Colstrip bill reminds many of energy deregulation ‘debacle’
Energy analyst: SB379 ‘greedy’ proposal
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It’s no wonder that people talk about the 1997 energy deregulation debacle in Montana in the same breath as Senate Bill 379.
This bill landed later in the session, just like the one more than 20 year ago pushed by then-Sen. Fred Thomas of Stevensville. Like that bill, it comes with a hope that Montana customers can keep flipping on their lights without worrying too much about the cost of electricity.
But deregulation bamboozled Montanans, at least it did the majority of lawmakers. The bill didn’t drive promised competition and lower rates in the Treasure State. Instead, owners parted out Montana Power Co. like an old truck.
Rates climbed. Montana consumers who paid $310 million before deregulation were slated to pay $492 million in 2002, an extra $200 for every person in the state, according to a University of Montana dissertation on deregulation (the fiasco inspired more than one thesis).
Montana reversed course. The state set the stage for the company that bought the lines, NorthWestern Energy, to purchase back dams and reassemble itself as a utility with some of its own generation.
“The pathetic part is we sold it for pennies on the dollar and bought it back for dollars,” said Gary Buchanan, the state’s first director of commerce, who warned against deregulation. “But I thought that (dams purchase) was a good move.”
Power customers in Montana are still paying off that $900 million.
Now, markets are changing, political tensions are fraught, and in this environment, the Montana Legislature is taking up another set of bills that address the energy industry.
With SB379, Sen. Steve Fitzpatrick wants NorthWestern to have more energy at its fingertips, and people across the political spectrum seem to agree the monopoly needs it.
They don’t agree the bill will open the doors its sponsor intends. SB379 would make it easier for the utility to own more of the coal-fired plants in Colstrip even as the market for coal drops and other owners view the exits at the Montana facilities.
Meanwhile, the AFL-CIO labor union wants plant workers in Colstrip to have a lifeline. Sen. Duane Ankney, R-Colstrip, said real estate prices have dropped at least 20 percent in the last seven to 12 months, and people need help.
“There’s probably at least three homes where they just threw the keys on the floor and walked away,” Ankney said.
But the legislation heard in a House committee last week may not pave the way for low power bills or secure workers. On the other hand, analysts note it does pave the way for NorthWestern Energy to put more money into the pockets of shareholders.
“I’ve been doing this for 47 years. I’ve seen a lot of greedy proposals,” said David Schlissel, with the Institute for Energy Economics and Financial Analysis in Ohio. “This is in the top three or four. This is a horrible plan that won’t do anything to protect coal plants.”
Sen. Fitzpatrick’s father, John Fitzpatrick, retired from NorthWestern in 2016, but the lawmaker said the two don’t talk shop, and he isn’t carrying water for his dad or the company by sponsoring SB379. (“I really shouldn’t say this, but he really didn’t leave NorthWestern under the best circumstances anyway,” Fitzpatrick said.)
In fact, he said he didn’t know the ins and outs of the bill until he sat down to study them the weekend before the hearing: “This is the absolute truth.”
Fitzpatrick, R-Great Falls, said he was inspired to carry the bill after discussions with Ankney and Sen. Jason Small, R-Busby, about how to help Colstrip, where NorthWestern and several other owners run the electricity generation plants. He said Ankney and Small asked him to carry it.
“They thought they were too close to the issue and too emotional about it,” Fitzpatrick said.
Ankney said the bill came partly out of Senate Bill 331 in 2019, which NorthWestern helped create, and he and Small reached out to Fitzpatrick as a young, smart lawmaker to bring in legislation this session that they believe will help Colstrip.
In an opinion piece in the Great Falls Tribune in 2019, former Public Service Commissioner Travis Kavulla contrasted Montana’s earlier bill with one in Wyoming; he said the latter Wyoming legislation was designed by lawmakers who cared about both their coal economy and consumers.
