Author: Dara Deines

Power Play Issue Two: Montana Power, NWE, and the Deregulation Disaster

(Total estimated read time ~6.5 minutes)

Last month catch up (Est. read time < 1 min.) 

In the last issue of Power Play, we learned WTF the Public Service Commission (PSC) is and why we depend on it to regulate Montana’s utility monopolies. We introduced a lot of terms and players, so if you need a recap, check out this handy glossary that we will keep up to date with each new issue. Next we’ll examine the other side of the equation – the utilities. You all likely know of NorthWestern Energy (NWE), since two thirds of us are lining the pockets of its corporate leadership with our monthly energy bills, but NWE wasn’t always our state’s main power supplier. Before NorthWestern, there was Pennsylvania Power and Light (PP&L), and before PP&L was the Montana Power Company. Buckle up y’all, because this story is one tragic roller coaster. 

Before NorthWestern Energy (Est. read time ~2 min.)

The Montana Power Company formed in the early 1900’s, around the same time as the PSC. Montana Power was a big time monopoly. It owned coal, oil, and gas reserves and the means of power generation through coal power plants and hydroelectric dams. It owned the transmission lines needed to carry huge amounts of power across the state, and it even owned the smaller distribution system that delivers electricity to homes and businesses. From the initial energy generation to your home’s light switches, Montana Power owned every step of the process.  

In exchange for subjecting itself to the firm regulation of the PSC, Montana Power was allowed to make around a 10% return on investment (meaning that it earned back an extra 10 cents for every dollar it spent to provide its customers with electricity and gas). Over the course of nearly a century, Montana Power became a highly stable Fortune 500 company that supplied Montana with some of the nation’s cheapest electricity.

But everything changed in the late 90s when federal legislation initiated a wave of utility deregulation in states across the nation. Deregulation was spurred by a sentiment that monopolies had little incentive to run efficiently when costs were always covered  — dismissing that the PSC was created for the explicit purpose of ensuring monopolies satisfy ratepayer interests – like efficiency and affordability. A free market capitalism narrative promised that competition would bring down prices, but as we learned in the last issue of Power Play, unrestricted competition requires that there be no barriers to entering the market. Building massive power plants and erecting the transmission and distribution lines to get that power to paying customers is a pretty damn big barrier. Especially in a state like Montana where there aren’t a ton of customers to incentivize new companies to compete. Unfortunately, the promise of lower energy prices was a corporate thirst trap that Montana’s leaders just couldn’t resist. 

Deregulation (Est. read time ~2 min.)

In 1997, out-of-state energy interests, Montana’s biggest industrial energy users, then Governor Marc Racicot, and even Montana Power advocated for deregulation. Following the lead of states like California and Texas, the Montana Legislature passed a bill based on model legislation written by the conservative-leaning American Legislative Exchange Council (ALEC). Thanks in part to ALEC’s model legislation, around 24 states in total passed some form of electricity deregulation during this time. If you’ve heard that name recently, it was likely related to bills passed in Montana’s 2021 legislative session attacking free speech, trans rights, and protest rights.

Montana only deregulated the production of power, not the transmission and distribution lines – meaning that the market would set the price of power, but the PSC would still regulate the cost of delivery. After deregulation became law, Montana Power sold its gas, oil, and coal claims to several Canadian companies, its power plants to Pennsylvania Power and Light, and its whole transmission and distribution system to what would become NorthWestern Energy. The assets that Montanans had spent years paying for through our utility bills were sold to the highest bidder. 

Top Montana Power executives and Goldman Sachs, Montana Power’s financial advisor, pocketed millions on these sales. Marc Ricicot got paid by those same pro-deregulation, out-of-state energy interests to lobby for deregulation in other states. Montana Power transformed into TouchAmerica, a telecommunications company, and massively invested in telecommunication infrastructure at the peak of the dot-com bubble. Top executives made out big time all across the board, but it didn’t turn out well for the average Montana family and business. Almost immediately, telecommunications crashed and Touch America filed for bankruptcy. When Montana’s last Fortune 500 company collapsed, thousands of people were laid off, workers lost their pensions, and many Montana families would never recover. 

