New York Times, August 21, 2003
Under Deregulation, Montana Power Price Soars
by Jonathan D. Glater
Montana residents used to pay some of the lowest rates for power in the Northwest,
but now, some lawmakers lament, they pay among the region's highest. What happened?
Indeed, six years after the local utility, Montana Power, started selling assets
as part of the state's headlong dalliance with the national energy market, various
companies in its old hometown, Butte, have laid off employees or even closed
because power costs so much.
So even as the Northeast painstakingly ponders what role energy deregulation
might have played in last week's crippling blackout, a similar soul-searching
is in full cry here. And many people are calling for both tougher regulation
and at least a partial return to the good old days of homegrown energy suppliers.
"One lesson is that deregulation or restructuring in fact requires a very
active and vigilant regulator," said Bob Rowe, chairman of the state's Public
Service Commission, which regulates power distribution. "In this case, you
The commission is moving firmly in that direction. Today it voted to require
the NorthWestern Corporation, a giant regional power distributor, to disclose
how it spreads costs and revenue among its affiliates to make sure the distribution
business is not subsidizing other businesses, Mr. Rowe said. It also wants the
company to report and meet requirements on how much natural gas it has set aside
to meet future demand, as well as on how much electricity it can buy as needed.
Montana's deregulation experiment began with the 1997 legislation allowing the
asset sales by Montana Power, which pushed for the changes to allow it to invest
in new industries and jettison its stodgy utility properties.
NorthWestern ended up owning the distribution business in Montana, as well as
in Nebraska and South Dakota, and that now poses dire problems, because the company
is shaky. The commission, in fact, is worried that it will be unable to buy enough
natural gas to meet future demand, Mr. Rowe said. The state's consumer counsel
asked the commission to consider taking some action because NorthWestern carries
more than $1.5 billion in liabilities, it faces a series of shareholder lawsuits
and its stock price has plummeted this year.
NorthWestern's financial straits mean
it cannot enter into long-term contracts to buy electricity or natural gas,
said Roger Schrum, a spokesman for the company,
which is based in Sioux Falls, S.D. "Our financial condition has put them
in a position to want to more closely scrutinize our workings in the electricity
and natural gas supply area," he said, referring to regulators' concerns. "We
would like to more clearly understand the role that they want to play."
The commission's effort may prove
controversial. While some states have given regulators explicit authority to
take an aggressive stance with a utility provider
and its affiliates, Montana has not, Mr. Rowe said, though he added, "We
always assert that we do have that authority."
Mr. Schrum said NorthWestern had cooperated
with the commission in the past and would continue to try to do so. But he
cautioned, "We are concerned
that they may be overreaching their statutory responsibilities."
Concerns over power and its high cost have simmered for months in this state.
In the wake of deregulation, prices have climbed sharply for both electricity
and natural gas, but last fall a ballot initiative failed that would have allowed
the state to buy back dams sold to a Pennsylvania company, Pennsylvania Power
and Light. This would allow Montana to avoid the volatile energy markets, which
can spike suddenly and unexpectedly, supporters said.
The sponsors of that effort now say
they may well try again, though the next opportunity for a vote would not come
until November 2004. They fear that rates
will climb yet higher before then — and many state residents have not yet
realized how much some rates have already gone up because natural gas use increases
in the winter.
"We don't control any supply," said Ken Toole, a state senator and
chairman of the Policy Institute, one sponsor of the ballot initiative, and a
critic of the rise of the price of power in Montana relative to neighboring states.
But to buy back the sources of hydroelectric power — the dams — would
require overcoming the marketing muscle of Pennsylvania Power and Light.
"We're very skeptical about whether we win that," Mr.
Toole said. Last year, he said, Pennsylvania Power spent $3 million to beat
the ballot initiative.
Both Pennsylvania Power and NorthWestern agreed to a cap on rates at the time
they bought assets from Montana Power, but that cap expired in July 2002. Montana
Power also had a telecommunications business, which is now in bankruptcy proceedings
Montana Power executives argued six years ago that state residents would benefit
from paying competitive rates for electricity and natural gas. As market rates
have gone up, though, the residents have had to bear the cost, critics of deregulation
So far Montana has not experienced the kind of supply problems that plagued
California in recent years, although summer fires and storms in the mountains
have interrupted service at times and probably will again. Because withstanding
such natural events puts a strain on the transmission system, regulators want
to make sure it is appropriately maintained, Mr. Rowe said.
Because the company is financially weak, the commission's members worry that
NorthWestern will not invest enough in maintenance, which could turn a routine
weather-related power failure into something more serious, Mr. Rowe said. That
is another reason the commission wants to know what NorthWestern is spending
money on, he said, in addition to overseeing prices it charges. Last May the
agency allowed a 10 percent increase in electricity prices.
"This has just been a horrible political battle," Mr. Rowe said. Now
the commission is boning up on bankruptcy law in preparation for a possible Chapter
11 filing by NorthWestern. A filing would have consequences no one has yet predicted — any
more than anyone has predicted the latest development in deregulation here, Mr.