Power to the people 

Bidding for a publicly owned utility

Alec Hansen directs the Montana League of Cities and Towns, which is spearheading a bid for public ownership of energy distribution and transmission facilities in Montana. When it comes to the possibility of publicly owned power in Montana—and to the status quo alternative—Hansen doesn’t mince words.

“We’ve seen nothing but trouble since 1997,” he says.

In 1997, Montana’s Legislature deregulated power. The market has been volatile ever since. In 1999, Montana Power Co. put its distribution facilities up for sale. Together, six Montana cities bid. They lost to NorthWestern Energy Corp. Then, in September 2003, NorthWestern filed for bankruptcy. The company’s problems are a sign, says Missoula Mayor Mike Kadas, that the attempt to form a publicly owned utility was on target.

“The problems just reinforced for us that we were right the first time,” says Kadas.

At least four cities—Bozeman, Butte, Great Falls and Helena—are slowly positioning themselves to try again. On February 9, Missoula City Council authorized the city to spend up to $20,000 on consulting to determine whether a publicly owned utility is possible, and advantageous, for Missoula. So far, Missoula has spent under $10,000 and learned the following:

“We can put in a bid that would be very competitive,” says Kadas, though he can’t share exact figures at this point.

Claudia Rapkoch, director of corporate communications for NorthWestern, won’t give figures either, maintaining that so far, nothing is for sale. The company’s reorganization plan will be put to a vote in mid-May. If the company’s creditors approve, says Rapkoch, the plan will become legally binding. Although NorthWestern is not now soliciting bids, Rapkoch acknowledges that if creditors fail to approve the plan, the company will be free to consider bids.

The next step for Missoula is approving and signing an “Interlocal Agreement,” which would form the Montana Public Power Authority, an organization that could bid on the facilities on behalf of the cities. Billings is the only city that has so far voted against signing the agreement. It voted against signing the agreement a second time this past Monday night. Missoula will discuss the agreement in committee this week, and before the end of April, the Council will vote on it.

As the cities creep closer to bidding on NorthWestern’s transmission and distribution facilities, concerns about whether the cities can manage the utility arise. Some of the questions at hand: What role will the Public Service Commission play, if any? What type of oversight will respective cities have over representative board members? How much control will the MPPA have over the utility, and over rates? The questions are valid, but a publicly owned utility is neither a new idea nor a radical one.

“There’s a long history of public power in this country,” says Hansen. The first public utility opened in 1882, according to the American Public Power Association. In the U.S., according to 2000 data, 2,009 out of 3,152 electric utilities were publicly owned, including utilities in Los Angeles, Seattle, Orlando and San Antonio.

Fewer than half of those public utilities are regulated by entities like Montana’s Public Service Commission, which is set up to regulate privately owned companies.

Tom Schneider is the vice-chairman for the PSC. “Whether the PSC would regulate [the new authority],” says Schneider, “is an open question.” Public or private, the key, says Schneider, is quality of management and responsiveness to customers. No matter who might buy, says Schneider, “We’re going to evaluate whether they have the capability to do the job.”

Options for oversight vary. The PSC could regulate the publicly owned utility, or it could temporarily oversee the utility until the public gained trust, says Schneider. It might not regulate the utility at all. Managing a utility, says Schneider, involves “all the things the cities are used to doing.”

Kadas points to sewer as a similarly managed service. Sewer rates increased about six years ago to account for the upgraded treatment plant, but have remained stable over the past two years, he says. Utility rates could stabilize over the long term, too. About half of a customer’s utility bill is made up of the commodity—the actual power—and the other half is made up of charges for distribution and transmission. The MPPA would not generate its own power—it would bid on power, like NorthWestern does. Energy costs have roller-coastered, but could stabilize over the long term with bulk contracts for power, says Kadas. Plus, he says, “We will have better access to federally generated power,” like the Bonneville Power Administration, which offers more competitive rates.

But expense isn’t the only concern.

Council members also want to know how much control the city could retain over the MPPA board. Last Friday, Kadas proposed treating the appointment of the MPPA representative like other city appointments: The mayor makes the two-year appointment, on which the council subsequently votes.

Before the end of the month, City Council will likely vote on whether or not to sign the agreement. Clayton Floyd of Ward 6 believes there are too many unknown variables. Only if “all the moons lined up” would the project be in the best interest of Missoulians, he believes. The cost of purchasing the utility might be more than the rate-payers can bear, and he worries about the cost of catastrophic failure.

NorthWestern’s Rapkoch makes it clear that so far, it is not in creditors’ interest to sell. “Their primary interest is seeing us emerge [from bankruptcy] as quickly as we can,” she says.

In mid-May, the creditors will speak for themselves with a vote, and MPPA will learn whether it is free to bid. If successful, a purchase transaction would take about one year, says Kadas.

Kadas says the cities are simply looking out for their constituents. Currently, he says, the company’s creditors are in New York and California: “Ownership and control of this company gets farther and father away from Montana, and I have to believe that’s a bad thing for Montana.”


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