To make matters worse, energy prices skyrocketed in 2001. Before deregulation, industrial energy costs in Montana were around $10 per megawatt hour. After deregulation, Montana energy generators were no longer required to sell within the state, so they sold their cheap energy to the highest bidder. Energy for many Montana industrial customers increased up to 20 fold, reaching $2,000 per megawatt hour at its height. Some companies paid over $1 million for power in a single day. As reported by CBS, “refineries, lumber mills, and the last working copper mine in Butte was forced to suspend operations because they couldn’t afford their electricity bills.”

Price hikes and re-regulation (Est. read time ~2 min.)

A clause in Montana’s deregulation bill protected residential and small commercial customers from these initial electricity price spikes, but when the price caps were lifted in 2002, all customers experienced substantial price hikes. All this, and that hypothetical competition, expected to bring energy prices down, never came to Montana. 

So yeah, this shit is messed up. At every turn it was us, the ratepayers, that suffered from a grand experiment based on faulty logic. Before deregulation, Montana experienced some of the nation’s cheapest electricity. Today Montana energy prices are higher than every one of its neighbors, except South Dakota, where NWE is based. 

That’s the past of the PSC and NWE. With this foundation, we can roll into the more immediate present. In the next issue of Power Play, we will investigate NWE’s dirty relationship with fossil fuels and why they just won’t cut this toxic energy source out of all our lives.  

Looking to learn more about deregulation? While writing this issue of Power Play, we relied heavily on this gritty PBS documentary and this comprehensive, yet surprisingly readable report by Public Sector Consultants, a nonpartisan policy research group.

Written and compiled by Emma Bode (Bozeman Field Manager), Stuart Rinehart (Bozeman Intern, Fall 2021), and Miles Cevallos (Bozeman Intern, Fall 2021)

Hey, we get it. This stuff is wonky and full of jargon. We’ve tried to make the general language of Power Play as accessible as we can, but there are still some terms that could trip folks up. See below a living glossary where we will add new terms included in each issue.

Barriers to Entry: factors that can prevent or impede competitors from joining a market such as high start-up costs.

Competition: in economics, this is a situation where different entities compete for customers or resources. In markets where competition is not restricted by things like barriers to entry or limited access to information, economists predict that there will be more innovation and lower prices.

Deregulation: a ten year period in Montana history lasting from 1997 to 2007 during which the cost of power was not regulated by the Public Service Commission in a failed attempt to allow new utilities to enter the market and bring down power prices. 

Emission Reductions: a measurable decrease in greenhouse gasses released into the atmosphere from an activity specified over a period of time. 

Fossil Fuels: materials made of ancient plant matter preserved in the earth’s crust that, when burned, are depleted to produce energy. Carbon dioxide is the main by-product of this reaction and causes global warming when released into the atmosphere.  Examples of fossil fuels include coal, petroleum, and natural gas.

Free Market: an economic system in which prices for goods and services are determined by unrestricted competition between businesses and transactions are “free” from government intervention.

Monopoly: a business, company, or corporation that does not have to compete to provide a needed good or service to a captive customer base. 

NorthWestern Energy: an electricity and gas utility monopoly based in South Dakota that currently supplies power to two-thirds of Montana’s energy consumers.

Montana Power Company: a collapsed utility monopoly that provided power to the majority of Montana for nearly a century until it sold all its assets and converted to a telecommunications company in 1999. 

Net Metering: a billing mechanism that allows a home, business, school, or library with a distributed generation system to accrue on-bill credits for excess energy that their system exports to the grid. Credits can be ‘banked’ for future bills. In most cases, the ‘bank’ balance resets to zero once per year and any leftover credits are forfeited to the utility (source: MREA)

Pennsylvania Power and Light: A Pennsylvania-based utility that bought the majority of Montana Power Company’s assets in 1999. It supplied energy to Montana for 15 years before selling those same assets to NorthWestern Energy in 2014. 

