income for saving and spending. 

As shown in Table 5.2, the employment impacts of Colstrip are spread across many industries. 

Not surprisingly, the largest private-sector impact is in the utilities industry, due to the direct 

contribution of the facility itself. But there are significant job impacts in other industries due to 

the induced demand of Colstrip and WECo employees as well as vendors and businesses who 

receive revenue from Colstrip. Retail trade employment is almost 400 jobs higher. Health care 

employment, impacted by both population and the relative affluence of Colstrip workers, is 372 

jobs higher than it would be without Colstrip. 

Employment in state and local government is significantly affected by Colstrip operation. Both 

receive significant tax revenue, both directly from the facility as well as from other activities 

induced by its operation, as more fully detailed in the Chapter 6. But Colstrip operation also 

impacts the demand for government services as well. This is because workers and households 

have moved to Montana from elsewhere because of the economic opportunities created by 

16 

Colstrip. This increases the population of school-aged children and increases demand for K -12 

schools, as well as other demands for government services. 

Table 5.2 

The employment impacts can also be examined from a different perspective, namely, how 

Colstrip creates jobs for those in different occupations. As can be seen in Table 5.3, almost one 

in four new jobs due to Colstrip operations are in the sales, office and administrative 

occupational category, which includes teachers. Colstrip-induced jobs can also be found across a 

very broad spectrum of skills and occupations. A significant proportion of these jobs are in 

construction and extraction, maintenance and repair, as well as production and material moving 

17 

workers. There are also more than 300 management jobs in the Montana economy that are due 

to Colstrip operation. 

Table 5.3 

Impacts on Employment by Occupation 

Category Impact (jobs) 

Montana Eastern MT 

18 

Table 5.4 

.~...,,,~ition of Personal Income 

Additional workers in the state economy translate into higher earnings and more tax collections. 

But it is important to note that wage income is only one part of the overall increase in income 

received by Montanans because of the operations of Colstrip. As shown in Table 5.4, about 

$220 million of the total increase of almost $362 million in personal income due to Colstrip is 

accounted for by higher wage and salary disbursements to payroll employees. Accounting for 

the difference are supplements to wages, including contributions by employers to employee 

pensions, income of business proprietors and the self-employed, rent and property income, and 

19 

income transfers from the federal government. The personal tax impacts noted in Table 5.4 

include federal as well as state and local taxes. We focus on state and local tax impacts in more 

detail in the next section. 

Table 5.5 

Impacts on Private Sector Compensation and Earnings 

Category Units Impacts 

Montana Eastern MT 

One of the factors helping to account for the very significant additional economic impact induced· 

by the wages and expenditures of the Colstrip facility is the fact that the jobs at both Colstrip and 

the WECo mine pay wages significantly in excess of the state and regional average. This 

represents more dollars available to be spent in the local communities, helping to increase second 

round employment effects. 

Thus the impact of Colstrip is not to simply add jobs and to add income, but to actually raise the 

average pay for all jobs in the economy. As shown in Table 5.5, the average annual wage of all 

workers in the private sector of the state economy is $116 higher per worker as a result of 

Colstrip. The average annual earnings, which include both benefits as well as proprietors' 

income, is increased by $203 for all state workers in the private sector. In eastern Montana, the 

impacts are much more pronounced - Colstrip raises average annual earnings in the region by 

more than $3,200 per worker. 

The operation of Colstrip adds significantly to economic output as well. This occurs through 

three basic mechanisms. First, the facility itself produces electricity. Secondly, as part of the 

production process, the plant induces output from other finns in Montana - most notably the coal 

from the WECo mine, but also services and materials from everything from legal finns to 

maintenance and overhaul services. Finally there are the output increases across the economy to 

satisfy the locally produced component of demand induced by second round spending. 

20 

The gross output increases in the economy that are attributable to Colstrip, as shown in Table 

5.5, are highest in the utility industry itself, followed by the mining industry There are also 

significant output impacts in retail trade, health care and construction. As with most impacts, 

these are largest in the eastern Montana region. 

The negligible impact of Colstrip on manufacturing output in the state economy is largely an 

artifact of the structure of this study. As discussed in the introduction, this study does not 

explicitly consider the impact of the loss of Colstrip operation on electricity markets in Montana. 

