Fools rush in: Not all public power is created equal
August 23, 2007
Having been burned royally by the decade-old deregulation of our utilities—and subsequent rate hikes from some of the lowest in the nation to the highest in the region—Montanans are more inclined than ever to turn to public power in an attempt to regain some control over our own energy future. But as shown by the overwhelmingly negative reaction to last week’s move by the Missoula City Council to negotiate with Great Falls for power from the proposed coal-fired Highwood Generating plant, it’s prudent for Montanans to look hard before leaping into just any old public power proposal.
The story of how Missoula’s mayor and city council wound up in so much hot water over last week’s decision has been reported and discussed in a variety of media already, so no need to repeat it here. Suffice it to say that approving Mayor John Engen’s signature on a letter of intent to buy Highwood-generated power without so much as a whisper of debate was a mistake of pretty major proportions, especially for a city that prides itself on its progressive politics.
Instead, let’s look at what many perceived as “public power” with a more critical eye and ask ourselves whether this is really the direction Montana—and Missoula—should go.
When most Montanans think of public power, they recall the failed attempt by five municipalities to buy out NorthWestern Energy (NWE). Because the power bills for more than 300,000 Montanans come from NWE, it is completely understandable that people blame the utility for the higher energy costs we are experiencing. Likewise, it makes sense that people would think our power bills would go down if cities owned the utility, especially in light of the millions being reaped by NWE’s top corporate officials.
But the truth is that NorthWestern Energy is only a transmission and distribution company that, under the deregulation laws, is prohibited from owning generation facilities. As such, NWE must buy its power on the open market and, as explained by Public Service Commissioner Bob Raney in a letter to Missoula’s city council members, “NWE does not receive one dime of profit for providing this electricity. The cost of electricity is passed directly to the customer with zero mark-up.”
The reason Raney can speak with certainty about the cost of NWE’s power is because NWE, unlike the Great Falls venture, remains regulated by Montana’s Public Service Commission (PSC) and is subject to all the fiscal and economic scrutiny of its highly skilled staff of attorneys and power experts, as well as the constitutionally established Montana Consumer Council. This is a vitally important distinction because, had the municipalities been successful in their take-over bid for NorthWestern, they would have joined electrical co-ops in the rather unique (and questionable) position of having no regulatory oversight from the PSC.
Furthermore, as illustrated by the PSC’s recent denial of the NorthWestern buy-out attempt by Australia’s Babcock & Brown Infrastructure (BBI), much more than simply the cost of electricity is considered. One of the reasons BBI’s request was turned down unanimously by the PSC is that it would have changed the debt-to-assets ratio of NWE in a manner that made it less economically stable. Right now, NWE has about a 50-50 debt-to-assets balance. Under BBI’s original proposal, that ratio would have changed to about 80 percent debt and less than 20 percent assets. After the initial rejection by the PSC, BBI altered its proposal to change the debt-to-assets ratio to 60 percent debt and 40 percent assets.
Under the plan by the municipalities to buy out NWE, the debt-to-assets ratio would have been 100 percent debt—which is hardly a stable economic platform for launching a public power venture. Furthermore, as a regulated utility, if NWE loses money on an investment, that money comes from its stockholders, not its ratepayers. Had the cities bought the utility, the debt would accrue directly to the ratepayers.
Does this mean Montana has no chance to achieve a stable energy future and move toward public power? Well, no. But if we’re going in that direction, we should do it in a way that ensures the public will be protected via regulation by the PSC, that everyone has an equal chance to see the financial data, and that risks will be weighed against benefits in a public arena.
Unfortunately, in spite of the belief that local governments are “closer to the people,” the reality is that local governments are considerably less transparent than state entities. The reason? Legislative oversight, or lack thereof.
When a legislator wants information on the actions of any given state agency, he or she has the Legislative Services Division to help them. Since they work for the Legislature and not the executive branch, the job of legislative fiscal analysts and auditors is to deliver unbiased information about the real costs, strengths and weaknesses of an issue instead of glossing it over to protect their own interests.
No such mechanism exists for local governments, however. When a city council member wants information on a municipal project or agency, by and large that information is provided by the same people about whom the questions are being asked. As you might expect, few are likely to be overly critical about the projects for which they are personally responsible.
What this means in regard to public power is simple: If we want it, we should legislatively establish a real Public Power Authority that is subject to full PSC regulation and legislative oversight, giving all of us the chance to fully investigate the costs and benefits of any acquisition or proposal prior to decisions being made. Moreover, as power sources and consumption patterns change, those we elect—not some hired managers—could mold the authority to best serve Montana’s needs.
We can and most likely will have public power in Montana someday. The lesson from last week’s incident in Missoula, however, is that keeping “the public” in public power must be our first and highest priority.
Helena’s George Ochenski rattles the cage of the political establishment as a political analyst for the Independent. Contact Ochenski at firstname.lastname@example.org.