“Montana’s SB331, sadly, is what you’d expect if you allowed a single company to write the law in order to maximize its profits,” Kavulla wrote. In the 2019 session, the House killed that bill on third reading 60-37 just one day after having approved it 62-38.
The 2021 bill has elicited opposition from other former and current members of the Public Service Commission as well, and both Democrats and Republicans have testified against it — vehemently.
Former legislator and Commissioner Ken Toole said the money at play in the bill is “chump change” compared to deregulation, but themes resonate.
“The stakes are high, and the idea that this is going to be an economic benefit for Montana consumers is exactly the same. That’s what the proponents of deregulation argued all the way through,” he said. Toole, who wrote an opinion piece about SB379, said there’s no argument to be made for propping up NorthWestern the way the bill does. “It essentially guarantees the utility to get their money and insulates them from future unforeseen risks. And these are a bunch of conservatives?”
Ankney, who has sponsored many other bills to help Colstrip, agreed the issue is an emotional one for him. The retired plant worker himself said he’s seen the population in his community drop from 8,000 to 2,300, the high school fall from a Class A to the low side of a Class B, and employees who earn on average $85,000 at the plant on the ropes.
“It’s not NorthWestern I’m supporting,” Ankney said. “It’s the utility with the expertise to sell that power out of that unit that I support. It’s not that company.”
Of course, the bill would shore up NorthWestern Energy, so much so that one energy consultant said it could become an attractive purchase to other players in the energy market. At a House committee hearing last week, NorthWestern lobbyist David Hoffman testified in support of it.
Chairman Rep. Derek Skees, R-Kalispell, asked Hoffman if NorthWestern receives a guaranteed rate of return on power purchase agreements in other states, as the bill in Montana would allow. (Fitzpatrick described the provision in the bill as “novel” in the law.) Hoffman avoided a direct response, and Skees requested he return with an answer.
But energy analysts at the Public Service Commission and outside Montana show the bill to be an exceptional deal for NorthWestern and its shareholders at the expense of ratepayers. NorthWestern would be allowed to buy more of the plant and be guaranteed a recovery even if the plant closes, so workers and the community still could be left adrift.
Last year, NorthWestern Energy tried to buy Puget Sound’s shares of Colstrip for $1.
“I’ll be honest. Paying $1 for a share of Colstrip is overpaying,” Schlissel said, pointing to outages at the ailing Unit 4 and the increasing costs of coal, among other factors.
But the bill would require the Public Service Commission to credit NorthWestern with having spent $700 million to $800 million and allow it to earn a profit off that “pretend” amount from customers, he said. In doing so, he said it builds on NorthWestern’s purchase into Colstrip Unit 4, where the PSC valued the asset at more than NorthWestern paid because another offer was on the table. (The PSC described the 2008 move as an acquisition adjustment, a legal albeit controversial provision.)
“This deal would build on that, and ratepayers would be paying a lot of money on what NorthWestern never spent,” Schlissel said. He also characterized the strategy. “A Ponzi scheme has nothing on this deal.”
That isn’t the only way NorthWestern would get to pull more money out of ratepayers, though. Cleanup costs are part of the equation too.
The state Department of Environmental Quality estimates the costs of remediation and decommissioning the coal plants in Colstrip at $400 million to $700 million. NorthWestern is responsible for its share, and the Public Service Commission decides the most fair way to split those costs between the utility and ratepayers.
Other owners, such as Puget Sound, are responsible for their share of cleanup. In the deal last year where NorthWestern tried to buy Puget’s portion of the plant for a buck, Puget would have retained its share of the remediation bill.
That’s business as usual.
But the legislation this year lets the utility take on the affiliated remediation costs and recover those costs as a term of acquisition, according to an analysis from the Public Service Commission’s legislative electric team. That means ratepayers would be on the hook, and Puget’s portion alone is some $35 million to $62 million.
“New Section 1 (1)(b)(ii) may be interpreted to allow a utility to fully recover the decommissioning and remediation costs of an acquired Colstrip share that existed before the acquisition was executed,” said an April 9 staff analysis.
