NorthWestern Energy’s recent statements likening my colleagues to “children in need of discipline by a parent” took me aback. This rhetoric is unprofessional and incorrect.
NorthWestern is unhappy with a series of recent PSC decisions. Specifically, the PSC has determined that unless a new power plant can demonstrate benefits to consumers within 10 years, it should not be pre-approved by the PSC.
NorthWestern is a legal monopoly. It is allowed to charge customers rates based on whatever it spends, so long as the PSC signs off before it buys a power plant. Whether the investment turns out to be a good bet or a bad bet does not matter to NorthWestern’s bottom line. It gets paid either way.
Most companies have to shoulder the risk of an investment. Meanwhile, NorthWestern has been gambling with other people’s money, taking big risks over the last decade that most businesses would not. Buying existing hydro and coal assets at a substantial premium, NorthWestern bet that electricity prices would rise and the assets will be “in the money.”
Unfortunately, those bets haven’t paid off, and it’s increasingly clear that some of them never will. Customers have paid slightly more than $460 million in just the past five years in premiums over and above the market price of energy for the coal, hydro, and wind power plants the company owns.
Put another way, if NorthWestern had instead bought energy from other suppliers — the independently owned share of Colstrip or excess supply from wind farms — every NorthWestern customer would have saved on average $1,250.
That’s a substantial amount of disposable income — and what has that money gone toward? That money has produced little new investment and jobs in Montana, because it has mostly been used to grease the movement of existing assets from one company to another. Indeed, some of the same investors are the largest shareholders of the prior owner of the utility’s dams and NorthWestern itself. That $460 million isn’t an “investment” so much as a wealth transfer from Montanans to out-of-state investors.
NorthWestern argues its bets are a type of insurance policy. Maybe. But consider your own experience. Would you promise to pay, right now, $7 per gallon each time you fill your tank for the next two decades? You’d be paying double today’s price, but you’d be insured in the event that gas leapt to $15 per gallon.
I would not take that bet — if I did, I’d leave myself a little wiggle room. NorthWestern is taking the opposite approach, wanting to lock in prices for virtually all its supply. As a consequence, NorthWestern rates are today among the highest of its peers in the region.
For years, I have been a critic of NorthWestern’s approach. The company’s strategy does not make sense, except in the context of a company that earns a profit based on whatever it spends, not what value this spending brings to consumers.
My colleagues today on the PSC “get it.” They see the risk that consumers have faced because of past decisions that fail to hold the company accountable. My colleagues and I are taking a cautious approach to further out-of-market investments.
NorthWestern has suggested the PSC is trying to bring back the days of deregulation. That is nonsense. Back then, Montana customers were totally exposed to the market. Today, NorthWestern has long-term arrangements equal to more than half its consumers’ demand. The question now is whether NorthWestern will make further “long” bets on the remaining supply.
NorthWestern’s bad-mouthing of the PSC marks a change in company strategy. Rather than convince us, the monopoly is lobbying legislators to apply political pressure to us. This is inappropriate. The PSC is bound by a code of ethics and Montana law to consider only evidence that is presented to us under oath in our hearing room. NorthWestern knows this. The utility damages its credibility by stooping to this level, and puts itself in a class with the Anaconda Company and Enron.
I urge NorthWestern to make its case before the PSC. Keep it to the facts. Avoid the scare tactics. We can have an informed dialogue about Montana’s energy future without making rushed decisions that consumers will end up regretting.
Travis Kavulla, R.-Great Falls, is the vice chairman of the Montana Public Service Commission.