Making Electricity Supply Matters Worse in Montana

Eight years ago the Montana Legislature, inebriated on a toxic brew of political ideology and corporate self-interest, turned its back on a century-old commitment to protect utility customers and authorized the deregulation of electric and gas utilities in the state.

The resulting fiasco put Montana on the map. First, the Montana Power Company sold all of its electric generating equipment to a single, non-regulated, out-of-state, company effectively replacing a regulated monopoly with a non-regulated monopoly that could exploit electricity customers at will. Then, in short order the state suffered through two utility bankruptcies and faced skyrocketing electric and gas prices. For a while, those higher energy costs single handedly shut down the entire industrial base of the state. A vicious terrorist attack on the Montana economy could not have done more damage.

Since that disastrous fiasco, Montana has been trying to piece together a set of institutions to protect the energy infrastructure of the state and stabilize utility rates. Some progress has been made. NorthWestern Energy Corporation, having emerged from bankruptcy, has been piecing together a diverse long-term portfolio of electric resources that includes base-load coal-fired generation, flexible gas-fired generation, wind-electric resources, and investments in its customers’ efficient use of electricity. To support that diverse, stably priced, set of resources, however, NorthWestern needs a reliable base of customers. If customers are constantly coming and going, the utility has to rely on short-term resources that can be quickly adjusted up or down, resources that cost more.

The current Montana legislature, rather than supporting this rebuilding of the utility institutions badly damaged in the past by deregulation and fragmentation, is poised to attack again rational utility structure, planning, and regulation in the pursuit of special interests.

Supporters of a 250-mw coal-fired generating plant proposed for the Great Falls area are searching for a customer base. A group of southern Montana electric cooperatives provide one group of customers, but the proposed plant is too big for their customers alone, which has made it impossible for the developers to get the financial backing they need. If plant supporters could get a large group of NorthWestern energy customers to jump ship and buy power from their plant, the plant could be built. The group of customers they have in mind are the residents of Great Falls.

To arrange this realignment of customers so that the power plant supporters can proceed with their pet project, however, the legislature has to authorize three things:

First, it is necessary to raid the current customer base of NorthWestern Energy.

Second, it must relieve the new utility that would serve Great Falls customers of the obligation to engage in rational electric planning that aims at minimizing the long run costs of electricity;

Third, it must eliminate the protection that those customers get from the Montana Public Service Commission and the Montana Consumer Council.

To facilitate their power plant construction dreams, the supporters have proposed two pieces of legislation. The first, House Bill 685, would strip electricity suppliers from the obligation to minimize the long-term costs of electricity. Instead, electricity suppliers could focus on short-term costs. No longer would electric suppliers be required to put together a diverse portfolio of resources that would reduce electricity price volatility such as the region saw in the 2000-2001 period. Nor would electric suppliers be required to consider the regulatory risks associated with investing in environmentally damaging resources. In short, electric suppliers would no longer be asked to consider the risks to their customers of putting all of their eggs in one basket. That is not surprising, since the promoters of this particular power plant that needs special legislation to be built want the City of Great Falls to make their citizens entirely reliant on a single power plant, something no energy planner would recommend. A single mechanical failure would leave the entire population of Great Falls and its economy at the mercy of emergency power purchases at whatever price the market might demand at the time.

The second piece of legislation required to support this one power plant is House Bill 642 that seeks to authorize a single city, Great Falls, to take over supplying electricity to its citizens. This is being presented as a progressive public power proposal. Its actual impact, however, will be quite the opposite. It will begin the fracturing of electric supply into smaller and smaller pieces in Montana. We will still face one gigantic, unregulated, supplier, PPL-Montana, that owns all of the old Montana Power electric generation. But, instead of having a unified purchaser that could partially counter that market power and negotiate lower prices, we will disintegrate into a host of small customer groups, none of which have any negotiating strength and none of which can afford to purchase a diversified portfolio. We will increase our dependence on one powerful company and lose our ability to maintain a reliable, resilient, environmentally benign, and stably-price supply portfolio.

These pieces of legislation are backsliding at its worse. It was a Republican legislature whose privatization ideology in the late 1990s led us into utility bankruptcy and higher utility prices. Now it appears to be some of the same suspects as well as some Democrats fantasizing about public power who are being used by power plant developers to undermine the slow recovery of rational electric supply planning and regulation in Montana. Don’t we ever learn?!