Fair use for educational/research purposes only!

May 13, 2001 As Power Prices Surge, Montana, Too, Asks Why

By JIM ROBBINS

BUTTE, Mont. -- The last large-scale metal mine is silent in this city perched in the Rocky Mountains. The 170-ton, house-sized ore-hauling trucks, which once rumbled with loads 24 hours a day, have not fired up their engines since last summer. Nor have the conveyors, the crushers, the concentrators and the grinders. And most of the 320 workers who carved out a living extracting copper, molybdenum and silver from the 600-foot deep Continental Pit have scattered to other states and other jobs.

Montana Resources Inc., which owns the mine, has been out of affordable power for nine months. At the beginning of 2000, the mine was paying $26 a megawatt hour, up from $19 the year before. Last week, however, a megawatt hour cost $320.

While California has grabbed most of the national headlines for a power crisis caused by deregulation gone awry — rolling blackouts resumed there last week — another power deregulation crisis has been unfolding here in Montana. And in some ways, it is far more striking in its impact. While Californians may be somewhat protected from skyrocketing costs, Montanans are not. Paper companies, mines and other large industrial companies in Montana have been laying off workers because they cannot afford to pay their electric bills. Residents are expecting their household electric costs to as much as double by July 2002.

A growing number of Montanans want to return to a time when their state, with its own sources of cheaply produced power, had some of the lowest electricity rates. Many residents are angry at the Legislature, which in their view deregulated the market solely at the behest of the Montana Power Company, once the state's dominant utility.

Under deregulation that took effect three years ago, Montana Power sold its hydroelectric and coal-fired generating plants to the PPL Corporation, the Allentown, Pa., company that sells power in 42 states and in Canada, England and Latin America.

Like other owners of power generation sites, PPL has been profiting immensely under deregulation by charging rates based on the forces of supply and demand. Montana Power still distributes electric power around the state, but will soon be getting out of that business as well.

The change has left large power consumers like Montana Resources scrambling to survive. They have scoured the region for affordable alternatives. They have asked PPL to make at least some cheaper electricity available but it is unclear if that will happen. And they have lobbied the Legislature to reregulate electrical power.

"We've got to play all of our cards," said Greg Stricker, president of Montana Resources, as he gazed over the company's open mining pit and a giant statue of the Virgin Mary that sits high on a mountain above it. "We're faced with extinction." PPL, however, says it has no choice but to sell its power at market prices.

On a national scale, the plight of Montana, which has fewer than a million people, is not as visible as that of California, which has nearly 34 million. But Montana's experience shows what can happen when power prices spiral out of control and businesses and consumers are not protected.

Montana's power crisis is rooted in the history of the Montana Power Company. It was formed in 1912 by Anaconda Copper Mining to ensure power for Anaconda's extensive mining, milling and sawmill operations. Montana Power built hydroelectric dams on 11 rivers across the state, dams that still create power at low cost.

Anaconda was also accustomed to getting its own way. The company owned most of the state's daily newspapers until 1959 and wielded tremendous influence among elected officials. Anaconda, the historian Bernard DeVoto wrote, "maintained a more thorough-going ownership of Montana's wealth, government and inhabitants than any other corporation has ever been able to maintain in any other state."

The Anaconda era ended in 1977 when the company was bought by Atlantic Richfield, the oil company that has since been acquired by BP P.L.C. ARCO closed the mines in 1980 and the smelter in 1983. Montana Power, which had become the state's regulated utility, outlived its creator.

By the mid-1990's, however, Montana Power was worrying about its own future. Power deregulation, a national trend, looked inevitable, and the company's big industrial customers were already shopping for sources of cheaper electricity.

So, trying to make a virtue of necessity, Montana Power began the process of getting out of the power business. It diversified, creating an Internet service provider called Touch America. It also began to push for power deregulation, saying it would result in lower costs and more customer choices. The company was hoping that deregulation would make itself attractive to investors and potential buyers.

A deregulation bill, the Electric Utility Restructuring and Customer Choice Act, was introduced in March 1997, when the legislative session was nearly over. Lawmakers, most of them farmers and ranchers and businessmen, approved it hastily.

To some critics of deregulation, the passage smacked of the era when Anaconda dictated what the Legislature should do. Ken Toole, a Democratic state senator and an opponent of the deregulation, called it a "steamroller with the mantra of free market." Montana Power disputed that interpretation. Jack Haffey, its president and chief operating officer, said, "it was not a bill pulled out of somebody's pocket and foisted on the public."

Still, Montana Power emerged with marketable power plants and its thriving Touch America business. The company sold its power plants to PPL, investing much of the proceeds in Touch America. Montana Power's shares, adjusted for an August 1999 split, soared to nearly $65 in March 2000 from less than $20 before deregulation. (The shares have since returned to a below-$20 range, closing on Friday at $16.48) Company insiders cashed in their stock options at the peak and some became rich.

