PSC holds hearing on portfolio
May 22, 2002
Some people think NorthWestern Energy's plans to purchase power in future is a good deal and others think it will burden consumers.
Gary Feland, chairman of the Public Service Commission, held a hearing in Havre Tuesday about the portfolio of electrical contracts proposed by NorthWestern Energy to supply customers who have not chosen an electrical supplier of their own. The rate increases expected from the portfolio range from about 20 percent over two years for most consumers, but up to 32 percent for irrigators.
State Sen. Greg Jergeson, D-Chinook, who is running against Feland for the District 1 PSC seat in the 2002 election, said the portfolio will hurt electrical customers who have no choice.
The default porfolio "would be better labeled the captive customer bill of goods because it relates to the electricity rates that will be paid by those customers left behind by electricity deregulation," he said in a prepared statement.
Bill Pascoe, vice president of energy supply at NorthWestern, has been compiling the portfolio for more than a year, starting when he still worked for Montana Power Co. NorthWestern purchased Montana Power's electrical distribution system in February. Pascoe said the portfolio is well-designed and properly negotiated.
The PSC has to decide whether the contracts were properly negotiated and chosen, and how many of the contracts to approve. The contracts will determine what generators will provide power to NorthWestern's default customers starting July 1.
Only large businesses and organizations have chosen a power supplier. The portfolio applies to all other NorthWestern consumers in Montana.
A residential customer paying $50 a month for electricity would pay $56.50 in July if the portfolio is approved, Pascoe said, and $59.50 in July 2003.
NorthWestern is acting as a middleman for its default customers, Pascoe said. The customers will be charged the cost of the electricity, with NorthWestern taking no profit. If costs change during a year, the customers will be refunded the difference or charged an extra amount to make up the difference in the next year, he said.
The portfolio is designed to provide as much electricity as is needed, ranging from a low of about 450 megawatts a day to a peak of 1042 megawatts a day. Pascoe said contracts with a variety of generators, both existing facilities and generators yet to be build, are in the portfolio to provide the most flexible, cost-effective supply. The proposed contracts include coal-fired and gas-fired plants, hydroelectric plants and wind-generation plants.
Part of the concern about the portfolio is a contract with Montana First Megawatts, a generator being built outside of Great Falls by another subsidiary of NorthWestern Corp., NorthWestern Energy's parent company. People at the meeting pointed out that the Montana First contract is the most expensive part of the contracts with new generators.
Frank Buckley of Montana Consumer Counsel, the legislative agency that represents Montana consumers in issues before the PSC, said the counsel hired economist John Wilson to examine the portfolio, and that Wilson determined the process of designing the portfolio was flawed.
In addition to problems with the transaction between NorthWestern Energy and Montana First, Wilson found that NorthWestern didn't properly define objectives and processes, and did not prove that it sought the least expensive contracts, Buckley said.
Calling the Montana First contract collusion is inaccurate, Pascoe said. Montana Power and NorthWestern were separate companies when the contract was negotiated last year.
"Now the companies are merged it looks and feels like affiliated transactions," he said.
The PSC has mechanisms to regulate transactions by affiliated companies, he added. The commission has regulated transactions Montana Power had with affiliated companies before, Pascoe said.
He added that the apparent price of the contract is misleading. Gas-fired plants, like the Montana First facility, have different kinds of contracts because the plants can be fired up or shut down quickly, making them ideal for peak-period generation, he said. The Montana First contract actually provides a good deal for providing power during peak usage, he said.
Montana electricity customers have been better off than some of their neighbors in the last few years, Pascoe said. When the Legislature enacted deregulation in 1997, it froze electrical supply rates. There have been some increases in distribution costs since then.
Electricity customers in Idaho, Oregon and Washington haven't been so lucky, Pascoe said. He cited rate increases following price jumps in 2000 and 20001, ranging from 17 percent at an Idaho company to 58 percent at a Washington company.
NorthWestern expects rates to increase for the next two years, then remain flat for three years through the duration of some of the contracts. A 20 percent increase is a number that gets peoples' attention, and it should, Pascoe said. But if it's the only increase in 10 years, it doesn't sound as bad, he added.
Cameron Worstell of Havre agreed.
"Twenty percent spread out over 10 years I think we can live with. Everything goes up," he said.
But Antoinette "Toni" Hagener, speaking for the American Association of Retired Persons, said the PSC should take its time and make sure the portfolio contains the best possible contracts. The commission should reject the pressure tactics of the electrical utilities, she said, or people on fixed incomes could be devastated.
Rep. John Musgrove, D-Havre, said his constituents have raised that concern. The portfolio could cause people on fixed incomes to make choices between health insurance or electricity, he said.
"I think something will happen and there will be a backlash. And we will all be lesser for it," Musgrove said.