Pre-Approval: A Montana law passed in 2003 that allows NWE to be reimbursed from ratepayers for building new energy generation assets – making investments in new assets risk-free for NWE. The PSC must approve this reimbursement before the asset is built. This law was recently deemed unconstitutional by a Missoula County district court. 

Procurement Plan: A plan that NWE develops every 2 to 3 years for how it will ensure a reliable and affordable supply of electricity for all ratepayers over a forecasted 20-year period.

Public Service Commission (PSC): a five-member, partisan commission that acts as a mediator between utility monopolies and us, the rate payers. They are supposed to ensure we don’t get overcharged by utilities while allowing those utilities to make enough money to incentivize stable and reliable service. The PSC’s  jurisdiction includes privately-owned electricity, gas, telephone, water, garbage, and sewer utilities as well as rail and pipeline safety in Montana.

Rate Payer: likely you! Anyone who pays regularly for a utility service like electricity or gas.

Renewable Energy: often referred to as clean or sustainable energy — energy from a source that is not depleted when used, such as wind, solar, hydroelectric, and geothermal power.

Renewable Energy Standard: A Montana law passed in 2008 requiring public utilities acquire renewable energy equal to 5% of its retail sales of electricity in Montana. In 2010 that percent increased to 10% then rose to 15% in 2015. A stipulation of this law required utilities that did not comply to pay a penalty fee to tribal and low income energy assistance programs. This law was largely ignored by NWE and then was eliminated (along with the standing debt) in the 2021 legislative session. 

Re-Regulation: a period in history when the Montana Legislature re-instated regulations for the production of power beginning in 2007 and lasting through the present day. 

Rooftop Solar: A small-scale energy generation system where solar panels are mounted on the roof of a residential or commercial building. The system is generally owned by the resident or business. 

TouchAmerica: a telecommunications company that Montana Power Company restructured itself into in 2001, which then went bankrupt in 2003.

Utility: an organization that supplies a community with goods or services that are considered essential such as water, gas, electricity, or telephone. 

February 2022 edition

What is the PSC and why do we need it? 

(Total estimated read time ~6 min. 40 sec.)

Companies, corporations, and elected officials have moved the pieces determining Montana’s energy landscape for over a century. Today, NorthWestern Energy (NWE) supplies power to two-thirds of Montana’s energy consumers. NWE could transform our state into an affordable and renewable energy powerhouse, but chooses instead to depend on expensive and dirty fossil fuels. Why is NWE planning to spend over $1 billion building a fleet of gas-fired power plants over the next two decades? Why hasn’t the Public Service Commission, the one publicly elected agencytasked with regulating NWE, defended us from rising energy prices and a climate catastrophe? We’ll inspect the past and present of these two entities to uncover the answers and actualize an equitable and sustainable energy future. 

The Public Service Commission (PSC) is one of Montana’s smallest state agencies with authority to make some of our state’s biggest climate action decisions. Many of us don’t even know what the PSC is, let alone the scale and scope of the decisions the PSC makes. If you care about climate action, dread paying your monthly utility bill (even after splitting it between roommates), or want the freedom and financial support to use solar panels to generate your own energy, then you should #GiveAShit about the PSC. Before we dive into the what and how of the PSC, however, it feels important to explain why they even exist. And for that, we’ll need to brush up on our high school economics reeeeeeal quick! Bear with us here: 

Capitalism and Competition, or lack thereof (Est. read time: ~1 min.)

Capitalism deeply emphasizes the “free” part of free market economics — where prices for goods and services are determined by unrestricted competition between businesses and transactions are “free” from government intervention. Theoretically, this results in the most efficient distribution of goods and services. This romanticized narrative rarely centers the several CRUCIAL requirements for unrestricted competition: there must be no barrier to entry or exit for folks wanting to sell a product, the product offered must be similar from seller to seller, there have to be many different folks selling, and all the folks selling and buying must be well informed about the value of the product.

Are you seeing any red flags yet? ???? We know that structural oppression puts up all kinds of barriers and limits on who has the ability, wealth, and knowledge to participate in so many aspects of our society. And that’s just us humans. Mother Natch has her own set of physical limitations we like to forget about too. 

