4/22/02

KUFM/KGPR

T. M. Power

Substituting Cronyism for Public Regulation

The Montana Public Service Commission is in the process of trying to figure out where the electricity should come from to keep the lights on and businesses running come July 1^st. The search for new sources of supply is necessary because the Montana Power Company sold off the electric generators that used to serve us to a single out-of-state corporation and then proceeded to get out of the electric business itself. That left the South Dakota company, NorthWestern Energy, that took over our electrical system in bondage to an unregulated company who owned all of the electric supply and could extort from Montanans whatever money the market would allow. Quite a feat of perverse public policy.

But electricity we do need come July 1^st and it would be good to have multiple sources of supply in Montana so that no one electric supplier has us over the barrel. That was the logic behind the old Montana Power Company seeking proposals from developers for new electric generation in Montana. But the actual process of obtaining those new sources of supply quickly degenerated into old fashioned cronyism. Politically connected developers immediately started shopping around their proposals to political leaders, seeking political endorsements for what should have been purely economic and business decisions. The governor endorsed certain projects; Public Service Commissioners endorsed certain projects; lobbying was incredibly intense; developers listed political figures on their letterheads; the power company when summarizing the attractive aspects of projects, discussed the extent of the “political muscle” different project supporters had.

The final choices for new generation made by the old Montana Power Company reek of crony connections. One project that was chosen was proposed by politically connected Montana businessmen with no previous experience in the electric generation business who proposed using a technology, coal gasification, that is not the source of commercial power anywhere else in the nation. Why it was originally chosen is incomprehensible since after it was chosen it morphed into a conventional coal plant and the right to build the plant was sold to Montana-Dakota Utilities, the electric utility serving Eastern Montana. Another proposal that was accepted also came from a Montana businessman with no previous experience in electric generation but considerable experience with businesses that failed. His proposed major wind-electric project also had no firm financial backing. After that project was chosen, it too morphed into something quite different as the proposal and the contract to supply the electric system was sold to an out-of-state corporation that did have both experience and money. In both cases what Montana Power gave these politically connected folks was a plum that they could resell at a profit to someone who knew how to generate electricity. The third large project chosen by the Montana Power Company was one that its new parent company proposed. Strangely enough, after careful analysis, it found that buying electricity from itself was the most attractive offer it had come across. So it sold itself the right to provide electricity to its customers. Swift move.

This is free enterprise run amok. The Montana Public Service Commission should not even consider approving these new sources of supply. There is no need to hurry to build new Montana sources of supply. The electric utility already plans to continue buying considerable electricity from the new owner of its old generators, just as we have been doing for the last several years. In addition the utility is planning to go into the market for short-term sources of supply. That market current is selling electricity at relatively low prices. The utility can arrange for electricity for the next two years or so while it participates in a business-like and disciplined investigation of the best way to satisfy customers’ electric needs and encourage additional electric generation in Montana. The Montana Public Service Commission should lay down the rules, indicate the criteria it wants to be used as projects are evaluated, and emphatically state that passing economic plums around to politically connected folks or the utility’s own owners will not be tolerated. In addition it should make clear that investments in improving the efficiency with which we use electricity in Montana, otherwise known as conservation, should also be considered along side additional generation.

This is not a radical proposal. The state already has rules about how utilities are supposed to go about satisfying their electric customers’ demands. Both the Public Service Commission and the state legislature adopted Integrated Electric Resource Planning rules in the early 1990s. One of the unintended consequences of electric restructuring was that the old Montana Power Company was exempted from those rules when it sold its generating equipment. The recent emergence of cronyism dramatizes why the Public Service Commission has to re-impose those rules and get the utility back on a business-like, customer-oriented track.