THEWAANER ABU DHABI 1299 PENNSYlVANIA AVE , NW AUSTIN WASHINGTON, D.C. BEUING 20004-2400 DAUAS DUBAI TEL + I 202.639.7700 HONG KONG FAX + I 202.639.7890 HOUSTON www.bokerbolls.com LONDON 081398.0106 MOSCOW 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 withyou the importance ofthe Colstrip power plant to the Montana economy. 

### I am attaching for your review and consideration "The Economic Contribution ofColstrip Steam Electric StationUnits 

### 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 ifyou 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 ofColstrip Steam Electric Station Units 1-4 FINAL REPORT November 2010

Prepared by: PatrickM. Barkey, Ph.D. Paul E. Polzin, Ph.D. 1222 Lincolnwood Road Missoula, MT 59802 Prepared for: The Colstrip SteamElectric Station OwnersAcknowledgements The authors ofthis study would like to acknowledge the cooperation ofthe managers and employees ofPPLMontana who took the time from theirbusyjobs to make the data available for this study. We would like to thank inparticularNeil Dennehy for his prompt and thorough responses to ourrequests for information. All errors and omissions in this report are, ofcourse, ourown.Table ofContents

Executive Summary
..................................................................................................................... 1 Chapter 1. Introduction and Overview
........................................................................................3 Chapter 2. Policy Analysis with the REMIModel
.....................................................................7 Chapter 3. The DirectEconomic Contribution ofColstrip
......................................................... 11 Chapter4. The Western Energy Coal Mine
................................................................................. 13 Chapter 5. Economic Impacts
...................................................................................................... 14

n .......................................................................... Chapter 6. Tax Impacts
................................... 25 Chapter7. Summary and Conclusions
.........................................................................................30 References
....................................................................................................................................31Executive Summary This report describes an independent analysis ofthe economic contribution ofthe Colstrip electric generating facility operated by PPL Montana, andjointly owned by PPLMontana, LLC, NorthWestern Energy, LLC, Puget Sound Energy, Inc., Portland General Electric, Avista Corporation, and PacifiCorp. Puget Sound Energy, Inc. owns 50% each ofUnits 1 and 2 and 25% ofUnits 3 and 4, respectively. PPLMontana owns 50% each ofUnits 1 and 2 and 30% of Unit 3. Portland General Electric owns 20% each ofUnits 3 and 4. Avista Corporation owns 15% each ofUnits 3 and 4, and PacifiCorp owns 10% each ofUnits 3 and 4. NorthWestern Energy owns 30% ofUnit 4. Since 1986 when the final generating unit came on-line, this coalfired, zero discharge electricity generating station has providedpower to Montana and the Northwest. Theresearch question posed in this study is: what would the economy ofMontana look like if the Colstrip facility did not exist? Since the construction ofthe plant is long completed, the study is confined to an examination ofthe operation ofthe plant only. The study was.conducted byperforming a comprehensive assessment ofthe direct contribution ofthe facility'S operations onincome, production and expenditure flows in the economy. As a mine-mouth plant, those operations are closely linked to production atthe Western Energy Company's mine that is adjacent to the facility. Since energyproduction forms an importantpart ofthe state tax base in Montana, special emphasis is placed onthe contribution ofColstrip operations to state and local tax revenues as well. This information was used to construct an economic scenario where Colstrip operations did not takeplace. The difference between the actual baseline and this hypothetical scenario represents the total contribution ofColstrip operations on the state economy. 

