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.Repeal of
HB474 resulted in uncertainty about what aspects of deregulation were still in effect. In
an 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. Passed by the 2003 legislature, the bill designates NorthWestern as
the permanent default supplier; makes the default supplier’s primary purpose to
obtain stable and affordable electricity prices; limits the default supplier’s cost
recovery to "prudently incurred costs" that are "just and reasonable";
extends the USB to 2005; and guarantees customers a green power product choice.
As of September 2003, the following issues are of
importance to Montana consumers:
Supply, rates and possible bankruptcy
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 2002, the PSC voted 4 to 1 to reject five of the eight
electricity contracts proposed in NorthWestern's portfolio, citing bidding and
documentation problems. 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. The company is now meeting about 30 percent of its power need from the
spot wholesale market. 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.
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.
The rate moratorium mandated by the deregulation law ended on
July 1, 2002, and NorthWestern adopted a PSC-approved increase of 10 percent. However, as
gas prices shot up in 2003, the company, which some critics say paid too much for
MPC’s transmission/distribution assets, found itself in serious financial difficulty.
Its 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 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.
In December 2002, the utility received PSC permission to increase
natural gas rates by 35 percent – from $2.17 per dekatherm (dkt) to $3.37. In June
2003, the PSC approved two rates increases – a 14 percent increase for electric rates
and another 35 percent increase for natural gas rates. The natural gas increase raised
prices to $5.34 per dkt, so residential gas prices have more than doubled in a little over
six months. (The PSC is now allowing NorthWestern to vary its prices on a monthly tracker.
Thus, prices in August dropped to $4.80 per dkt and to $4.67 per dkt in September. The
company must file for a rate change approval if the price per dkt goes up or down more
than 10 cents).
Despite these increases, NorthWestern and the Commission are in
serious disagreement about natural gas rates. The company had asked for a 45 percent
natural gas hike in June, but three of the five commissioners voted for the lower rate,
contending that NorthWestern failed to act "prudently" in lining up reasonable
contracts with wholesale suppliers. That is, the majority of the commissioners believe
that NorthWestern could and should have lined up more long-term contracts, leaving its
customers less vulnerable to the spot wholesale market.
The case is particularly contentious because the Commission acted
against the advice of its staff, which was concerned because Montana’s two other
major natural gas companies – Montana-Dakota Utilities and EnergyWest Montana –
have been allowed full cost recovery of their natural gas purchases. In late July,
NorthWestern appealed the decision in District Court, a case that could take up to 18
months to resolve if appealed up to the Montana Supreme Court, according to PSC attorneys.
Now NorthWestern, whose stock has dropped to less than $1 a share
from a high of $23 in 2002, is facing major financial "problems":
• It could pay only one-third of its Montana property taxes
on time in May and owes the state $39 million by the end of November.
• Pulled out of a long-term electricity contract with 42
Montana school districts and towns because it doesn’t have the cash to pay for
long-term contracts.
• Because of its poor credit rating,
the company must pay its electricity and natural gas bills in seven days instead of the
usual 30.
• NorthWestern Corporation, Northwestern Energy’s
parent company, had $2 billion in debt and $50 million in cash at the end of the second
quarter of 2003.
• Because of its inability to negotiate long-term contracts,
NorthWestern (and its customers) are increasingly subject to the fluctuations of the
wholesale power market.
Consumer advocates are increasingly concerned about the
company’s ability to continue to serve its customers. In August, Montana Consumer
Counsel Bob Nelson asked the PSC to investigate NorthWestern’s debts and assets and
to reconsider a November decision that allowed the NorthWestern Corporation to incorporate
NorthWestern Energy as part of its assets. That decision could, theoretically, allow the
corporation to use its utility assets to pay off its other, non-utility debts.
On August 19, the PSC voted unanimously to launch a sweeping
investigation into the finances of NorthWestern Energy and the books of its parent
company, NorthWestern Corporation. The investigation will be the largest ever taken on by
the Commission.
PSC Chairman Bob Row explained that the Commission wants to
determine how money is moved around in NorthWestern Corporation. He said the PSC would
order NorthWestern to change any questionable practices.
Task force formed to help low-income electric consumers
However, the governor was concerned enough about NorthWestern’s
rate increases to appoint a Consumer Energy Protection Task Force in July. The task force,
which convened in late August to look at ways to help low-income energy consumers cope
with the rate increases, recommended that NorthWestern Energy use $1.7 million of excess
funds from the system benefit charge to fund additional low-income programs this winter.
Most of the funds came from USB funds set aside for a wind energy project that never
materialized. The task force meets again in September to decide how the money should be
divided between discounts for low-income households on gas and electric bills and home
weatherization projects.
A sad and expensive footnote to electric deregulation
After the Montana Power Company sold its utility businesses, it invested most of that
nearly $2 billion in Touch America, a telecommunications company. That company declared
bankruptcy in June 2003, and its assets were sold for $43 million in August to
360networks, a Canadian telecommunications company. Touch America’s stockholders
– who saw their stocks soar to $64 a share before MPC’s metamorphosis –
received nothing. Touch America’s employees – in Montana and in Denver –
received dismissal notices by email, while top executives walked away with millions in
severance pay.
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 |
2002 |
| Residential |
6.0 |
6.2 |
6.4 |
6.6 |
6.8 |
6.4 |
6.8 |
7.2 |
7.3 |
| 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
National Center for Appropriate Technology. Managing Default Service to Provide
Consumer Benefits in Restructured States: Avoiding Short-Term Price Volatility, June 2003. This study by consumer affairs consultant Barbara Alexander
examines recent developments on the design and pricing of default service in six states
– CT MA, MD, MT, NJ and PA – that have adopted retail electric competition and
who are ending their rate freeze or transition period.
The August 10 edition of The Denver Post featured an
in-depth chronicle of the Montana Power Company’s disastrous foray into
telecommunications: Montana’s Power Failure:
High-tech meltdown meant doom for company
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. |