10/7/2002

KUFM / KGPR

T. M. Power

 

Buying Back Montana’s Hydroelectric Dams?

 

            The out-of-state owners of the Montana’s hydroelectric dams have taken to the airwaves, spending hundreds of thousands of dollars to convince Montanans that all hell will break loose if the citizens of Montana were to take back control of those energy facilities.  According to their ads, taxes will rise, electricity prices will go up, local governments will be bankrupted, and property rights will be violated. Apparently this is a communist plot to put radical socialists in power in Montana.

            For those of us who live in Montana, this all seems a little far-fetched. We are a pretty cautious and pragmatic people who do not spend much political energy pursuing radical ideas.   But the Pennsylvania and Washington corporations, who are almost entirely funding this hysterical ad campaign, don’t seem to know any better. They are too far away from us and have dramatically different interests, primarily focused on California and west coast energy markets.

The fact that they are willing to spend well over a million dollars to block a citizen’s initiative that assures them of fair market value for the dams, as objectively determined by the courts, suggests that they are currently receiving far more than fair market value from their out-of-state ownership of these Montana river facilities. Otherwise, why would they object?

To any businessperson the proposed initiative to buy these hydroelectric dams at fair market value would seem to be a wash for both the current owners and the citizens of Montana. Neither would loose nor gain.  If, as the law requires, an accurate estimate of the market value of the hydroelectric dams is the basis for the transfer of the dams from these out-of-state owners to the citizens of the state, then the current corporate owners would lose nothing. Of course, the citizens of the state would not gain anything either. To finance the purchase they would have to pay rates reflecting the market value of electricity. If they did not buy the dams, citizens would have to pay that same market value to get their electricity from other sources. So the purchase would appear to be a draw for all concerned. But the vehemence of the opposition to the initiative and the enthusiasm for it from consumer and environmental groups suggests something is missing from that conventional analysis.

One thing that is missing is that these out-of-state corporations’ aggressive pursuit of their own financial interests using whatever political muscle they could mobilize may have put them at a serious disadvantage in the battle over the value of those hydroelectric dams.  The private owners of these dams have regularly disputed the assessed value of the dams on which their property taxes were based. They have argued that the assessed value as estimated by the Montana Department of Revenue was way too high. The have demanded that it be lowered.

The problem that they now face is that state law requires that the Montana Department of Revenue accurately estimate the full market value of these dams.  It has done that and the out-of-state owners are disputing it, arguing that it should be much lower.  That means that the dams’ current owners believe that the Montana Department of Revenue’s estimate of the market value is too high. If that is the case, assumedly, they would be happy to receive that value in return for the citizens’ purchasing the dams. According to their own protests, they would be getting a bonus in excess of the market value if those assessed values were the basis of the purchase price.

The Department of Revenue’s estimate of the value of these hydroelectric dams is $417 million dollars. Either that is correct or the out-of-state owners have been lying in their efforts to reduce this assessed value and have not been fully paying their property taxes for many years.

If, following the current owners of the dams, we accept this assessed value as an upper limit of what the dams are worth, we can proceed to estimate what electric prices Montanans would have to pay to fund the purchase of these electric generating dams. Of course we have to add in the costs of operating the dams, the payments in lieu of taxes to local governments, the cost of studying the purchase, the cost of administrating the operation of the dams, etc. But when all of those costs are included, the electricity from the dams will cost Montanan’s 1.3 cents per kilowatt-hour. Even if Montanans have to pay the full amount that the initiative authorizes for the purchase of the dams, $500 million, the cost of the electricity would still only be 1.7 cent per kilowatt-hour.  And the initiative does not allow a dollar more than that to be spent on the purchase of the dams.

How does this cost compare with the electricity prices we would otherwise face? Well, Northwestern Energy Company, the successor to the Montana Power Company, is currently signing contracts to supply us with electricity. It recently agreed to purchase power for 4 cents per kilowatt-hour. That is three times the cost based on the Department of Revenues estimate of what would have to be paid to purchase the dams and 2.5 times the cost based on the maximum that the initiative would allow the state to pay for the dams. The electricity from the re-purchased dams would either be incredibly cheap or the dams would not be purchased. Clearly this is a “cannot lose” proposition since the initiative prohibits the state from paying more than half what otherwise would be paid to purchase electricity for the citizens of the state.

In addition, once the dams were purchased, the price of electricity from the dams would be fixed, tied to the cost of paying off the purchase price and operating the dams. When, in the future, California’s energy markets go bonkers again, Montana’s energy prices will not be driven through the roof because we have to compete with 35 million Californians who are desperately trying to keep their hot tubs operating while also running their air conditioners.

 Owning these hydroelectric dams and selling the output to ourselves at the cost of production rather than for whatever the market will bear will protect us from the types of electric price spikes that shut most of our industrial economy down the summer before last. That is a real bonus.  But it is dreams of those sorts of electric market price spikes and the hundreds of millions of dollars that can be made at the expense of the people of the state and region that have the current out-of-state owners of the dams drooling and willing to spend big bucks to block the citizens of Montana from protecting themselves and taking back control of those dams.

The only question is whether we will be foolish enough to listen to them.