## The Economic Contribution ofthe Colstrip Steam Electric Station Units 1-4 Impacts Summary

1Thebasic finding ofthis report is that the economy ofMontana is larger, more prosperous and more populous because ofthe operations ofColstrip. Specifically, we find that because of Colstrip there exist

• 3,740 morejobs, including 2,688 private sectorjobs, • $360 million more in personal income received by Montanans, • $638 million more net outputproduced across Montana, and • 7,700 more people than would be the case otherwise. These changes occurbecause ofthe new expenditure flows that come into the region and the state, at leastpart ofwhich are received byMontana businesses and households as income, which are in tum spent again within the economy. The statewide impact ofColstrip is significant

- the impactonthe economy ofeastern Montana is even more sizable. In an environment where good payingjobs 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 Montanaeconomy with more than 7 percent morejobs, more than 9 percent more income, and more than 17 percent higher production that would existotherwise. Energy taxes form a critical part ofthe tax base inthe state ofMontana, both for state and local governments. Without Colstrip, significantly less tax revenues would be available for schools, roads, parks, and public services ofall kinds. Tax revenues are an important way in which the benefits ofColstrip propagate to every comerofthe state. The ultimate impact ofColstrip operations is to raise state and local tax collections by almost $104 million. The state ofMontana's proportion ofthis total amounts to 4.5 percent ofall state revenue collections. The bulk ofthis revenue flows into the general fund, which is used to fund the general operations ofstate government. Local property and natural resource taxes paid to Rosebud County and the CityofColstrip help to keep their tax rates among the lowest in the state. But almosttwo-thirds ofthe $104 million in total taxes associated with Colstrip go to the State ofMontana, and these benefit persons statewide. Forexample, about $12million is collected in property taxes intended for school equalization. This amount has historically been distributed to all school districts across the state. Thefundamental conclusion ofthis 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 hopefullybe ofuse inpolicy and other decisions that steer Montana's economic future.

21. Introduction and Overview This is a study ofthe contribution to the Montana economy ofthe operations ofthe Colstrip Steam Electric Station (SES) Units 1-4. Operated by PPLMontana, LLC, andjointly ownedby PPLMontana, 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 ofthis report were retained bythe Colstrip owners to conduct an independent assessment ofhow the operations of the plant interact with the economy ofthe region and the state to grow the economic pie. This report presents the results ofthat assessment, together with a description ofthe methods and assumption used to derive the results. This is an economic impact study ofa facility which has already been built. The time span ofthe 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 ofthe estimates presented in this report. The impacts we report represent the continued, ongoing contribution to the economy that is due to the operations ofthe plant. The basis for these estimates is the actual, historical experience ofits operation overthe last decade. Thepurpose ofthis study is to achieve a betterunderstanding ofhow the operations ofthe Colstrip generating facility affect the economic well-being ofMontanans. As will be shown below, not only are the ultimate economic impacts ofColstrip'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 ofabout 307 megawatts. A transmission line was builtfrom Colstrip to Broadview (north ofBillings) 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. Afterlengthy 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 of740 megawatts. Colstrip 3 and4 were owned by MPC plus a number ofother 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 ofthe otherutilities. During the deregulation heyday ofthe 1990s and early 2ooos, MPC sold its ownership interests in the Colstrip complex to PPLMontana. The associated coal mine was sold to Westmoreland Resources, but retained the Western Energy Company name. Northwestern Energy, the successor to MPC, purchased a 30percent interest in Colstrip 4 in 2008.



