OUR RELIABLE AND AFFORDABLE

ENERGY FUTURE

Achieving a cleaner energy future that is also reliable and affordableNorthWestern Energy’s plan to achieve a bright energy future for Montana includes two critical objectives:

1. Securing more reliable energy for Montana 24 hours a day, 7 days a week On Dec. 9, 2019, NorthWestern executed a purchase and sale agreement for the acquisition of Puget Sound Energy’s 25% ownership interests in Colstrip Unit 4.

2. Reducing Carbon Emissions In addition, NorthWestern Energy is committing to reduce the carbon intensity of our energy generation in Montana by 90% by 2045, from a 2010 baseline. Over the last decade, we have already reduced the carbon intensity of our energy generation in Montana by more than 50%. In the last five years alone, we have invested more than $1 billion in clean energy projects, including hydro, wind and solar facilities.

Addressing Montana’s growing energy crisisMontana faces a growing crisis due to the closure of Colstrip Units 1 and 2, as well as pending closures of regional coal plants. Montana and the region are quickly reaching a point where there may not be enough energy during critical peak-demand times. The Northwest Power and Conservation Council predicts the region may experience capacity shortages during peak demand times as early as 2021. Consumers need energy they can count on 24/7, 365 days a year.

Details on the Colstrip acquisition• Generating Capacity: 185 megawatts

(bringing our total ownership to 407 megawatts, or 55% of Colstrip Unit 4)

• Purchase Price: $1.00

• Details: NorthWestern proposes zero net effect on customer bills while setting aside the benefits from the transaction – estimated to be $5 million annually – to address environmental remediation and decommissioning costs associated with NorthWestern Energy’s existing ownership. Puget Sound Energy will remain responsible for its current pro rata ownership share of environmental and pension liabilities attributed to events or conditions existing prior to closing of the transaction and for any demolition, reclamation, or remediation costs associated with the existing facilities that comprise Colstrip Unit 4.

• Puget Sound Energy will enter a Power Purchase Agreement (PPA) with NorthWestern Energy to purchase 90 megawatts of power for approximately 5 years.

• Net proceeds from the PPA will be placed in a fund and applied against future decommissioning and remediation costs related to the existing 30%, or 222 megawatts, ownership in Colstrip Unit 4.

• PPA includes a price floor that reflects the recovery of all fixed and variable PPA power costs.

• The transaction is conditioned upon pre-approval by the Montana Public Service Commission.

• If the sale is approved, NorthWestern Energy will own 55% of Colstrip Unit 4 and will have greater influence over its operations. This is an important step in allowing Montana to have a voice in the eventual operating life of Colstrip Unit 4.

“Nothing is more important to

the people of NorthWestern than safely providing Montanans with the affordable and reliable energy we all need while also

protecting our environment,” said NorthWestern Energy President and CEO Bob Rowe. “We take that dual responsibility seriously, and right now

our state faces an urgent capacity shortage – energy that’s available

24 hours a day, 365 days a year, regardless of the

weather.”

A little history: Deregulation of

electricity supply in Montana in 1997, and the subsequent sale of Montana Power’s generation

fleet, left customers entirely exposed to the prices in the unregulated

power markets beyond Montana’s borders. NorthWestern Energy

has worked to address this vulnerability and made

great progress.

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NorthWestern Energy’s current resources provide about 755 megawatts of peaking capacity, which is the energy available during periods of our customers’ highest demand. An additional 645 megawatts of peaking capacity must currently be purchased from the market to meet our needs. Without new capacity, the market exposure will increase to about 725 megawatts by 2025 (including reserve margins). This need assumes continued development of cost-effective demand-side management (conservation) and small distributed generators (net-metering). Meeting peak load with market purchases means being exposed to the market at the worst possible time – when the market is most volatile and prices are high.

It’s a situation that is unique to NorthWestern Energy.

Colstrip Transmission System The Colstrip Transmission System (CTS) is an important transmission line tying together the eastern and western parts of Montana. It was originally built to move power from Colstrip to the West Coast, but today it ties together the Montana grid and is critical for moving power from other generation sources including regional wind farms.

In a separate transaction, NorthWestern Energy will acquire a piece of Puget Sound Energy’s interest in the 500 kilovolt Colstrip Transmission System with 95 megawatt capacity for net book value at the time of the sale. The cost is estimated between $2.50 million – $3.75 million. After the roughly five-year PPA with Puget Sound Energy ends, NorthWestern Energy will have the option to acquire another interest in the 500 kilovolt Colstrip Transmission System with 90 megawatt capacity for net book value at that time.