And for a while, deregulation appeared to be working. Competition among power suppliers was pushing down the price of electricity. In January 1999, Montana Resources' power costs fell to $19 a megawatt hour from the regulated price of $30.

But starting in June 2000, Mr. Stricker said, "the market started to go nuts." Rising demand, coupled with a lack of new supply, pushed up prices sharply. A megawatt hour spiked as high as $680 and then settled back into the $200-to-$400 range. Buyers of long- term contracts for electricity could get somewhat lower prices, ranging from $100 to $150, but even that was unaffordable for many.

The region's power crisis has been aggravated recently by a drought that has reduced the amount of hydroelectric power generated. Steve Walsh, a Montana Resources spokesman, said the company's suppliers told it that rates could reach $1,000 a megawatt hour in the third quarter.

Montana's labor force, meanwhile, has suffered. Since last summer, according to the Montana affiliate of the A.F.L.-C.I.O., more than 1,000 workers have lost their jobs in layoffs caused by power price inflation.

But the increased prices have been a boon to PPL. Last month, it reported its sixth consecutive quarter of record earnings. William F. Hecht, the chairman and chief executive, told the shareholders meeting on April 27 that "we are in the midst of the strongest growth period your company has ever known."

When the Montana Legislature convened this year, for the first time since power prices soared, it was besieged by worried citizens and businesses. Bills to change the law were introduced; one measure would have imposed a windfall-profits tax of 3,200 percent on power suppliers.

In the end, just one bill passed, supported by Montana Power and PPL, that shields both companies from most financial risk by giving them a right to recover costs they incur to find power for Montana consumers. In exchange for that protection, PPL tentatively agreed to sell 500 megawatts of power in Montana, up to two-thirds of what the state needs, at $40 a megawatt for five years, starting July 1. But the agreement could collapse — Montana's Public Service Commission opposes it on grounds that power suppliers got too much. Bob Anderson, a Democratic member of the commission, said it looked as if the power suppliers had written the bill.

Dan McCarthy, a spokesman for PPL, said it has done what it could for lower prices but had a "responsibility to our shareholders." And Ed Bartlett, who was Montana Power's chief lobbyist during its push for deregulation and is now Gov. Judy Martz's chief of staff, said many industrial consumers in the state "might be looking for a price of power that is just too low."

States in the Northwest that did not deregulate are now counting their blessings. On May 1 in Idaho, the state's Public Utilities Commission approved an increase in power rates. For large users, the cost of a megawatt hour will go to $41 from $29, to cover the 40 percent of its power that Idaho must buy on the market. That is a far cry from what Montana has been paying.

"That's what going to the market does for you," said Marsha Smith, a public utilities commissioner in Idaho.

Throughout the Montana ordeal, Montana Power has said it has done nothing wrong, and has expressed optimism that the cost of power will fall eventually, as deregulation evolves. The current problem, Mr. Haffey said, "wasn't caused by deregulation," but rather by "a dysfunctional market."

Others, however, say the company and its influence over Montana lawmakers have created a mess in a state where power was once plentiful and eminently affordable. "Montana held the four aces of cheap power," said former United States Representative Pat Williams, a prominent critic of deregulation. "And a corporate-lackey legislature demanded a new deck of cards."

http://www.nytimes.com/2001/05/13/business/13POWE.html?ei=5006&en=4dd555fa5a5348fc&ex=990417600&partner=ALTAVISTA&pagewanted=print

-- Martin Thompson (mthom1927@aol.com), May 14, 2001

Answers

Thanks Martin!

I saw this (or similar)on the NYT site on Saturday night.

This part hit home:

While California has grabbed most of the national headlines for a power crisis caused by deregulation gone awry rolling blackouts resumed there last week another power deregulation crisis has been unfolding here in Montana. And in some ways, it is far more striking in its impact. While Californians may be somewhat protected from skyrocketing costs, Montanans are not. Paper companies, mines and other large industrial companies in Montana have been laying off workers because they cannot afford to pay their electric bills. Residents are expecting their household electric costs to as much as double by July 2002.

Thanks Again!

Tom

-- Tom McDowell (bullriver@montana.com), May 14, 2001.

Hogwash! The California power crisis was not caused by deregulation gone awry. PG&E went banrupt because of a REREGULATION which required it to sell most of its generation, prohibited it from buying power by long term contract and fixed the price at which it could sell electricity to its customers, while the price it had to pay for it soared. If that is deregulation, my dictionary is wrong.

The power shortage has nothing to do with the cockamamie reregulation scheme. It is an insufficient supply of power to meet the demand caused by not buildibg new plants for the past 10 years and unplanned generating outages exceeding those planned (61 to 37 a few days ago). When unplanned outages began to soar, the guv supposedly sent out the troops to find out why. The motivation was the supposition that the greedy generating companies were closing down on purpose to jack up the price. Don't you think he would be shouting this from the rooftops if it could be subststiated? So, why are so many plants down? Might those embedded chips have anything to do with it?

-- Warren Ketler (wrkttl@earthlink.net), May 14, 2001.