| The restructuring law allowed some of Montana's
biggest companies and other large users like schools, hospitals, cities and counties to
buy power from competitive suppliers beginning in July 1998, and many did so. Although
that move brought about an initial period of price reductions, it backfired early in 2001,
when a combination of drought and high demand in other states, particularly California,
produced huge increases in the cost of both electricity and natural gas (which is also
deregulated in Montana). Spot market prices went up to $300 to $400 per megawatt hour.
Even long-term contracts were set at around $100/megawatt hour, about four times what
Montana industries paid earlier in the year. Some electricity suppliers would not offer
long-term deals because they were making so much money on the spot market; many industrial
plants were thus forced to pay the higher spot prices. Many plants cut back their
workforce, and several closed, throwing hundreds out of work. Legislators
responded to the energy price crisis by passing HB474 in 2001, which allowed the default
supplier to seek full recovery of "prudently incurred" electricity supply costs.
Two state representatives who opposed that provision initiated a referendum that allowed
voters to strike down the law, and they did just that in November 2002.
Voters were also asked to consider Initiative 145, which would
have created a public power commission to determine whether the state should buy any or
all of the 11 hydroelectric dams that MPC sold to PPL Montana in 1999. The state would
have been required to use any dams it bought to supply electricity to current residential
and commercial customers of NorthWestern Energy. The two utilities that would have been
affected by the initiative – PPL Montana and Avista of Washington (which owns one
dam) – spent more than $2 million fighting the measure, and it was defeated by a more
than 2-to-1 margin.
Two months after the election, PPL-Montana announced that it was
paying only 85 percent of its 2002 property tax bill on its 11 Montana dams, to protest
how the state levies taxes on those properties The protest has left local governments and
schools $7.6 million short of expected revenues.
As of April 2003, the following issues are of
importance to Montana consumers:
Legislation
Repeal of HB474 resulted in uncertainty about what aspects of
deregulation are still in effect. One question is the fate of the Universal Systems
Benefits (USB) fund – which was designed to raise about $13 million annually to
support renewable energy, conservation and low-income assistance and weatherization until
the end of the deregulation "transition" in December 2005. HB474’s repeal
meant that date was moved back to the original date of July 1, 2003, set by the 1997
legislation.
Also in doubt is the law’s "green choice"
provision, which would require NorthWestern to offer its customers a green power product
derived from renewable energy resources.
Two bills passed by the 2003 legislature – SB70 and SB77
– extend the USB program through December 31, 2005 and ensure that USB funds are
spent only in the utility territories in which they are collected.
In attempt to save what they believe are the beneficial aspects
of deregulation, a consortium of environmental, consumer and low-income groups met for a
series of discussions sponsored by the PSC and developed what became HB509 – The
Collaborative Bill on Energy Policy. The bill would designate NorthWestern as the
permanent default supplier; make the default supplier’s primary purpose to obtain
stable and affordable electricity prices; limit the default supplier’s cost recovery
to "prudently incurred costs" that are "just and reasonable"; extend
the USB to 2005; and guarantee customers a green power product choice. According to Pat
Judge, energy policy director for the Montana Environmental Information Center (MEIC), one
of the main supporters of the bill, the Senate recently sent HB509 back to the House with
a few amendments, and it will probably become law in its present form.
Another bill, SB247, would establish a default electricity supply
procurement process that gives NorthWestern pre-approval of its electricity supply
contracts and guarantees cost recovery. According to MEIC, this would shift the risk from
the utility to the consumer. The bill has passed the Senate and is being considered by the
House.
Default Supplier Energy Portfolio
NorthWestern Energy took over MPC's electric distribution business
early in 2002, at the same time that the PSC began serious deliberation on the
utility’s proposed energy portfolio, which would define default supply and rates
beginning July 1, 2002. Several of the contracts were based on power plants that hadn't
been built yet, including Montana Megawatts, NorthWestern's planned 150-megawatt gas-fired
plant north of Great Falls. In total, 30 percent of the portfolio was power projected to
come from facilities not yet built. Critics of the portfolio claimed that the contracts
with proposed power plants were made without financial screening or competitive bids and
that there was no way to assign responsibility if those contracts were not honored -- that
is, if the plants didn't get built.
In June, the PSC voted 4 to 1 to reject five of the eight
electricity contracts proposed in NorthWestern's portfolio. Citing bidding and
documentation problems with the contracts, the Commission rejected the contracts with
Montana Megawatts; Rocky Mountain Power, a 150-MW coal-fired plant in Hardin; Montana Wind
Harness, a 63-MW wind project; Thompson River Co-Gen, a 10-MW wood-and coal-fired plant;
and Tiber Montana a 5-MW hydro project. Citing findings by its staff, the PSC ruled that
NorthWestern had not followed industry standards when selecting suppliers and didn't
document its selection process. The PSC also ruled, unanimously, that the portfolio should
include conservation.
