2/2/98

KUFM / KGPR

T. M. Power

Rethinking Electric Utility Restructuring

A group of Montana legislators are calling for a one day special meeting of the legislature to reconsider the electric utility restructuring bill the legislature passed last spring. The primary impetus behind this call for reconsideration is Montana Power’s announcement that it will sell all of its generating facilities in the state, everything from its many hydroelectric facilities to its Colstrip plants. The idea that ownership of this part of Montana’s small industrial core and control of these river sites would pass into out-of-state ownership is worrisome to many Montanans. Part of the fear is that Montanans will continue to have to experience the environmental damage done by these electric facilities while no longer having access to any of the benefits in the form of low-priced electricity. Others fear the loss of jobs and tax base. Finally, there is the bothersome question of why any of this is being done given that Montana already has some of the lowest electric prices in the nation. Many are convinced that the net result will only be that our electric prices will rise as our cheap power flows to California and is replaced by the more expensive power California used to be stuck with.

The truth is that we do not know what the outcome of this bold experiment will be. Our legislature, led by the Montana Power Company and its largest industrial customers, has launched us off on an adventure based on the ideological promise that vigorous competition will certainly emerge and that whatever competition emerges will be better than continued regulation by the Montana Public Service Commission.

The adventuristic nature of this legislation is made clear by the refusal of the other states in the Pacific Northwest , the Rocky Mountains, and the Great Plains to follow suit. Montana is joining California and some New England state in its charge into the brave new world of electric competition. The strange thing about that is that those other states have very high electric rates, the highest in the nation. Those other states were desperate to find a way out of the past planning errors their utilities had burdened their economies with. No similar justification could be provided for Montana’s actions. That is why our neighboring states are not following suit.

The cautious nature of the approach to electric utility restructuring being taken by the other Pacific Northwest states provides a better standard for Montana than California’s desperate experiment. This may provide the best reason for Montana’s legislature to reconsider what it has done and postpone the effective date of the shift from regulation to competition until after the next meeting of the legislature.

This does not mean that all restructuring of the electric utility business would be put on hold. It would not. The Federal Energy Regulatory Commission is already implementing wholesale competition in the generation and supply of electricity. That has already driven electric prices in the region to record lows and led to an effective expansion in the size of the electric supply available. That is one of the reasons that no new electric generation has had to be constructed despite the ongoing economic growth in the region.

The approach being taken in other states has been to first assure that all of the benefits for customers are wrung from wholesale competition. This has included finding ways of providing access for large industrial and commercial customers, who are more like wholesale customers anyway, to those competitive electric supplies. This has to be done carefully so that those large customers do not dump all responsibility for the utilities’ past planning errors and other transition costs onto smaller business and residential customers. But it can be done. We have been doing it on the natural gas side for half a decade.

The federally mandated shift to wholesale competition will also solve one of the most serious flaws in the earlier approach to regulating electric utilities: The socialization of the risk associated with the building of large coal and nuclear generating facilities. By shifting these risks to customers, utility owners could largely forget about cost and reliability. The results were the costly electric white elephants that litter the American landscape and environment. By making electric generation competitive, these risks will shift back to the private investors and better investment decisions, both for the customer and for the environment, are likely to be made.

To obtain the benefits of competition, Montanans do not have to volunteer to be the guinea pigs of the nation. We are not desperately burdened by high cost electricity that would justify such a radical experiment. We can afford, like the rest of the region, to make modest accommodations to implement wholesale competition while sitting back and learning from the experiences of states that in fact are more desperate or more stupid. There is no reason for us to be putting our residents, our communities, and our tax base at risk solely on the basis of wishful thinking and ideological bias. We have little to lose and much to gain by taking a breath, pausing, and then stepping back from this unnecessary economic adventure. A special session of the legislature should put the process on hold while Montana gets a better sense of its bearings in regional and national electric restructuring.