Power deal best choice given circumstances

By Roberta Stauffer - 11/29/2008

Roberta Stauffer

As Montana Public Service Commissioner Ken Toole said, "If this had gone forward as a normal rate case, it would have been really different. It would have been much more cost based, if it had been normal." Toole was referring to the PSC's recent decision to allow NorthWestern Energy to dedicate its 222-megawatt interest in the Colstrip 4 power plant to meeting the electricity needs of Montana customers.

Under normal circumstances, regulated utilities wanting to add a power plant to the rate base ask to recoup the cost of the power supply, plus a modest rate of return for the stockholders.

But nothing's been normal about Montana utilities since deregulation passed in the late 1990s. Legislators took a first step back toward normal in 2007 with a law allowing utilities to own generation again, but they had no way of knowing what form that might take.

In comes NorthWestern Energy with a take-it-or-leave-it proposal guaranteeing the company well over $100 million in profit. The company interpreted "cost" to be not what they paid for the generation source, but its highest market value. They had secured a binding agreement to sell the 222-MW share to a company called Bicent for $404 million, so that was the price offered to Montana consumers. No room for negotiation.

And since the company hasn't offered up any other long-term power supply options for Montanans, the PSC may have exposed consumers to great risk if they hadn't accepted this deal because NorthWestern would probably have just continued to buy power on the volatile open market.

Toole was the only commissioner willing to take some risk, knowing below-market contracts would remain in place for much of Colstrip power for the next 10 years, no matter who owned the plant. He was also willing to challenge NorthWestern on the deal, even in court if need be.

He told The Standard he would have been comfortable offering to rate base the power for around $360 million and then telling NorthWestern, "If you don't like it, let's duke it out.

"I think that the commission, over the long haul of history, hasn't duked it out enough," Toole said, adding that the PSC basically remained silent throughout the whole deregulation chapter.

In his brief dissent posted on the PSC's Web site, Toole said he believes the utility "bullied the Commission in this filing and we erred in bending over backwards to accommodate the conditions unilaterally imposed by NWE." He stressed that it was not an easy vote and he, too, shares the intense desire to see NorthWestern move toward becoming a fully integrated utility again.

"I think stability is worth paying a premium," Toole said. "But this was too high a premium to pay." Bob Raney represents much of southwest Montana on the PSC, and he told The Standard he disagrees with Toole's characterization that the PSC was "bullied." "We were given an opportunity and we could take it or leave it," Raney said. "We all thought the price was high, but there's no doubt that they proved the market would bear that cost. If we weren't willing to pay it, it would belong to Bicent now." Raney said he has "zero regrets" and is as confident about this decision as he was about rejecting the utility's sale to Babcock and Brown last year. To protect consumers over the long term, NorthWestern absolutely needs to own its own base load generation, he said. To start from scratch could have taken 10 to 15 years, he said, and to attempt a court challenge also could have taken years with no guaranteed outcome.

You've got to give the utility — and their investment bankers — credit for masterminding a heck of a deal. They put Montana ratepayers over a barrel all right, thanks to the wacky world of deregulation where the rules are being made up as we go along.

But on the bright side, this decision will bring some much-needed stability both to the state's power supply future and to NorthWestern Energy itself, with its 500-plus employees in Butte.

Raney's stepping down next month, and when asked if he had any advice for John Vincent, his newly elected successor, he said he believes Montana's utility future lies with conservation and renewables and the PSC needs to "keep the company thinking in that direction.

"NorthWestern may become a progressive company under Bob Rowe and start investing in solar and getting busy on developing geothermal resources," Raney said, and if the Mill Creek gas plant is built, the company will be looking to add more wind generation. "It has lots of options to move forward and now some cash do so with." This decision does mark the start of a new chapter for NorthWestern, with new "made in Montana" leadership under Rowe, himself a former public service commissioner. We're encouraged by this major change and look forward to seeing future deals structured with the proper balance of ratepayer and stockholder interests at their heart.