KUFM / KGPR
T. M. Power
Planning for the Montana’s Future Supply of Electricity
The original architects for Montana’s electric deregulation scheme believed that by now all of us, households, small businesses and large commercial concerns, would be coping with a flood of offers to sell us electricity at much lower prices than we had seen in the past. Unfortunately that is not what developed. Instead we are trying to cope with the fact that no one is offering to sells us cheap electricity and we are now dependent upon a few unregulated out-of-state corporations for our electric supply.
To deal with the fact that the world turned out to be the opposite of what we were promised, the legislature ordered the Montana Power Company to continue supplying electricity to small customers after next July 1st when all of us were supposed to be individually shopping for electricity. Unfortunately, Montana Power sold off all of its low cost hydroelectric and coal-fired generators to a Pennsylvania Company. So now Montana Power has to go shopping to get the electric supply it once owned.
Montana Power has been shopping around, trying to find an appropriate mix of electric supplies for the next five years. It has been negotiating with potential individual suppliers. When electric prices were at record highs, there appeared to be lots of potential suppliers here in Montana. A group of Western Montana entrepreneurs, for instance, wanted to gasify coal at an old sugar plant in Hardin and, among other things, generate electricity for Montana Power. Montana Power’s new owner, South Dakota-based North Western Company, also wants to build a set of gas-fired generators in Great Falls and sell the output to its subsidiary, MPC. Another South Dakota outfit, Black Hills Energy Capital, is proposing to build coal-fired generators just east of Broadview in eastern Montana. Other developers have proposed building coal-fired generators adjacent to the Bull Mountain coal mine near Roundup. Continental Energy Services, a company spun off of the Montana Power Company as it was breaking up, has proposed building gas-fired generation in the Butte area. Then there are proposals to build a large wind electric energy park on the Blackfoot Reservation. Of course, Pennsylvania Power and Light is also eager to continue selling us the electricity we used to get from the Montana Power facilities that were sold off.
That is quite a collection of possibilities just within Montana. Other out-of-state companies are also interested in serving part of the Montana load. Choosing the appropriate mix of supplies is not as easy as you might assume. Customers are not only interested in the price they will have to pay but are also worried about the stability of that price. A low price now that at any time could explode to ten or a hundred times larger may not look like a good deal. But a stable price may require paying a premium that shifts the risk of price fluctuations to others. Customers also care about the reliability of the supply. If the supply is tied to a particular large plant and that plant fails for any reason, we could be in trouble. Different electric generators will have different environmental impacts: air pollution, water use, greenhouse gases, noise and visual impacts, etc. Finally, additional electric supply is not the only or necessarily the best way to meet our electric needs. Instead of investing in costly new generators, we could be investing in improving the efficiency with which we use electricity, conserving on our use while meeting our needs and saving both money and the environment. Finally, should we be signing 20-year, long-term, contracts or should we limit ourselves to contracts that only run for a few years or should we simply rely on day-to-day purchases from the regional market? Or would some mix of these be appropriate?
It was this complex set of considerations when putting together a portfolio of purchases to meet our electric needs that led Montana Power to develop an “integrated resource planning” procedure in the early 1990s that involved various representatives of the public and government agencies. Later the legislature mandated such a public planning process for all generating electric utilities in the state. Unfortunately Montana Power is no longer an electric generating utility and is not required to engage in such a planning process. In fact, because Montana Power planned to get entirely out of the electric supply business and focus only on maintaining its pipes and wires, it got rid of its electric resource planners all together.
But now Montana Power is back in the electric supply business and it is working privately on its own, negotiating with various private parties, reaching secret agreements, and balancing all of these different considerations as it sees fit. It will then present a package to the Montana Public Service Commission. Only then, after Montana Power has made its own business decisions, will some of the public be able to investigate and evaluate those private decisions on which our economic well-being will depend. Meanwhile all manner of special interest groups are lobbying Montana Power and the Montana Public Service Commission, hoping to use political influence to see that their pet project gets special consideration.
This type of private decision-making, some of it involving affiliated companies, is what got the state and Montana Power embroiled in the Colstrip fiasco that almost bankrupted the Company during the 1980s. It is hard to believe that we are headed down that road again despite both that traumatic experience in the 1980s as well as the positive experience of a public integrated resource planning process in the 1990s. But we are.
As those private decisions are now developing, Montana Power is planning to buy significant electric supply from its parent company but spend no new money on improving efficiency and conserving electricity. Some of the proposed new supplies are being considered but others are being ignored. This set of outcomes is bound to generate considerable rancor when Montana Power presents its private business decisions to the Public Service Commission. Given that significant rate increases appear unavoidable, the anger associated with them will help heat up the brew towards the boiling point. Whether rational decisions that are good for Montana will come out of such a heated and adversarial process is very uncertain.
There is no reason to be headed down this old dangerous road again. We know how to do this better. Unfortunately, one of the many casualties of electric deregulation was that we turned away from the electric planning tools that would help protect both Montanans and the Montana Power Company. As a result, we may have to relive some unpleasant and costly Montana history.