### 3Objectives ofthis Study The objective ofthis study is to derive andpresent the economic contribution ofthe operations of Colstrip, to better infonn decisions that impactits competitiveness and viability. As the state's largest industrial facility byboth output and employment, the footprint ofColstrip 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 indirectlypaidby Colstrip mean thatresidents far from eastern Montana receive benefits. At the local level, the small city ofColstrip 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 partofour economic landscape.
The Research Question The fundamental question asked by this study is, what would the economy ofeastern Montana, as well as the state as a whole, looklike ifthe Colstrip generating facility did not exist? This counter-factual scenario is not a shut-down ofthe actual facility. Rather the scenario considered is one whereit never existed. To answer this question, we need to construct an economywhere the employment, purchases, maintenance and capital spending, and taxes paidby the plant are removed. This is accomplished with the aid ofa dynamic economic model, the REMImodel. (The REMI model is more fully explained in Chapter2). In a no-Colstrip scenario, the generation ofelectric power and all ofthe activities associated with that activity donot take place. Thus the employmentofregular and contract employees, both full time and temporary, the purchases ofthe full spectrum ofintennediate goods and services, thepurchases ofcoal from the Western Energy mine, spending on plant overhauls and maintenance, capital spending, as well as tax payments, areno longerpresent. We refer to this as the direct impact ofColstrip. There are additional activities which, while notdirectlypart ofthe process ofproducing electricity, are fundamentally linked to that process. Byfar the most significant ofthese is the operations ofthe Western Energy Company's (WECo) coal mine which serves the plant. Approximately 89percent ofthe output ofthe WECo mine goes to Colstrip. In a no-Colstrip scenario, this mine is sharplyreduced in scale. The mine is partofwhat we referto as the indirect impact ofColstrip. The direct and indirect impacts ofColstrip propagate and reverberate throughout the local and stateeconomies. Compensation to employees is spent, in part, in the community on goods and services whichemploy others. Spending on vendors impacts the economy as well, to varying degrees. Theseinduced impacts are estimated with the use ofthe REMI model, as described in the nextChapter. The economic impact ofColstrip is the sum ofdirect, indirect, and induced impacts.



### 4

### Inthis study we have made no effort to represent how the loss ofthe 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 thatthe loss ofColstrip has no impact on prices orreliability ofpower. This is not a realistic assumption, yet ourlimited access to the tools to allow us to credibly analyze and incorporate the impacts produced by markets for electricpowerleft us with no other alternative. The assumption ofno disruption or change to electric prices tends to make actual impacts ofColstrip larger than those presented in this study. TheEastern MontanaEconomy The contribution ofthe Colstrip generating facility to the economy ofthe region and the state needs to be understood in the context ofthe performance and characteristics ofthe 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 74,300persons. There are about 49,000jobs 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 ofgood payingjobs. Table 1.1 presents four measures ofwell-being and averagejobquality that can be used to evaluate the Colstripjobs. Per capita income is total income (wages, dividends, retirement, etc) divided bytotal population. Average annual wages are the amounts received by people who work for wages. Average annual compensation includes wages plus employerpaid benefits. Earnings are compensation plus the earnings ofthe 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 restofthe state. Without Colstrip, these differences would be even larger, as we will demonstrate.


### 5

### Figure 1.1 Employmentas a Percent of 1991 Employment, Eastern Montanaandthe Rest of the State, 1990-2010



### 140 130 120 110 100

90 

### -Eastern -RestofState

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Relative to the remainder ofthe state, economic growth has been slower in eastern Montana. Over the last two decades, employment growth has been significantlyfaster in the rest ofthe state, as shown in Figure 1.1. Even though employmentinboth parts ofthe statehas declined due to the recession, there are 40percentmorejobs in the remainder ofthe state today than there were in 1991. The comparable figure for eastern Montana is only 8 percent. Organization ofthis Report Theremainder ofthis report details the methodology and the results ofthis study. Since the characteristics ofan economy without Colstrip cannot be observed directly, they mustbe estimated with the use ofan economic model. In the next section we describe the nature and the capabilities ofthe model leased for this study from Regional Economic Models, Inc. We then detail the direct contributions ofColstrip operations and the closelylinked Western Energy Company mine to the economyin terms ofincome, production,jobs and other economic variables. Thefindings ofthe study are reported infull detail in Chapter 5. This is followed by a chapter with full detail on the tax impacts ofColstrip operation. Chapter7 ends the report with a summary and conclusions.