Were those impacts to be considered, they would likely show a positive impact most markedly 

on manufacturing, since the presumably lower and more stable electricity prices in a withColstrip economy would lower production costs for energy-intensive industrial applications. 

Table 5.6 

Impacts on Output by Major Industry 

Category Impact ($ mill.) 

Montana Eastern MT 

21 

The impact of Colstrip on Montana output and employment is dependent on the composition of 

the state economy. The increases in demand for goods such as clothing or motor vehicles that 

may come about due to Colstrip operation will not significantly increase the manufacturing of 

those items in Montana simply because there is very little, if any, presence of those industries in 

the state to begin with. However, increased demand for manufactured goods produced elsewhere 

still has an impact on the state's retail, wholesale, and transportation industries. 

As shown in Table 5.7, Colstrip operations do produce higher demands among Montana 

consumers for a wide spectrum of goods and services. Consumers in eastern Montana spend 

$26.2 million on motor vehicles and parts, $37.5 million on food and beverages, and $56.2 

million on medical care in the region because of Colstrip. To put it another way, auto dealers 

and repair shops, restaurants and grocery stores, and hospitals and clinics in the eastern part of 

the state would have their business collectively reduced by these amounts if Colstrip did not 

exist. 

Table 5.7 

Impacts on Personal Consumption Expenditures 

Category Impacts ($ mill.) 

Montana Eastern MT 

The mobility of people, jobs, and investment in response to changing opportunities is a 

fundamental process that drives economic growth. The presence of Colstrip in the Montana 

economy has drawn people as well as resources to Rosebud County and, to a lesser degree, the 

state of Montana as a whole. Workers who move in response to job opportunities - who would 

not have moved but for the operations of Colstrip - bring their current or future children with 

them, fundamentally altering the demographic profile of the population. 

22 

A comparison of the age distribution of the population with and without the presence of Colstrip 

reveals significant increases in those in the prime working age groups aged 20-55 years, as well 

as in the younger cohorts made up of their children. As shown in Table 5.8, the impact of 

Colstrip operation among 5-year age cohorts of the population is highest among those aged 40­

44, with the presence of 800 people in that age category living in the state of Montana because of 

Colstrip. Roughly half of the 7,776 increase in population statewide due to Colstrip operations 

are in prime working ages between 20 and 55 years of age. In eastern Montana, the presence of 

almost 2,000 school-aged children between 5 and 19 years of age is attributable to the Colstrip 

generating facility. 

Table 5.8 

Impacts on Population by Age 

Category Impact (people) 

Montana Eastern MT' 

23 

Thus the state, and particularly the eastern region of the state, is significantly younger, with a 

higher fraction of productive, working-aged people and their children with the presences of 

Colstrip in its economy than it would be without. 

24 

Conclusion 

It is difficult to overstate the economic contribution of the Colstrip generating facility's 

operations to eastern Montana. More than 7 percent of all jobs, 17 percent of all production, 9 

percent of all income, and 13 percent of school-aged population are in the region because of the 

operations of the plant. The spending by Colstrip employees as well as those at the WECo mine 

is only part of the stimulus to the region represented by the plant. The subsequent activity as the 

as Colstrip dollars are re-spent is substantial as well. These results highlight how large and 

diverse those economic contributions are. 

Even when measured against the much larger economy of the entire state, the contributions of 

Colstrip are substantial. Businesses and consumers do benefit from Colstrip statewide through 

the trade flows that connect the state's regions, particularly to Billings. The higher than average 

wages of the Colstrip and WECo jobs produce a measurable impact on average compensation of 

all jobs statewide. 

There is an additional way in which Colstrip-induced changes in the economy propagate 

throughout the state. That is the tax system. We now tum to a discussion of how Colstrip 

activities ultimately increase state and local tax revenues, many of which are spend throughout 

the state. 

25 

--- ------------

6. Tax Impacts 

This section identifies and quantifies the amounts of nonfuel tax payments to state and local 

governments directly and indirectly associated with Colstrip. The arnounts presented in the 

following tables represent taxes paid during a "typical" year. This procedure corrects for 

significant year to year changes in tax payments due to variations in electricity production 

(perhaps caused by planned maintenance), the overall profitability of the parent companies, 

national business cycle impacts, and other factors. 

