Power politics 

PSC wrestles with how to supply cheap, clean energy

The Montana Power Company (MPC) came one step closer to getting out of the energy game this week as the NorthWestern Corporation arrived in Butte. The South Dakota-based business has now officially taken over as Montana’s dominant energy company, and MPC continues its transformation into telecommunications company TouchAmerica.

One key aspect of MPC’s restructuring remains up in the air, though: where will people’s power come from in the next five years? The Legislature included a provision during the 1997 deregulation of Montana’s energy market that obligates MPC to be the state’s “default supplier” of power until 2007. This means it must provide power to a group of ratepayers that includes nearly 290,000 homes across the state.

MPC assembled a portfolio of suppliers to cover the obligation, and the issue was supposed to be addressed at a hearing this week before the Public Service Commission (PSC). The hearings were postponed until April, however, as commissioners weigh some new legal and procedural motions.

The most pressing, says Commissioner Bob Rowe, is a motion filed by MPC last week to break the case into two parts. One part would look at the portfolio itself, the other at the long-term issues, like the prospects for renewable energy in the state and the effects of the restructuring on low-income households.

Dividing up the issue is a mixed bag, says Patrick Judge, energy policy director of the Montana Environmental Information Center. On the plus side, he says, any serious focus on renewable energy and conservation is good for both the environment and ratepayers. However, he worries that the PSC is being rushed to green light the portfolio by this summer, and it will go through without serious revision.

“The current portfolio that MPC has proposed…is long on dirty energy resources and short on conservation,” Judge says.

The current portfolio took shape last year. In 1997, when the Legislature mandated it, the default supply issue was thought to be very small. It was assumed most customers would have a plethora of competitive choices, but the boom in consumer choice touted by deregulation’s proponents never came. Now, nearly all homes and some industrial customers rely on a default supplier.

In April of 2001, MPC started negotiating to fill its default supply obligation. Pennsylvania Power & Light (PPL), the company that purchased MPC’s coal and hydroelectric generating plants in 1997, put in an offer to provide the entire portfolio for all five years. MPC thought it could do better price-wise, and what ensued was a year-long dance of leverage with PPL.

According to testimony to the PSC by Bill Pascoe, MPC vice president for energy supply, MPC sought out developers proposing new generating projects in Montana that could be brought online quickly. The goal, he says, was to gain concessions from PPL Montana (PPLM).

By the summer the bulk of the default supply portfolio was put in place. It included Rocky Mountain Power’s proposed coal plant near Hardin, Thompson River Co-Gen’s proposed wood waste and coal plant near Thompson Falls, and Tiber Montana’s proposed hydroelectric facility near Chester. MPC also put out a request for wind power and awarded the contract to Missoula-based Montana Wind Harness. In July, NorthWestern agreed to dedicate part of its Montana First Megawatts generating program to the default supply portfolio.

“Taken together the development of these projects would pose a serious threat to PPLM by supplying a significant portion of the default supply load,” Pascoe testified. By the fall, he says, the Pennsylvania company was alarmed enough to make a new offer.

Now PSC approval is the last hurdle to the default supply portfolio going ahead as it has been assembled. According to Rowe, if the portfolio were approved as it’s been filed, residential power rates would increase by 12.8 percent this July, and then another 6.8 percent in July, 2003.

Standing in the way of an easy approval by the PSC are the concerns of various watchdog groups about the effect of the deal on ratepayers and the environment, and allegations by some parties left out of the action. Critics have testified that ratepayers were given short-shrift when MPC negotiated with the above-mentioned energy suppliers on a one-on-one basis, instead of going through a competitive bidding process. In rebuttal testimony, Pascoe says MPC was aggressively trying to get the best prices in a dynamic market.

Meanwhile, the smallest part of the portfolio—the 150 megawatts of wind energy—has proven to be one of the most controversial. Many in the state’s environmental and business community have high hopes for wind because it is a relatively inexpensive, environmentally sound, and naturally abundant energy source that Montana has yet to seriously harness. Concerns have been raised, however, about MPC’s decision to go with Montana Wind Harness, a start-up company whose founder has a questionable business past.

Peter West, assistant director of the Renewable Northwest Project, gave testimony to the PSC as an expert witness on renewable energy. Although West wants to see Montana Wind Harness succeed, he has recommended that MPC take measures like including a second wind developer or requiring a performance bond in the event Montana Wind Harness fails to deliver. West says the future of wind power in the state may depend on it.

“You can’t be guilty just for being new, but it is fair to say a new group should be able to answer to a slightly higher standard,” West says. “Utilities really scrutinize the new and they’re very risk averse. If something new doesn’t happen the first time out, they stay out of it for a long time. That’s our big concern and it’s a fair concern. We want Montana Wind Harness to succeed, we want the first development there to succeed. Period.”

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