62. Policy Analysis with the REMI Model Economic impacts occurbecause ofevents oractivities that create new expenditures. Spending which is new - which is overand above existing expenditures and does not simply displace spending elsewhere in the region

- not only adds to economic activity in its ownright, but it also induces further spending as the recipients ofwages, sales and tax revenues spend a portion of their income in the local economy. Changes in the path ofinvestment, migration, and prices and wages arepossible as well. The basic tool used in this study to assess the economic contribution ofColstrip is an economic model, calibrated to represent the interactions in the Montana economy, leased from Regional Economic Models, Inc.. The REMI model is one ofthe bestknown and mostrespected analytical tools in the policy analysis arena, and has been used in more than a hundred previous studies as well as dozens ofpeer-reviewed articles in scholarlyjournals. Itis 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 numberofidentities. A full explanation ofthe design and operation ofthe model canbe 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 ofthe world. The definition ofthe 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



# /

Theuse ofthe model to derive the results ofthis study is illustrated graphically in Figure 2.2. First, a baseline projection ofthe economyis produced using the model, utilizing inputs and assumptions which extrapolate growth and conditions ofrecent history. The model is then used a second time, with identical inputs

- except that in this alternative scenario, the activity of 

### 8Colstrip is removed. Thus the activity ofColstrip is an input that ultimately produces a different economy, reflecting not only the removal ofthe production, employment, and expenditures of the plant, buthow the rest ofthe economyreacts to those changes. The difference between the baseline and alternative scenarios ofthe economy represents the economic impact ofColstrip. 

# 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 ofthe regional economy as depicted above: output, laborand capital demand, population and laborforce, wages and prices and market shares. The changes in production, labordemand and intermediate demand caused bythe hypothetical cessation ofColstrip operation causes these blocks ofthe 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 ofColstrip. Theessential philosophy ofthe model is that regions throughout the country compete for investment,jobs, and people. When events occurin a region, they set offa chain reaction of actions where dollars flow towards betterinvestment and production opportunities, followed overtime by a flow ofworkers and households towards employment opportunities and higher wages. The model embodies an 82-sectorinput-output matrix that describes the technological interdependence ofproduction sectors ofthe economy, as well as extensive trade and capital flow data to determine the share ofeach sector's demand that canbe met by local production. 

### 9The 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, ithas been used for similar analyses ofenergyrelated 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 ofwork in this study is carefully crafting the inputs used to construct a scenario ofthe Montana economy that does not include Colstrip operations. We now turn to this task.

103. The Direct Economic Contribution ofColstrip The analysis begins with a comprehensive examination ofthe expenditures and income flows that stem from the operation ofthe 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 ofthe facility's ongoing activity. The source for much ofthis information comes from PPLMontana, LLC, the operator ofthe plant. Using historical records we constructed a "typical" annual expenditureprofile ofthe facility. This profile is one in which no unusual, unplanned shutdowns or outages take place, and in all otherrespects 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 ofevents, scheduled shutdowns for maintenance and refurbishment occur on the individual units ofthe plant in each year, which take them offline for approximately 6 weeks. During these times, approximately 550contractor employees are working at the facility on unit overhauls and other work. There are also contractor employees at the site during ordinaryplant 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 ofemployees ofPPLMontana who work at the Colstripfacility in a typical yearis 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 ofplant operations.

• With four generating units and a three year cycle ofscheduled overhauls, there are 1.3 units ofColstrip's facility shutdown 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 bejust over 577 workers, including both PPLMontana and contract employment. Compensation

• Total labor costs paidby PPLMontana for a typical year are $43.1 million, which includes wages and benefits. Benefits includehealth insurance, lifeinsurance and pension contributions. This is an average compensation perworker in excess of $100,000.

11• Actual compensation perworker for contractor employees was not made available for this study. Industry averages were instead used. Coal Purchases

• Intermediate demand ofthe Colstrip facility is dominated by fuel purchases, largely coal. All coal for theplant comes from the adjacentWECo 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 ofactual purchases overthe last four years. This is approximately 10.1 million tons ofcoal peryear. 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.