The Colstrip Transmission System is the backbone of the energy grid in Montana. NorthWestern Energy operates the Colstrip Transmission System and currently owns 30.8% of the CTS. The CTS is essential infrastructure to serve NorthWestern’s customers. Large industrial customers and the rural electric cooperatives rely on the Colstrip Transmission System to meet their energy transmission needs. This will become more important as Colstrip Units 1 and 2 close in the coming months. The CTS is also important for renewable energy developers who wish to reach out-of-state markets to the west.

The acquisition of the additional interests in the Colstrip Transmission System from Puget Sound Energy is contingent on approval of the sale of 25% of Colstrip Unit 4 to NorthWestern Energy.

Acquiring an additional share of Colstrip Unit 4 and the additional interests in the Colstrip Transmission System are important steps toward ensuring that when NorthWestern Energy’s Montana consumers need electricity, it is available at a stable cost without the extreme spikes in the price of energy bought on the market during high-demand times. Montana is prone to severe weather of long duration, and Colstrip Unit 4 will enable NorthWestern Energy immediately to increase energy production when demand peaks, even if that is in the middle of the night or below-freezing blizzard conditions.

Our capacity deficit

exposes our customers to greater

market exposure (price and availability) than any of our regional

peers.

NORTHWESTERN E

NERGY

More reliable and affordable than any other energy source Even with projected operating and maintenance costs factored in, purchasing more of Colstrip Unit 4 for only $1 is by far the most affordable way to help close the gap in our capacity shortage. No other option – buying additional energy from the market or building a plant that would generate this amount of energy over multiple days when it is needed the most – can achieve the same results.

As a point of comparison, building a natural gas plant that provides the equivalent capacity would cost approximately $240 million. A wind-plus-battery-storage combination could cost several billion dollars and still not provide equivalent capacity. Solar by itself is not currently a viable option in Montana in the winter to address this type of sustained peak capacity need.

No energy source, including Colstrip Unit 4, operates 365 days a year without interruption. A large part of that is due to regular maintenance, which happens at every energy plant. This maintenance is vital to keeping Unit 4 operating, but it also means that there will be short periods when the unit is not producing electricity. The difference between Colstrip Unit 4 and truly intermittent energy sources is that NorthWestern Energy can plan for these maintenance periods, scheduling them to occur when the weather is mild and there is generally less demand for electricity.

Using a diverse portfolio of energy resources allows us to balance the generation output of wind and solar with our reliable and resilient energy sources: hydro, coal and natural gas. Coal and natural gas are important energy sources because they can start up quickly in response to an increase in customer demand or a decrease in other resources. Colstrip Unit 4 has an availability factor of about 87% for the past 5 years and is generally more than 90% in non-overhaul years. This means it is available 87% of the time when called upon. Intermittent resources can never be called upon to run – they only run when weather conditions cause them to run. Our wind resources in Montana run at approximately 40% of their capacity due to intermittent wind production. Our run-of-the-river hydroelectric system is always producing, and its performance can be anticipated because we are always monitoring water levels and know the icing effects. This is significant because other clean energy resources are not always available if the wind stops blowing and the sun isn’t shining.

The best choice. No other option – buying additional energy off the open market or building the same volume of additional 24/7 energy – can provide this additional capacity as quickly, reliably or cost-effectively.

Securing an adequate coal supply In December 2019, NorthWestern entered into a six-year coal supply agreement with Westmoreland Rosebud Mining for the Colstrip Plant. Rosebud Mine is a 25,000-acre surface mine complex located in the northern Powder River Basin adjacent to the Colstrip Plant. The new coal supply agreement is to begin Jan. 1, 2020 and will replace a coal supply contract in place now that expires on Dec. 31, 2019. This new coal supply agreement will allow Colstrip to continue to provide safe, reliable and affordable energy to meet critical peak demand for NorthWestern Energy’s Montana customers.

We are committed to working with our customers, communities and the state of Montana to develop an energy future that is affordable, reliable, environmentally responsible and capable of meeting the needs of all our customers.

Join the conversation

If NorthWestern Energy would have

had the additional 95 megawatts of power from

Colstrip Unit 4 in our portfolio last winter, this would have saved our customers about $4 million over

just 4 days during a particular cold blast Montana experienced

last March, and more than $8 million at the full 185

megawatts.

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