Three other owners of Colstrip do business in Washington state, which has a mandate to stop using coal by 2025 . So future ownership changes aren’t hard to contemplate.
Schlissel said the greed and brazenness in the bill are astounding. He has paid attention to energy in Montana having done work for the Montana Environmental Information Center.
“It’s a horrible bailout bill for NorthWestern. It’s going to cost ratepayers in Montana tremendously. It’s going to be very painful economically for them. And it doesn’t even guarantee saving jobs at the plant,” Schlissel said.
At the hearing last week, Fitzpatrick compared the $56 to $86 a year, the estimated cost to a ratepayer of buying Puget’s shares, to people’s everyday expenses.
“Your subscription, for example, to a Disney Plus? That would be $7.99,” he said. A Big Mac meal is $5.99. So I think we’re getting a good deal at less than $5 for reliable energy from Colstrip.”
In this case, a purchase doesn’t guarantee a service, but in a phone call, Fitzpatrick said he sees SB379 as the reverse of deregulation. In that case, Montana Power sold off assets and then became subject to price increases on the spot market.
“This is the opposite. We’re giving NorthWestern the ability to obtain generation assets,” he said. “And owning assets reduces the risk from having price spikes in the open market.”
The specter of the fallout of deregulation arose in testimony anyway, as it has in opinion pieces, and so did the idea the ostensible beneficiaries of the bill, Colstrip and its workers, aren’t promised a penny.
Sen. Brad Molnar, R-Laurel, said the bill points to the need for energy, but the measure itself is empty.
“If the bill before you had one megawatt in it, one job, one day longer service from NorthWestern, I can’t find it,” said Molnar, also a former member of the Public Service Commission.
Several opponents made reference to the economic consequences that followed the 1997 bill and said they feared the same with SB379.
Sue Kirchmyer said political leaders have promised jobs, but she wondered how Montana would look to investors when families were spending their money to bail out NorthWestern.
“The last time we had a power company determine its own future, Montana Power Company did destroy our economy for years,” Kirchmyer said.
Skees replied after her testimony: “For the record, in ‘97, Montana Power did not destroy Montana’s economy. The Legislature did.”
Former lawmaker Steve Doherty said deregulation created the “duck effect.”
“We ended up ducking a lot after deregulation,” he said. “But the main thing was that there was a lot going on under the surface that we were not aware of.”
He said he wondered what was going on behind SB379, but regardless, it would be a significant departure from 100 years of ratemaking in Montana. Doherty said he didn’t remember all of his votes when he was in the legislature, and he doubts any legislator does.
“But you will be remembered for certain votes. This is one of them. Be on the right side,” he said.
In some ways, the political structure is the same this year as it was a couple of decades ago, with a Republican in the Governor’s Office and a majority GOP Legislature. But the politics are different. People who have been watching players at the Capitol during the years see a shift in values and the perfect environment for such a bill to march through into law.
“They’ll scream about somebody getting food stamps until the cows come home, but they aren’t going to scream about excess profit and price gouging,” Toole said.
He said utility issues are complicated, many legislators don’t understand them, and it doesn’t look like some of them want to: “Particularly now, our legislature is so ideologically driven that it’s like they checked their brains at the door.”
Buchanan, the state’s first director of commerce, said the low rates before deregulation allowed Montana to keep business here and bring in new ones. He supported Gov. Greg Gianforte’s bid for office and appreciates the governor’s focus on entrepreneurship, but Buchanan doesn’t see business as a priority of the GOP in general anymore.
“I think the old, conservative, business-oriented Republican party is gone. It’s gone. And it’s really unfortunate, because I’ve always regarded the Republican Party as having the ability to keep a pro-business agenda. And this (bill) in my opinion does the opposite,” said Buchanan, founder of investment advisory firm Buchanan Capital in Billings.