• PPLMontana also spends an additional $91.6 million in contracts with vendors, including overhaul costs. Roughly a third ofthis spending reflects operations and maintenance, and the remainderis for capital costs that take place in a typical year. Output

• In a typical yearthe four units ofColstripproduce about 17,000 GWH ofelectricity. State and Local Taxes

• Thefacility 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 ofthese mechanisms was carefully crafted and implemented as a change to the economy in the appropriate block ofthe REMI model as described in the previous section. Butthe operation ofthe generating facility fundamentally depends on the operation ofthe adjacent Western Energy Coal mine that supplies its coal needs. Thus we must consider the operation ofthe mine as well, as described in the next section.

124. 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 byWestern Energy Company (WECo) and Colstrip and the mine are closely linked. Thus an analysis ofthe contribution of Colstrip must proceed in tandem with the contributions ofthe mine which are part ofits operation. Approximately 89 percent ofWECo coal is delivered to Colstrip, via conveyor and specially designed trucks. The cost ofcoal to Colstrip represents both the cost ofthe coal and the cost of delivery. 

### In the no-Colstrip scenario constructed as part ofthis impact study, 89 percent of WECo operation, including the transportation ofthe 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 ofgoods and services both from within Montana and elsewhere. Removing the portion ofthe mine's output that serves Colstripremoves that spending, as well as the payroll and tax contributions ofthe mine. This information on the Colstrip operation in theprevious chapter and the WECo mine's activity as described above comprise what wehavereferred to as the direct and indirect impacts of Colstrip, respectively. The total impact ofthe facility is derived by generating an alternative projection ofthe state and regional economies with our economic model, taking into account the direct and indirect impacts described above. We now tum to theresults ofthat analysis.

135. Economic Impacts The operations ofthe Colstrip Steam Electric Station, together with the operations ofthe 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 ofits ultimate contribution to the economy. 

### Figure 5.1 The Economic Contribution ofthe 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, byno means all, ofthe economic impacts ofColstrip are in the eastern Montanaregion which contains Rosebud County. The employmentimpacts ofthe generating facility are positive in all five regions ofthe state, as shown inFigure 5.1 above. The south centralregion, which contains Billings, does see some significant increase in employment as a result ofColstrip operation, which is due to the significanttrade flows that exist between the regions. But the most ofthe employment impacts are clearly in the eastern Montanaregion. Given the smaller size ofthe easternMontana economy compared to the otherfour regions, this contrast is even more apparent when examined in percentage terms. 

### In Figure 5.2 we present the impacts ofColstrip for the five regions on personal income as a percent ofthe baseline projection. Because ofColstrip, eastern Montana personal income

- total incomereceived by 

### 14person - is more than 9 percent higher than 

### itwould have been in the absence ofthe facility. As can 

### be seen, the relative impact ofColstrip on personal income in the otherregions is positive, but much smaller than in the east. 

### Figure 5.2 The Economic Contribution ofthe 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 ofthe analysis ofthis study, we will focus on two geographic areas: eastern Montana, and the state ofMontana as a whole. A summary ofthe aggregate impacts ofColstrip operation on the state and regional economy, presented in Table 5.1, reveals the extent ofthe facilities contribution to economic well-being. The generation ofelectrical power atthe site is ultimately responsible for more than 3,700jobs statewide

- significantly more than the average of393 employed by PPL Montana and the 373 workers at the WECo mine. The impacts reported inTable 5.1 and throughout this section include those induced elsewhere in the economy as a result ofthe facility's operation. Ofthe totaljobsimpact, almost 2,700jobs are private sectorpayrolljobs. The otherjobs are in government, mostly local government workers in public schools. Thosejobs are a direct response to the additional 7,776 people whose presencein Montana is due to Colstrip operation.

