May 1, 2006

KUFM / KGPR

T. M. Power

Making the Most Out of Montana’s Utility Chaos

The cascade of unintended consequence triggered by the legislature’s thoughtless deregulation of the old Montana Power Company nine years ago continues. In a fitting ninth anniversary celebration of that triumph of mindless market ideology, the remnants of the Montana Power Company were sold yet again, this time to an Australian investment firm that no one had ever heard of.

That should sound familiar. A little over five years ago Montana Power’s energy delivery system of pipes and wires was sold to another firm that no one had ever heard of: NorthWestern Corporation of Sioux Falls, South Dakota. That company turned out to be a house of cards consisting of an incoherent mix of heating and air conditioning operations, telecommunications, propane distribution, and a tiny bit of an electric utility. Within three years it collapsed into bankruptcy. Specialized speculators who make their money picking at the bones of bankrupt companies took control of NorthWestern for pennies on the dollar. The only viable business component in the bankrupt NorthWestern conglomerate was the old Montana Power Company. It was that which emerged from bankruptcy. But the new owners wanted their money out quickly so that they could chase after some new fresh kill. Hence the recent sale of NorthWestern Energy to Babcock and Brown, Australia’s second-largest investment bank.

Many will be disappointed that Babcock and Brown outbid the coalition of Montana cities that had submitted a bid for the utility under the name of Montana Public Power Incorporated. They promised to bring the management of the electric and natural gas utility “back home” to Montana, something all of us certainly could support after five years of dysfunctional meddling from South Dakota that has paralyzed utility decision-making. But the cities plan, if there was one, was a very secretive one. Some of the cities wanted to dismantle the electric and natural gas utility and run it like they do municipal sewers, water, or garbage collection. They also had no apparent interest in effective regulation or democratic control. What they really were offering us was just another pig-in-a-poke, something that was hard to get enthusiastic about.

In any case, we will be trading Sioux Falls, South Dakota for Sidney, Australia, as the location of our task master.

Enough is enough! It is time for Montana regulators and state government to put their foot down and begin crafting a long-term solution to the utility mess we have inherited.

To begin with, the state regulators who have to approve this deal must make crystal clear to Babcock and Brown that this sale will not be approved unless the Montana electric and natural gas utility is spun off as an independent Montana-based business with corporate leadership here in the state. The leadership in Sioux Falls should be fired or put to work selling propane door-to-door in Nebraska where they can do minimal additional harm. A Montana-based business focused exclusively on electric and natural gas supply and distribution within Montana is the only acceptable business structure.

Second, Montana’s utility deregulation statute has to be repealed. It has been amended year after year to replace ideological wishful thinking with a patchwork of band aids that have haphazardly re-regulated the utility. The whole mess should be thrown out. The utility should be authorized to own some of its own electric generation and natural gas supply just as the old Montana Power Company did. That is one of the ways to partially stabilized electric and natural gas prices.

Third, something more business-like has to replace the de-regulation-era “default supply” obligation the utility has. The utility has to purchase nearly a half-billion dollars a year of electricity and natural gas for customers, but it does not earn a dime on that costly and risky business. Under the existing “temporary” “default” supply arrangement, the utility engages in these energy supply activities as a not-for-profit public service. The utility earns its profit entirely on its pipes and wires delivery system, not on the energy supplies it purchased for delivery to us over that system. This is an irresponsible arrangement for all concerned. That energy supply is not a core part of the utility’s business and, therefore, is grossly under-staffed and under-managed. Regulators, after the fact, can sit in judgment second guessing the utility’s decisions, but do not have to get involved in the decision-making or, even, in providing guidance to the utility. Utility energy supply is a half-billion dollar mess.

In some ways, the Babcock and Brown bid from far away Australia could be a blessing in disguise. If a regional utility like PacifiCorp, MDU, Avista, or Idaho Power had purchased NorthWestern, corporate control would have been even more firmly rooted in a distant corporate headquarters, since a regional utility would have sought to integrate the Montana utility property into its larger system. Instead the new owner is a distant investment group without any regional properties into which to merge our utility and that claims to have a record of allowing local management of its companies’ operations. This could provide the perfect opportunity for Montana regulators to craft what we need: an independent Montana utility operation. Having new owners who have also shown that they are willing to make substantial investments in renewable resources, such as wind, may also suggest a commitment to something other than business-as-usual and more-of-the same. As Montana and world cope with global warming, that is likely to be a good thing too.

But it will take firm leadership and tenacious bargaining to pull such a silver lining from this latest of the dark clouds to drift across the Montana utility business.