At the same time, Anne Hedges, head of the Montana Environmental Information Center, said it isn’t easy for legislators to give a complicated bill a full analysis. She said the session is short, lawmakers don’t have the time or the staff to do a thorough investigation, and they have to rely on others in their caucus.
“It’s just the nature of the beast. So the legislature is always more subject to raw politics than to the data,” Hedges said.
She and others also have said there are ways to help Colstrip, and Hedges testified last week in favor of one of Ankney’s bills (“at the risk of giving him a heart attack,” she said) should it be amended as he proposed. Senate Bill 86 would set up a grant program to help workers with funds from the power companies should the plants close, similar to the way Ankney said TransAlta supported people in Centralia, Washington, with $55 million.
“It ain’t something that we dreamed up to be punitive, but just to help these people out on their mortgages so they don’t have to throw their keys on the middle of the front room and have it on their credit,” Ankney said.
A 2020 analysis by Forbes noted coal consumption in the U.S. peaked in 2005, has declined since and sits at roughly 50 percent of its high.
Patrick Barkey, with the University of Montana Bureau of Business and Economic Research, said as coal assets are retired in the region, more and more states will look to meet their energy needs on the market. In doing so, they’ll compete against large buyers such as California.
“What that means is we’re likely to see higher prices,” Barkey said.
As energy markets tighten, he said, it becomes advantageous to own power generation, such as the plants at Colstrip, and NorthWestern is unusual in how large its deficit is: “It’s sizable.”
Does the focus on coal adequately account for growth in renewables? “I think it’s a hedge.”
But Barkey also said demands on the grid could be higher than some analysts predict given talk about addressing climate change and related policy. As one example, he said, the push for electric vehicles creates an instantaneous demand for power.
“That’s the wild card,” Barkey said of the way policy may shift future need.
In a Q&A on its website, NorthWestern outlines a worst case scenario if capacity falls short in the region. Blackouts during peak times are possible, as is market volatility, NorthWestern said, and substantial price increases already have taken place during cold snaps. In just four days in 2019, for example, costs per megawatt hour went from $65 on Feb. 27 to $154 the following day to nearly $900 on March 1, the company said.
In the short term, the U.S. Energy Information Administration projects the use of coal will increase this year and next, but over the longer term, the market for it will drop as renewables, namely solar, increase.
The sun still won’t shine all the time, but the EIA predicts a “significant” number of battery storage units will be added in the U.S. this year and help increase flexibility to the power grid.
Market economics are driving the transition in the industry, said Hedges. She pointed to Talen Energy, which owns a portion of Colstrip; Talen announced late last year that it would retire coal and shift to renewables and battery storage. Investors are pushing utilities to address climate change, she said, and the technologies for renewables are plummeting in price.
“So you have a lot of really big developers who used to be involved in coal and gas who are moving to renewables because they see profit,” Hedges said.
Buchanan, though, said NorthWestern isn’t ready for the shift, and he doesn’t think the company should get a handout. Roughly 61 percent of its energy comes from renewable sources, mainly 43 percent hydro, but that isn’t always available at the flip of a switch.
“What shocks me is how unprepared they are in general with Colstrip and for a diversified portfolio of power,” he said. “And how unprepared we are for the future. Now, I think there are ways to keep coal. I think coal will be part of a portfolio for a while. But to put every customer and business in the state at risk? To me, that’s corporate welfare. That’s wrong.”
The legislature has taken up numerous energy bills, but Sen. Mary McNally, D-Billings, who voted against SB379 in the Senate and read a letter from Buchanan to her peers on the floor, said the consumer isn’t a focus.
“That’s the problem to me,” said McNally. “That’s a major problem. I don’t see ratepayer interests being front and center here at all. Certainly not in this bill.”
Senate Bill 379 passed 27-21 in the Senate. Republican Sens. John Esp of Big Timber, Mike Lang of Malta, and Molnar of Laurel joined Democrats to oppose it. The bill is pending in a House committee.
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