15

## Table 5.1 The Economic Contribution ofthe Colstrip Steam Electric Station Units 1-4

There is more than $600 million ofadditional outputproducedbythe Montana economy as a result ofColstrip. Thisrepresents about 1.1 percent oftotal output in the entire state, attributable to the operations ofa facility in Rosebud County. The $621 million oftotal economic output due to Colstrip in easternMontanais more than 17 percent ofthe output ofthe entire region. Much ofthe benefits from Colstrip go to individual Montanans as income. Personal income is $362.1 million higher in Montana as a result ofColstrip. As a state which relies heavily on the personal income tax, thatrepresents a sizable contribution to the state's treasury, as we detail further in the next chapter. Almost $323 million ofthat income is available to persons in aftertax income for saving and spending. As shown in Table 5.2, the employment impacts ofColstrip are spread across many industries. Not surprisingly, the largestprivate-sector impact is in the utilities industry, due to the direct contribution ofthe facility itself. Butthere are significantjob impacts in other industries due to the induced demand ofColstrip and WECo employees as well as vendors and businesses who receive revenue from Colstrip. Retail trade employment is almost400jobshigher. Health care employment, impacted by both population and the relative affluence ofColstrip workers, is 372 jobshigher than itwould be without Colstrip. Employmentin state and local government is significantly affected by Colstrip operation. Both receive significanttax revenue, both directly from the facility as well as from other activities induced byits 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 ofthe economic opportunities created by
16Colstrip. This increases the population ofschool-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 createsjobs for those in different occupations. As can be seen in Table 5.3, almost one in four newjobs due to Colstrip operations are in the sales, office and administrative occupational category, which includes teachers. Colstrip-inducedjobs can also be found across a verybroad spectrum ofskills and occupations. A significantproportion ofthesejobs are in construction and extraction, maintenance and repair, as well as production and material moving 17workers. There are also more than 300 managementjobs 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 itis important to note that wage income is only onepart ofthe overall increase inincome received byMontanans because ofthe operations ofColstrip. As shown in Table 5.4, about $220 million ofthe total increase ofalmost $362 million in personal income due to Colstrip is accounted for byhigher wage and salary disbursements to payroll employees. Accounting for the difference are supplements to wages, including contributions by employers to employee pensions, income ofbusiness proprietors and the self-employed, rent and propertyincome, and 

### 19income transfers from the federal government. Thepersonal 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 ofthe factors helping to account for the very significant additional economic impact induced· bythe wages and expenditures ofthe Colstrip facility is the fact that thejobs at both Colstrip and theWECo mine pay wages significantly in excess ofthe 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 ofColstrip is not to simply addjobs and to add income, but to actually raise the average pay for alljobs in the economy. As shown in Table 5.5, the average annual wage ofall workers in the private sector ofthe 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. Ineastern Montana, the impacts are much more pronounced

- Colstripraises average annual earnings in the region by more than $3,200per worker. The operation ofColstrip adds significantly to economic output as well. This occurs through three basic mechanisms. First, the facility itselfproduces electricity. Secondly, as part ofthe production process, the plantinduces 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 locallyproduced component ofdemand 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 Montanaregion. The negligible impact ofColstrip on manufacturing output in the state economy is largely an artifact ofthe structure ofthis study. As discussed in the introduction, this study does not explicitly consider the impact ofthe loss ofColstrip operation on electricity markets in Montana. Were those impacts to be considered, they would likely show apositive 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

21The impact ofColstrip on Montana output and employment is dependent on the composition of the state economy. The increases in demand for goods such as clothing ormotor 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, ifany, presence ofthose industries in the state to begin with. However, increased demand for manufactured goods produced elsewhere still has an impact on the state'sretail, wholesale, and transportation industries. As shown in Table 5.7, Colstrip operations do produce higher demands among Montana consumers for a wide spectrum ofgoods 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 ofColstrip. Toput

### it another way, auto dealers and repair shops, restaurants and grocery stores, and hospitals and clinics in the easternpartof the state would have their business collectively reduced by these amounts ifColstrip did not exist. 

