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.
It wasn’t until 2007 that Montana finally re-regulated its energy. This allowed NWE, who at that time was just a transmission and distribution company, to start owning the means of electricity production. NWE went on a rate-payer financed shopping spree over the next decade. It bought gas wells, wind energy, a share of Colstrip, built gas fired power plants, and in 2014, spent $900 million to buy back the 11 hydroelectric dams from PP&L.Ratepayers paid for the original construction of many of these dams when Montana Power owned them. Then during the 15 years we bought power from PP&L, we helped PP&L recoup their debts from the dams. Now we are paying off NWE’s debt for the very same assets. In effect, we’ve paid for these dams three times!
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)