August 8, 2005

KUFM / KGPR

T. M. Power

Further Disrupting or Repairing Montana’s Crippled Public Utility

Montana’s largest electric and natural gas utility, the old Montana Power Company, now NorthWestern Energy, has been through a series of disruptive and costly changes. It started with the utility deregulation bill in the mid-1990s that was going to bring us unlimited cheap electricity and natural gas. Crafted in backrooms by a handful of people and passed quickly with little critical review at the end of a legislative session, it was supposed to allow utility customers to pick and choose among a myriad of competing energy suppliers who never showed up.

That ill-considered government decision triggered a series of disastrous changes: Montana Power sold its unusually low-cost generation to a Pennsylvania utility and Montanans were left to pay whatever the regional energy market demanded. Then Montana Power sold its pipes and wires to a fly-by-night South Dakota firm, NorthWestern Energy. Montana Power proceeded to change its name to Touch America and triumphantly entered the telecommunications business. Within a year it was in bankruptcy and soon NorthWestern Energy was too.

This is more than just a comedy of errors that resulted from greedy corporations going for broke in the pursuit of big bucks. It is the playing out of the law of unintended consequences following from public policy decisions that were made without careful public deliberation after all of the difficult questions had been asked and answered.

Now there is a proposal to change the old Montana Power Company once again. Montana’s largest cities are proposing to borrow the money to buy Northwestern Energy and operate it as a publicly-owned electric and natural gas utility.

There are serious problems with the current NorthWestern Energy operation. Foremost is that it is controlled from Sioux Falls. Although the pipes and wires side of the utility appears to be adequately staffed, the planning and energy supply side of the utility is woefully understaffed and regularly overruled from Sioux Falls. The result is a random stumbling from one problem or crisis to another amidst contradictory and confusing signals.

The cities seek to solve that out-state ownership problem by purchasing the utility themselves. But it is unclear where control of the new utility would actually rest. The cities propose having a private non-profit corporation own the utility. Because it would be a private corporation running the utility, the Montana Public Service Commission would retain jurisdiction over the new utility. However, it is hard to figure out just how this regulation could work. The most powerful weapon the Montana Public Service Commission has to get a utility to pay attention to its guidance and orders is to refuse to raise rates to cover questionable utility costs. But that weapon cannot be used against a non-profit corporation with no assets and no stockholders to absorb the loss. All of the new utility’s costs have to be included in rates or it will go bankrupt very quickly and may find it impossible to purchase electricity and natural gas for customers. It is not clear that public regulation of a publicly-owned utility makes much sense.

Control of the new utility is also unclear. The city and county governments would appoint public utility board members, but those board members would serve out specific terms. They would not report to the local governments. It is not clear that this actually represents public power since political control of the utility is not vested in the public. Instead the utility is insulated from public control in a setting where the Public Service Commission cannot easily exercise control either. It could be plausibly argued that this may be the worst of all possible worlds: A monopolistic utility insulated from both regulation and public control.

Before we endorse the particular and peculiar form of utility governance proposed by the cities, this time we should carefully consider the implications and all the alternatives. We should not again be rushed into endorsing something on the basis of bumper-sticker slogans like “customer choice” or “public power.” We need a broad public dialogue about the best system of governance for what is currently NorthWestern Energy.

We currently have a Public Service Commission elected from individual districts. Those Commissioners have to pay attention to their political bases and attempt to keep their constituents informed about the decisions they are making. If we are going to effectively lose that as we go to public ownership, we need to put something similar in place. One possible arrangement would be for the publicly-owned utility to be run by a board elected in a similar manner.

But governance goes beyond the controlling board. Arrangements have to be made to assure public involvement in the development of policy and all major decisions. Citizens have to be able to scrutinize rate increases and investments. The utility staff and board decisions cannot be insulated from critical citizen review. The new utility’s decisions should continue to be scrutinized by the Montana Consumer Counsel. The utility should continue to engage in a public planning process and continue to make use of citizen and public servant advisory committees. All of this should be assured by statute.

Public Power is attractive when it is truly public and democratic. When it is not, it is prone to decisions that are as dangerous and costly as those made by distant investor-owned utilities that are not well regulated. We should not forget the Washington Public Power Supply System, infamously abbreviated as “WPPSS,” and its costly nuclear fiascos of years past.