### Table 5.7 Impacts on Personal Consumption Expenditures Category Impacts 

## ($ mill.) Montana Eastern MT

The mobility ofpeople,jobs, and investment inresponse to changing opportunities is a fundamental process that drives economic growth. Thepresence ofColstrip in the Montana economy has drawn people as well as resources to Rosebud County and, to a lesser degree, the state ofMontana as a whole. Workers who move in response tojobopportunities

- who would not have moved but for the operations ofColstrip

- bring their current or future children with them, fundamentally altering the demographic profile ofthe population. 22A comparison ofthe age distribution ofthe population with and without the presence ofColstrip reveals significant increases in those in theprime working age groups aged 20-55 years, as well as in the youngercohorts made up oftheir children. As shown in Table 5.8, the impact of Colstrip operation among 5-year age cohorts ofthe population is highest among those aged 40­ 44, with the presence of800people in that age category living in the state ofMontanabecause of Colstrip. Roughly halfofthe 7,776 increase in population statewide dueto Colstrip operations are in prime working ages between 20 and 55 years ofage. In easternMontana, the presence of almost 2,000 school-aged children between 5 and 19 years ofage is attributable to the Colstrip generating facility. 

### Table 5.8 Impacts on Population by Age Category Impact (people) Montana Eastern MT'

23Thus the state, and particularly the easternregion ofthe state, is significantly younger, with a higher fraction ofproductive, working-aged people and their children with the presences of Colstrip in its economy than it would be without.



### 24Conclusion Itis difficult to overstate the economic contribution ofthe Colstrip generating facility's operations to easternMontana. More than 7 percent ofalljobs, 17 percent ofall production, 9 percent ofall income, and 13 percent ofschool-aged population are in the region because ofthe operations ofthe plant. The spendingby Colstrip employees as well as those at the WECo mine is only part ofthe stimulus to theregion represented by the plant. The subsequent activity as the as Colstrip dollars are re-spent is substantial as well. Theseresults highlight how large and diverse those economic contributions are. Even when measured against the much larger economy ofthe 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. Thehigher than average wages ofthe Colstrip and WECojobs produce a measurable impact on average compensation of alljobs statewide. Thereis 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 ofhow Colstrip activities ultimately increase state and local tax revenues, many ofwhich are spend throughout the state.

25

### ------------

---

6. Tax Impacts This section identifies and quantifies the amounts ofnonfuel 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 yearto year changes in tax payments due to variations in electricity production (perhaps caused byplanned maintenance), the overall profitability ofthe parent companies, national business cycle impacts, and other factors. Whenever possible the tax payments were estimated from administrative records or otherreliable sources. But Montana has a complex system for determining and collecting taxes and then distributing the proceeds to various governments. Itis not always possible to determine the amount oftaxes paid to variousjurisdictions simply bylooking at tax bills. Therefore, a variety ofindirect methods and otherprocedures were used to estimate tax payments. Forexample, 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 bythejurisdictions. 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 andcorporate income taxes These taxes are paid by individuals and the companies that own Colstrip SES orprovide the coal. The proceeds go to the state government and are deposited in the General Fund. 

### 2. Natural resource taxes Three ofthe Montana's twelve natural resource taxes are relevant for Colstrip. The Coal Severance Tax is applied to the value ofthe coal and the proceeds go to state government. The Coal Gross Proceeds Tax is five percent ofthe gross proceeds ofcoal and is distributed to local taxingjurisdictions. The Resource Indemnity and Groundwater Assessment Tax is applied to the gross value ofcoal extracted and is allocated to state government accounts to fund remediation. Although not levied bythe state, Montana receives about48 percent oftherevenue 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 otherjurisdictions. Theproperty tax bills are sent outbythe counties. Assets (such as homes, buildings, and electrical generation equipment) are assessed bythe state and the relevantmill levies applied for thejurisdiction where the assets are located. 

