3/20/2006

KUFM / KGPR

T. M. Power

Montana Utility Chaos Accelerates: Bringing Our Utility Back Home

The chaos spawned by utility deregulation back in the late 1990s continues. That utility “restructuring” led the old Montana Power Company to sell off its very cheap hydroelectric resources as well as its relatively inexpensive coal-fired resources to an unregulated Pennsylvania company. Having gained control over the bulk of the electric generating resources on which we in Western Montana rely, PPL has been able to exploit that dependence, generating substantial profits in the process.

The utility that bought the wires and pipes of the old Montana Power Company, NorthWestern Energy, has no generating facilities and so has to go into a highly volatile and usually high-cost market to purchase the electricity that we used to get so cheaply from our dams. Each year NorthWestern has to purchase hundreds of millions of dollars of energy for our use, but it does this as a non-profit public service that is not part of its core business. The executives in Sioux Falls, South Dakota, are not thrilled at having to take this risk.

NorthWestern Energy itself is owned by a temporary group of stockholders who bought up the utility’s debt at pennies on the dollar when NorthWestern plunged into bankruptcy several years ago. Those temporary stockholders want to sell their stock in Northwestern Energy and go looking for some other bankrupt company whose misery they can profitably exploit.

The result is a growing line of suitors who would like to take over the NorthWestern Energy assets in Montana. The most recent two are very large companies with sprawling utility holdings across the nation. Omaha billionaire Warren Buffet’s investment firm already owns a large Iowa utility and has just finished buying PacifiCorp headquartered in Portland and serving customers in six states. Buffet now appears to be looking over NorthWestern Energy. A large Midwestern utility, Xcel, with customers in ten states is also sniffing around. It already owns utilities in Minnesota, Wisconsin, Colorado, Texas, New Mexico and Oklahoma.

On a much more modest scale, Black Hills Corporation in western South Dakota has already made a bid to take over NorthWestern through a merger.

Then there is the Montana cities’ bid to purchase NorthWestern Energy through a non-profit corporation. Even though the cities’ bid has been rejected, they have continued to work on the details of their bid and are trying to pressure the stockholders to sell to them over the objections of NorthWestern’s management.

At this point, Montana utility customers face no good options. The current utility, NorthWestern Energy, is distant, hesitant, a recovering bankrupt, and ambivalent about the electricity supply function that the legislature imposed on NorthWestern, a function that it never wanted. NorthWestern stumbles from one crisis to another with no apparent direction.

The large national holding companies that are sniffing around could well involve even more distant management. Montana would be a tiny cog in their sprawling national operations. They are simply looking for good investments with reliable cash flows and would care little about Montana or Montanans.

The cities’ are emphatic about reestablishing a Montana-centered utility that has no other business interests except its utility customers here in Montana. It promises to bring the utility and its management back to Butte. But there the cities’ vision begins to fade. Although the cities trumpet the idea of “Public Power,” they have proposed a private non-profit organization with little or no accountability to the public. It is possible that it could represent the worst of both private and public worlds: a private, largely unregulated, monopolist with little or no accountability or incentive to do a good job in a very risky business setting directed by an inexperienced group of amateurs.

Just when you might think things could not get much worse for electric and natural gas customers in Montana, the cascading series of unintended consequences triggered by deregulation almost a decade ago roars towards us again.

Rather than be passive victims, we need to take the initiative and try to craft a Montana solution that ends the utility chaos that bad public policy triggered back in the late 1990s. It may be that a significant overhauling of the cities proposal is the most attractive alternative we have. The key is to make the “public” in Montana Public Power Incorporated a reality by spelling out the details of how the new publicly-owned utility would be governed. That can only be done by engaging in a statewide dialogue that generates a proposal that assures public control and involvement. A board elected from geographic districts that supervises the new utility and serves the same function as the Public Service Commission is central. The equivalent of an independent customer advocate similar to the current Consumer Counsel is also necessary. The new utility’s planning process and major decisions have to be open to public participation and scrutiny. Electric generation has far too large an impact on the environment and the economy to be left to a small group meeting in private. This is especially important because the new utility should move to own a significant amount of the generating capacity needed to serve its customers’ needs. Only that will help to stabilize electric prices in the face of an increasingly volatile electric market.

The cities have been reluctant to talk about governance and public control. They want to buy NorthWestern first and work out the details of governance later. That is unacceptable and dangerous. Given that the status quo is unacceptable and that the jackals circling the corpse of the old Montana Power Company look worse in many ways, it is time for citizens to help turn the cities’ proposal into something better than the least worst of the alternatives available. Montana deserves better and should demand it.