Whenever possible the tax payments were estimated from administrative records or other reliable 

sources. But Montana has a complex system for determining and collecting taxes and then 

distributing the proceeds to various governments. It is not always possible to determine the 

amount of taxes paid to various jurisdictions simply by looking at tax bills. Therefore, a variety 

of indirect methods and other procedures were used to estimate tax payments. For example, 

property taxes and certain natural resource taxes were calculated by first deriving the taxable 

value for each category and then applying the relevant mill rates imposed by the jurisdictions. 

Similarly, individual income taxes were derived by applying an average tax rate to the total 

income earned. 

Payments were estimated for each tax and then aggregated into four categories: 

1. Individual and corporate income taxes 

These taxes are paid by individuals and the companies that own Colstrip SES or provide 

the coal. The proceeds go to the state government and are deposited in the General Fund. 

2. Natural resource taxes 

Three of the Montana's twelve natural resource taxes are relevant for Colstrip. The Coal 

Severance Tax is applied to the value of the coal and the proceeds go to state 

government. The Coal Gross Proceeds Tax is five percent of the gross proceeds of coal 

and is distributed to local taxing jurisdictions. The Resource Indemnity and Groundwater 

Assessment Tax is applied to the gross value of coal extracted and is allocated to state 

government accounts to fund remediation. Although not levied by the state, Montana 

receives about 48 percent of the revenue collected from U.S. Mineral Royalties and the 

proceeds are split between state and county governments. 

3. Property Taxes 

The proceeds from property taxes go to the state, counties, school districts, cities and 

towns, and other jurisdictions. The property tax bills are sent out by the counties. Assets 

(such as homes, buildings, and electrical generation equipment) are assessed by the state 

and the relevant mill levies applied for the jurisdiction where the assets are located. 

4. Other Taxes 

26 

There are 26 other taxes levied in Montana ranging from the Beer Tax to the Rail Car 

Tax. Seventeen were judged to be directly or indirectly tied to Colstrip and each was 

estimated separately. Two of the most important are the Electric Energy Producer's 

License Tax and the Wholesale Energy Transaction Tax, which are levied against the 

electric energy produced and transported in Montana. There is also a separate tax 

category which includes mostly other state and local intergovernmental revenue directly 

or indirectly associated with Colstrip, its workers, and others. 

Tax Impacts by Taxpayer 

As shown in Figure 6.1, the total state and local tax impact of Colstrip operations is substantial. 

Totaling the taxes paid by the facility itself, the WECo mine, the employees of both WECo and 

Colstrip, as well as payments associated with the induced economic impacts, they amount to 

$103.9 million. The Colstrip generating plant itself accounts for about $35.6 million, or roughly 

34 percent of the total. The Western Energy Company coal mine paid approximately $35.7 

million. The employees of the two companies paid about $6.1 million, or roughly 6 percent of 

the total. The induced economic activity accounted to $8.5 million in estimated tax payments, 

and about $18.0 million came from other sources. 

Figure 6.1 

State and Local Tax Impacts by Taxpayer, Millions of Dollars 

120 

$103.9 

100 

80 

60 

40 

20 

o 

Other 

27 

State and Local Tax Impacts 

The $103.9 million in non-federal tax payments attributable to Colstrip operations flow to both 

state and local governments, as shown in Figure 6.2. The State of Montana received 

approximately $68.3 million, or 65.7 percent. Counties, cities, school districts, and special 

taxing districts (such as SIDs) received roughly $35.7 million, or approximately 34.3 percent. 

Figure 6.2 

State and Local Tax Impacts, Millions of Dollars 

120 

100 

80 

60 

40 

20 

o 

$103.9 


County and Local 

Government 

State of Montana 

The distribution of taxes shown in Figure 6.2 may not represent the final incidence of the funds. 

For example, included in the $68.3 million paid to state government is roughly $11 to $13 

million intended for school equalization. Legislation calls for a statewide property tax with the 

proceeds to be deposited in the state's General Fund. The Legislature is supposed to appropriate 

an amount to be distributed to all the state's school districts to support basic education. Since the 

actual amounts depend on legislative decisions, they cannot be reliably estimated. 

State and Local Tax Impacts by Category and Taxpayer 

The various taxpayers pay different taxes, as shown in Table 6.1. Of the $35.6 million paid by 

Colstrip, about $26.3 million or roughly 73.9 percent were in property taxes. The remaining 

taxes include the Montana Corporate License Tax paid by the owners and the Electric Energy 

Production Tax and the Wholesale Energy Transaction Tax. 