### 4. Other Taxes


### 26There are 26 other taxes levied inMontana ranging from the Beer Tax to the Rail Car Tax. Seventeen werejudged to be directly orindirectly tied to Colstrip and each was estimated separately. Two ofthe most important are the Electric EnergyProducer's License Tax and the Wholesale Energy Transaction Tax, which are levied against the electric energyproduced and transported in Montana. There is also a separate tax category which includes mostly other state and local intergovernmental revenue directly orindirectly associated with Colstrip, its workers, and others. Tax Impacts byTaxpayer As shown in Figure 6.1, the total state and local tax impact ofColstrip operations is substantial. Totaling the taxes paid by the facility itself, the WECo mine, the employees ofbothWECo and Colstrip, as well as payments associated with the induced economic impacts, they amount to $103.9 million. The Colstrip generating plant itselfaccounts for about $35.6 million, orroughly 34 percent ofthe total. TheWestern Energy Company coal mine paid approximately $35.7 million. The employees ofthe two companiespaid about $6.1 million, orroughly 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



### 27State 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 ofMontana 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, orapproximately 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 notrepresent the final incidence ofthe funds. Forexample, included in the $68.3 million paid to state government is roughly $11 to $13 million intended for school equalization. Legislation calls for a statewideproperty tax with the proceeds tobe 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 supportbasic education. Since the actual amounts depend on legislative decisions, they cannotbereliably estimated. State and Local Tax Impacts by Category and Taxpayer The various taxpayers pay different taxes, as shown in Table 6.1. Ofthe $35.6 million paidby Colstrip, about $26.3 million orroughly 73.9 percent were in property taxes. Theremaining taxes include the Montana Corporate License Taxpaid by the owners and the ElectricEnergy Production Tax and the Wholesale EnergyTransaction Tax.

28

## Table 6.1 State and Local Tax Impacts, by Taxpayer Millions of Dollars

TheWestern Energy coal mine pays about $34.9 million in natural resource taxes, or about 97.7 percent ofits $35.7 million in total taxes. Income taxes accounted for $3.3 million, or more than one-halfofthe total, in taxes estimated for the employees ofthe 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 smallerfor the employees than for the induced activity because more Colstrip and WesternEnergy workers live in Rosebud County, which has the lowest property taxes rates in Montana. Statewide Benefits ofColstrip Taxes Thetax payments directly and indirectly associated with Colstrip benefit all the state's residents, notjustthose in Eastern Montana. This section presents a number ofconcrete examples ofthe statewide benefits.

• State government receives approximately $68.3 million in tax and royaltyreceipts directly orindirectly associated with Colstrip, representing about 4.5 percent ofMontana Department ofRevenue collections in 2008. Othertaxpayers would havehad to pay more or government expenditures reduced ifit 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 itselfpays about $26.3 million in property taxes on pollution control and electric generation equipment. Approximately $8.1 million ofthis total is intended for school equalization and would be distributed statewide.

29• Much ofthe electricity generated at Colstrip is delivered to out-of-state customers via transmission lines. These lines payproperty 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 PropertyTaxes 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 ofthis total is paid to the state andbenefit all Montanans. For example, a significant amount ofthe 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.



### 307. Summary and Conclusions
Theresearch question posed by this study is "what would the economy ofMontana 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 ofthe plant to the state economy are poorly understood orperhaps taken for granted, it deserves to be carefully analyzed and answered. Using a state-of-the-artpolicy analysis model ofthe Montana economy that has been peerreviewed and used in dozens ofother studies, we have carefully examined the contribution made to both the economy ofeastern Montana as well as to the state economy as a whole by the continuing operations ofthe 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 ifthe operations ofColstrip were not present, we find that

• 3,740jobs, including 2,688 private sectorjobs, • more than $360 million ofpersonal 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 ofColstrip 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 partoftheir money in the local and state economy, many other jobs are supported. Second, a huge expenditure ofthe 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 ofColstrip operations. Finally, the product made by Colstrip

- electricity delivered to Montana and other states
- does not displace orcrowd out other Montana producers. Thus it's activities add to, ratherthan supplant orreplace, other activities inthe economy. The uses and demand for electricity continue to grow, and the continued operation ofplants such as Colstrip is part ofmeeting that need.



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