March 6, 2006

KUFM / KGPR

T. M. Power

A Montana State Energy Policy?

Governor Schweitzer’s high profile advocacy of a coal-based syn-fuel industry in Montana is often presented as part of an aggressive Montana energy strategy aimed at protecting Montana from the disruptive impacts of high energy prices on the state’s households and businesses. But on closer inspection, it is clear that the Governor’s colorful energy day-dreaming is nothing of the sort.

Governor Schweitzer sees economic opportunity in the currently high petroleum and natural gas prices. Montana sits on huge reserves of coal. That coal could be processed to produce liquid fuels like diesel or gasoline or synthetic natural gas. Montana could also burn its coal to generate electricity to feed regional and national markets. Montana might become a coal-based “Saudi Arabia,” producing relatively inexpensive energy.

However, even if Montana were successful in such an ambitious coal development strategy, it is unlikely that it would bring lower energy prices to Montanans. Such commercial coal development projects would be aimed at making a profit by feeding national and international demands for energy. The energy produced in Montana would be sold on the market to the highest bidder. Montanans could gain access to that energy only by paying at least as much as others were willing to pay.

We already know that. The petroleum refineries in the state do not sell their gasoline to Montanans at a special low price. They expect residents in Helena or Missoula to pay as much as the residents of Spokane or Boise. The oil and gas fields in Montana do not sell their fossil fuels to Montanans at a discounted price; they ask Montanans to pay as much as others in North America are willing to pay. The hydroelectric plants owned by PPL Montana do not sell the output of those low cost sources of electricity at cost-based prices to Montanans. We have to bid against the residents of California or Washington for that electricity. Of course, there may be transportation cost advantages that allow us to gain access to these energy resources at a slightly cheaper price, but in general we face energy prices similar to those faced by other Americans. The mere presence of energy producing facilities within the state, even low cost facilities, does not translate into lower energy prices for Montanans. Energy markets simply do not work that way.

It is also true, of course, that Montana is not the only state in the West that has coal resources. Wyoming has huge coal resources as does North Dakota, Utah, Colorado, New Mexico, and Texas. East of the Mississippi Illinois, Indiana, Kentucky, Ohio, West Virginia, and Pennsylvania also have huge coal reserves. Over half the states in the Union have coal reserves. So whatever we do with our coal involves competing with other coal producing states. That is one of the Montana coal industry’s bitter complaints: Montana, typically, have lost in the competition with our neighbor Wyoming to gain access to regional and national markets, largely due to Montana’s transportation cost disadvantages in reaching the fastest growing states.

So having coal or producing coal-based resources does not assure Montanans of low cost energy supplies. National and international energy markets will continue to determine the energy prices we pay.

This result could be partially avoided if state or local government agencies arranged to have coal-based facilities built under contractual terms that required the energy produced to be sold to Montana customers at cost-based rather than market-based prices. To arrange that, however, the public would have to be willing to take on the normal business risks associated with the large investments that would be necessary. If the plants did not work as planned or there were cost-overruns, we would have to cover those losses. Similarly, if we chose a technology that produced energy at a cost higher than the regional or national market price, we would have to forego buying the cheaper energy. If concern about global warming, acid rain, mercury poisoning, or smog led to much more strict emission restrictions on coal-fired facilities, it would be the public that would have to fund the reduced emissions.

The point is that coal is a relatively “cheap” fuel only if the environmental damage associated with this dirtiest of the fossil fuels is ignored: Those include climate-changing carbon emissions, sulfur and mercury pollution, mountain-top removal techniques in Appalachia and strip mine damages everywhere, disrupted ground water and water pollution, etc.

What then should a real energy plan aimed at improving Montanan’s well being contain? First, since Montana residents will not get cheap energy from fossil fuel development in Montana, a Montana energy plan should focus on making sure that as we pay high, market-determined energy prices, we do not also have to suffer from health-damaging pollution and a ravaged landscape as the coal is stripped away and burned. Second, some effort has to go into undoing the damage done as a result of the restructuring of the electric and natural gas utilities that exposed most Montanans to volatile regional and national energy markets. Finally, the only protection we ultimately have against volatile energy prices is to improve the efficiency with which our homes, vehicles, and businesses use energy. Until our public policy focuses on that rather than on the greedy insanity of the addict trying to get yet another fix at any cost by destroying yet another part of Montana, we really have no public energy policy in this state.