28 
Table 6.1 


State and Local Tax Impacts, by Taxpayer 


Millions of Dollars 

The Western Energy coal mine pays about $34.9 million in natural resource taxes, or about 97.7 

percent of its $35.7 million in total taxes. Income taxes accounted for $3.3 million, or more than 

one-half of the total, in taxes estimated for the employees of the Colstrip generating plants and 

Western Energy coal mine. 

Property taxes were about $4.1 million and income taxes approximately $3.1 million for the 

induced activity associated with Colstrip. Property taxes were relatively smaller for the 

employees than for the induced activity because more Colstrip and Western Energy workers live 

in Rosebud County, which has the lowest property taxes rates in Montana. 

Statewide Benefits of Colstrip Taxes 

The tax payments directly and indirectly associated with Colstrip benefit all the state's residents, 

not just those in Eastern Montana. This section presents a number of concrete examples of the 

statewide benefits. 

• 	 State government receives approximately $68.3 million in tax and royalty receipts 

directly or indirectly associated with Colstrip, representing about 4.5 percent of Montana 

Department of Revenue collections in 2008. Other taxpayers would have had to pay 

more or government expenditures reduced if it were not for these payments. 

• 	 As was mentioned earlier, about $11 million to $13million is collected in property taxes 

intended for school equalization. This amount would be distributed to all school districts 

across the state. 

• 	 The Colstrip generating plant itself pays about $26.3 million in property taxes on 

pollution control and electric generation equipment. Approximately $8.1 million of this 

total is intended for school equalization and would be distributed statewide. 

29 

• 	 Much of the electricity generated at Colstrip is delivered to out-of-state customers via 

transmission lines. These lines pay property taxes to the counties through which it 

travels. Table 6.2 presents the estimated property taxes paid to these counties. 

Table 6.2 


Transmission Line Property Taxes by 


County 


County 	 Millions of Dollars 

Summary 

Colstrip directly and indirectly accounts for $103.9 million in taxes paid to state and local 

governments in Montana. About two-thirds of this total is paid to the state and benefit all 

Montanans. For example, a significant amount of the property taxes paid directly by Colstrip 

flows into the state's general fund and are used to fund school districts statewide. Further, the 

property taxes on the transmission lines associated with Colstrip are paid directly to 13 counties 

in central and western Montana. 

30 

7. Summary and Conclusions 

The research question posed by this study is "what would the economy of Montana look like if 

Colstrip Steam Electric Station did not exist?" It is a hypothetical question - the facility has 

been in full operation for more than twenty years. Yet in a policy and political environment 

where the contributions of the plant to the state economy are poorly understood or perhaps taken 

for granted, it deserves to be carefully analyzed and answered. 

Using a state-of-the-art policy analysis model of the Montana economy that has been peerreviewed and used in dozens of other studies, we have carefully examined the contribution made 

to both the economy of eastern Montana as well as to the state economy as a whole by the 

continuing operations of the Colstrip generating facility. Our study has revealed the footprint of 

this single facility occupying less than three square miles in Rosebud County to be substantial. 

Comparing the actual economy to one that would exist if the operations of Colstrip were not 

present, we find that 

• 3,740 jobs, including 2,688 private sector jobs, 

• more than $360 million of personal income received by Montanans, 

• $638 million in net output produced in Montana, and 

• more than 7,700 additional people 

exist in our state today whose presence is attributable to Colstrip operations. To state it another 

way, without Colstrip, the economy around us would be smaller, less prosperous, and less 

populous by these same amounts. 

There are several aspects of Colstrip that lead directly to this impressive result. First, the facility 

pays wages and benefits to its workforce that are substantially above the state and regional 

average. When employees spend part of their money in the local and state economy, many other 

jobs are supported. Second, a huge expenditure of the plant is for a product that is totally made 

in Montana - namely, coal from the adjacent Western Energy Company mine. Keeping those 

dollars within the state greatly increases the ultimate impact of Colstrip operations. 

Finally, the product made by Colstrip - electricity delivered to Montana and other states - does 

not displace or crowd out other Montana producers. Thus it's activities add to, rather than 

supplant or replace, other activities in the economy. The uses and demand for electricity 

continue to grow, and the continued operation of plants such as Colstrip is part of meeting that 

need. 

31 

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