Competition matters because when companies don’t have to compete, they become monopolies. As those of us who have played the grueling family board game know all too well, monopolies slowly edge out all other competitors in a market until they have complete control of a captive customer base. In the absence of competition, they can charge exorbitant prices while offering an inferior service or product. 

Back to the PSC (Est. read time ~2 min.)

Now that we’ve brushed up on the basics, let’s get back to how this all relates to the PSC. Over a century ago, railroads in Montana were heavily monopolized. Railroads present a classic case of high barriers to entry, limiting competition as a result. It costs a shit ton to build a railroad, and there are often limited paths through the landscape – especially in a mountainous state like ours.

Generating and supplying electricity faces many of the same barriers to competition. It costs big bucks to build a coal-fired power plant or a hydroelectric dam. Installing and maintaining all the electricity distribution lines across the state is also a huge undertaking. Even if it was financially feasible for different electricity generation companies to compete, it makes sense to have one entity manage its distribution. Can you imagine what it would look like to have multiple power line companies installing power lines along the same routes? It would be an inefficient mess!  

The legislature recognized the impact these barriers to competition had on consumers’ energy prices, and just seven years after forming the Railroad Commission, they put those very same railroad commissioners in charge of regulating utilities. Following the example of states across the nation, the Public Service Commission was born. 

The PSC has evolved over time and is now composed of five partisan commissioners elected from different districts across the state and aided by a staff of expert advisors. The PSC’s jurisdiction expanded to include privately-owned gas, telephone, water, garbage, and sewer utilities. The PSC also regulates rail and pipeline safety in the state. The PSC’s goal remains the same as it did when it first formed — to act as a mediator between utilities and us, the rate payers. The PSC is supposed to ensure we don’t get charged up the wazoo by private utility monopolies while allowing those utilities to make enough money to incentivize stable and reliable service. 

How the PSC Impacts Our Lives (Est. read time ~2 min.) 

If you are seeking some tangible examples, look no further; here are just a few cases where the PSC can determine both our cost of living and our climate future. 

• If you have solar panels on your roof and generate more energy than you use, you can get paid by your utility for putting your excess energy onto the grid. This is called net-metering and lowers the overall cost of having solar panels. The PSC sets the rate that you, the consumer, gets paid for your extra energy and thus determines if money saved and earned through generating your own electricity and net metering is enough to offset the cost of buying and installing solar panels — AKA if it makes financial sense to have solar at all. 
• The PSC also determines the price that independent wind and solar farms can sell their energy for — determining if it makes financial sense to build these independent renewable energy projects. 
• When utilities, like NWE, want to buy or build another facility or resource, the PSC assesses if that expansion is in the best interest of us, the ratepayers. If the PSC determines it is in our best interest, then the PSC allows the utility to pass the costs off to ratepayers rather than taking on that financial risk as a company. As a result, we could collectively pay millions of dollars to finance coal or gas-fired power plants in an age when we must make a dramatic shift to renewable energy. 
• Every few years, utilities have to submit a 20-year plan to the PSC outlining how they will meet the needs of ratepayers. Say, perhaps, that a utility planned to build a fleet of new gas-fired power plants without investing in any renewable energy generation (cough cough, NorthWestern Energy): the PSC decides if the utility’s long-term plan aligns with the interests of stakeholders and the public. In practice, the PSC interpretes this mostly as our financial interest, but it’s within their responsibility to also protect our cultural and environmental interests.

Itching to learn more? Check out this great resource from the Montana Renewable Energy Association. 

Unfortunately, the PSC has a spotty history of living up to its founding ideals of consumer protection. Instructions from the state legislature, influence from utility lobbyists, and contention within the PSC itself have undermined the PSC’s mission. We’ll dig into the backstories of these other players in the next issue of Power Play. 

Written and compiled by Emma Bode (Bozeman Field Manager), Stuart Rinehart (Bozeman Intern, Fall 2021), and Miles Cevallos (Bozeman Intern, Fall 2021)