1/6/97

KUFM/KGPR

T.M. Power

What Do We Owe Montana Power?

One of the more hotly contested issues in the current legislative session will be what existing Montana Power customers owe the utility in the way of financial support for the sources of electric supply that Montana Power has purchased over the years.

One can currently purchase electricity in regional markets for as little as a penny and a half, but Montana Power’s own generation costs twice that. Montana Power has also signed long term contracts to buy electricity from other generators at prices three or four times what one currently has to pay in the regional market for electricity. Finally, over the last decade, MPC has invested in improving the efficiency with which its customers use electricity assuming that the value of the electricity saved would be worth two to three times its current cost.

If, as Montana Power’s largest customers are now insisting, customers are allowed to walk away from these MPC supply commitments and choose a cheaper source of supply, Montana Power has estimated that it could suffer losses approaching a billion dollars, $842 million dollars to be exact. MPC insists that such a catastrophic loss would literally destroy the Company. It also insists that it would be totally unfair to allow customers to walk away from the commitments made in their names over the years.

Montana Power is therefore asking the Legislature to order all existing customers to continue to make payments in support of these past MPC financial commitments for as long as 20 years into the future even if they cease purchasing electricity from MPC next year. That proposal, of course, has large industrial customers and consumer groups howling: The idea of the legislature bailing out one of the largest companies in the state at the expense of all other economic actors just doesn’t sit well with lots of folks. But MPC insists that that is the price customers have to pay to escape from having to rely on MPC sources of supply in the future. To customers that is hardly a deal. If they have to pay these MPC costs in addition to the cost of the alternative supply to which they turn, on average, they are not going to see their overall electric costs decline. Checkmate! Catch-22 !

Montana Power would appear to be on firm ground in demanding legal support in paying off the largest portion of its financial commitments, the contracts it has signed with independent power producers. Federal and state law and the Montana Public Service Commission forced MPC to sign these contracts in an attempt to break the monopoly hold of electric utilities on electric supply. MPC fought a long hard battle against making these financial commitments. To now stick MPC stockholders with the financial losses associated with these contracts that public policy foisted upon them certainly would seem unfair if not perverse. Public policy at the state and federal level also urged MPC to invest in energy saving technologies in customers’ homes and businesses. In this MPC was a somewhat more willing participant, but a very cautious one nonetheless, always seeking assurances from regulators that it would be allowed to recover those investments. Again, given that public policy encouraged these commitments, it does not seem inappropriate for public policy to continue to support the recovery of those investments.

When it comes to MPC’s normal business decisions about the sources of electric supply it freely sought, without guidance from public policy and sometimes in the face of opposition from regulators, the issues are quite different. No one forced MPC to build the Colstrip facilities. The Montana Public Service Commission actively opposed the construction of Colstrip 3 and 4 and kept customers from being responsible for Colstrip 4. The Montana Department of Natural Resources also opposed the construction of Colstrip 3 and 4. These commitments to thermal generation along with the contracts that MPC freely signed with other utilities are largely Montana Power’s responsibility, not customers.

MPC actually recognizes this. It seeks to recover costs associated with its generation facilities only during a four year transition period. After that customers would not be asked to protect those investments.

This makes for a fairly complicated situation. Some costs appear legitimately to be the responsibility of current customers. Others may or may not be appropriately assigned to customers. Still others clearly are not completely the responsibility of customers. Even where customers should be responsible, absolving the utility entirely of responsibility for those costs removes any incentive for the utility to seek to reduce or mitigate those costs. Some sharing arrangement may be necessary for all of these costs just to keep some normal business discipline in place.

With hundreds of millions of dollars at stake, the question of who should be held responsible for these costs is very important and will be hotly contested. It is also very complicated and technical. It seems clear that this issue cannot be rationally settle via a partisan floor debate in this legislative session. The legislature should not be writing any blank checks for Montana Power in the name of its current customers. The issues are better handled in evidentiary hearings before the Public Service Commission. This can be done by the Legislature simply authorizing the Commission to make the determination of what stranded electric supply costs are to be the responsibility of existing customers and which are to be the responsibility of Montana Power stockholders. The legislature may want to provide some guiding principles, but it certainly should not be mandating full recovery. It would be more than a little perverse for an anti-tax conservative legislature to be imposing a stiff twenty year electric tax on all existing Montana Power customers, not to fund any public purpose but simply to bail out a private company. Hopefully our conservative legislators will be more cautious than that when it comes to committing our money.