Three contracts in the portfolio were approved: two five-year
contracts with PPL Montana, for 450 megawatts, and a one-year contract with Duke Energy
for 111 megawatts. NorthWestern needs about 1,100 megawatts during the coldest days in
winter and an average of 550 to 600 megawatts to serve its 290,000 Montana customers.
After the PSC decision, NorthWestern canceled its contracts with
the five rejected energy suppliers and began a new process of seeking energy supplies and
documenting the procurement process.
The rate moratorium ended on July 1, 2002, and NorthWestern
adopted a PSC-approved increase of 10 percent. NorthWestern's electricity rates are
expected to climb again in mid-2003 because a one-time $30 million credit, which the
company agreed to when it bought MPC, won't recur.
In the fall of 2002, NorthWestern announced that it had signed a
10-year agreement to purchase 10 megawatts of renewable power from Thompson River Co-Gen
and five megawatts from the Tiber Dam. Later that month, it announced two supply
agreements: one for 130 megawatts from the Montana Megawatts, and 20 megawatts from Basin
Creek Power, a 44-MW gas-fired plant to be built near Butte. In its press release
announcing the agreements, NorthWestern noted that it had selected the projects after
"an extensive competitive bid process with more than 50 participants throughout the
Northwest in which competitive bids were received from 11 energy marketers."
All of these contracts must be reviewed by the PSC to determine
whether NorthWestern followed prudent and acceptable procurement practices. PSC
regulations allow a yearly adjustment to the default supply, and NorthWestern is expected
to make an application under those regulations in May. If the PSC rejects the contracts,
the company could still proceed with them. However, it would not be entitled to full cost
recovery from ratepayers. NorthWestern could also buy electricity on the wholesale spot
market to meet peak demand.
The Commission adopted default supply guidelines in March, after
a series of meetings with NorthWestern, consumer organizations, competitive suppliers and
other interested parties. The guidelines require the utility to:
- Plan and manage its electricity resource portfolio in a manner
that results in adequate, reliable, efficient and long-term default supply services at the
lowest total cost.
- Include cost-effective energy conservation and efficiency
resources.
- Use an open and transparent planning and procurement process.
- Establish and consult with a default supply portfolio advisory
committee comprised of representatives of a broad array of stakeholders.
Default Supplier Bankruptcy?
At the same time that the PSC was designing guidelines for Montana’s default
supplier, the Commission was forced into some quick action to help that same supplier
avoid bankruptcy.
Early in 2003, NorthWestern’s stock was downgraded from
investment grade to junk status, which means it must pay higher interest rates to borrow
money. To get a loan that would allow it to avoid bankruptcy proceedings, NorthWestern
asked the PSC to allow it to use its holdings in Montana as collateral for a loan.
Although the PSC approved the request, it criticized the
company’s operation, particularly its non-utility operations – Expanets, a
telecommunications solutions business, and Blue Dot, a heating, ventilation and air
conditioning service business. The Commission told NorthWestern that it should move toward
becoming a "pure energy company" and sell its non-utility entities, along with
Montana Megawatts, its unfinished power plant in Great Falls.
The PSC was especially critical of NorthWestern’s
"long-term equity plan" for its executives, under which the company had paid
$3.2 million to five executives. The Commission called the plan "completely
inappropriate" and ordered the company to discontinue it.
NorthWestern has agreed to the PSC’s stipulations and
indicated that it is "is exploring its options with regard to any of its non-utility
entities." The company has also agreed to use any proceeds from sale of the companies
to help pay off its debt.
Below is a history of Montana's residential electric rates since
1995:
| Montana Average Annual Price per kWh (nominal cents) |
| |
1995 |
1996 |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
| Residential |
6.0 |
6.2 |
6.4 |
6.6 |
6.8 |
6.4 |
6.8 |
7.2 |
| Source: Energy Information Administration |
Natural gas
The Natural Gas Restructuring and Customers Choice Act was passed in
1997. Under this act, gas utilities may voluntarily offer their customers a choice of
supplier. Customers served by local distribution companies (LDCs) that have implemented
customer choice programs are required to choose a non-utility gas supplier by 2002.
Two local distribution companies in Montana have initiated
customer choice pilot programs. Montana Power Company began its program in November 1998
and offered natural gas supplier choice to approximately 11,000 of its residential and
small commercial customers. Great Falls Gas Company (now Energy West Montana) began its
program in October 1999, and it is open to all of its residential and small commercial
customers.
Although the PSC does not collect specific information on
participation levels, it estimates that about 2,000 residential and small commercial
customers have signed up with alternative suppliers.
Other resources
The major Montana newspapers maintain a news website, www.montanaforum.com, which
includes an often-updated section on energy. Site users click on "more issues"
at the top of the front page, then scroll down to find the link to energy news articles.
The Montana Environmental Information Center website has extensive information on environmental issues, including several
sections devoted to energy issues and legislation.
In February 2003, the news program 60 Minutes aired
"Who Killed Montana Power," a chronicle of the transformation of a profitable
utility worth $2.7 billion into Touch America, a near-bankrupt telecommunications company
that was delisted from the Stock Exchange in March. Click
here for a synopsis of that program. |