HELENA – Montana’s tarnished utility deregulation law wove its way through the fabric of Tuesday’s hearing on NorthWestern Energy’s proposal to buy a dozen hydroelectric dams, with a company lawyer calling the plan a chance to “put the failed experiment of utility deregulation behind us.”
Yet skeptics of the $900 million purchase, which is up for approval by the state Public Service Commission, said invoking the ghosts of deregulation shouldn’t obscure the very real questions about economics of the deal.
Montana Consumer Counsel Bob Nelson said it’s easy to say approving the sale is “putting things right” by returning the dams to utility ownership, as they were before being sold off in 1998 by NorthWestern’s predecessor, Montana Power Co.
But the dams are being returned to the utility at current prices, he added, and NorthWestern Energy customers are being asked to pay for them and assume most of the risk of higher costs.
“Unfortunately, there is no going back to the low cost of hydro generation (before utility deregulation),” Nelson said. “The commission must evaluate the benefits and costs of these new (assets).”
Nelson, company attorneys and executives, and PSC staff and commissioners took the stage Tuesday on the first day of a weeklong hearing on the dam purchase, which is up before the PSC for “pre-approval.”
NorthWestern is asking to fold $870 million of the purchase price into electric rates for its 340,000 Montana customers, causing rates to increase just over 6 percent, or about $60 a year for an average household .
If the PSC approves the proposal, NorthWestern will have one of the highest electric rates of any major utility in the region.
Al Brogan, an attorney for the company, opened the hearing by calling the decision a “momentous time” for NorthWestern and its customers.
The company and its customers can continue to rely on an unpredictable market for much of their power, as they have since the dams and coal-fired power plants were sold by Montana Power Co. in the wake of the 1997 deregulation law, or they can benefit from the stability of having dedicated power from the dams.
“This is our chance to put the failed experiment of electric deregulation definitely behind us,” he told the PSC. “Your decision will determine whether or not we can do that. ... This is the most important decision that will be made by this commission in my lifetime.”
Brogan said NorthWestern customers are willing to pay a higher price now for electricity in exchange for having long-term stability of rates.
Nelson said the PSC should take a hard look at how the company determined the purchase price and how much of that price should be the responsibility of ratepayers. His office also has proposed limiting certain costs of the purchase that ratepayers will shoulder.
“Taken by itself, I would agree that (returning the dams to the utility) is a worthy goal,” he said. “However, like all aspects of this proposal, the costs have to be weighed against that benefit.”
Rates that are at the top of the scale, when measured against the long-term market, are “simply no bargain,” Nelson added.
When asked why NorthWestern customers should be happy paying higher costs for electricity, when the market appears to offer much lower prices for the foreseeable future, NorthWestern Vice President of Electric Supply John Hines brought up the huge, post-deregulation market spikes in 2001.
Businesses and homeowners had no choice but to pay those prices, because Montana Power Co. had sold the dams and other plants and didn’t have that power available, he said.
“You want to have some protections against extremes,” Hines said. “What you’re doing is locking in certainty.”
Commissioner Travis Kavulla, R-Great Falls, asked whether NorthWestern and the state are “a little bit too haunted by the early 2000s,” noting that those market spikes were highly unusual and the current market forecast calls for level prices below what consumers would pay for years to come, if NorthWestern buys the dams.
Hines conceded that we may never see “that kind of market explosion again,” but that many forces exist that can make electric markets “move very rapidly.”
The hearing continues at the state Capitol Wednesday and is expected to run into next week. NorthWestern President and CEO Bob Rowe will testify later, as will the Consumer Counsel’s lead witness, economist John Wilson.