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Montana Viewpoint

IT EITHER WORKS OR IT DOESN'T

March 11, 2001

Recently the Senate debated a bill by Sen. Ken Miller, R-Laurel, that would lower the tax on coal used by new coal fired electrical generation plants. The bill specifies that 50% of the electricity generated must be sold in Montana. The interesting part is that the rate the customer pays must be set by the Public Service Commission (PSC). Wait a minute! I thought that deregulation took the PSC out of the process and let the law of supply and demand set the price. So why does Miller want to undo now what he helped to do just four years ago, and have the PSC set the price? Does this mean that deregulation has failed? Well, if it has, none of the Republicans who voted for it are admitting it, while virtually all Democrats who did have hung their heads in shame and admitted the folly of their ways. If deregulation works, it’s odd that so many bills are being introduced to fix it. Well, the debate was spirited, and an attempt by Sen. Jon Ellingson, D-Missoula, to make the new plants offer 100% of their power to Montana failed.

I thought it might be beneficial to give some background on regulation and electrical generation in Montana in general, and relate it to the desire of some to build new power plants so we can sell California more electricity. The idea of regulation is simple. Utilities are given monopoly status in exchange for selling their services to the public on a cost-plus basis. Montana electric utilities were required to give Montana customers first call on the power, and were guaranteed an annual rate of profit of from 7 to 11%. That’s still the case for most of us in Montana until July 1, 2002, when we get to experience the joys of deregulation. Pennsylvania Power and Light (PP&L), the outfit that bought the Montana Power Company’s (MPC) power plants, has to sell MPC enough power at regulated rates to satisfy the needs of MPC’s customers until that date. The power that used to have to be sold to the industries that pushed for deregulation so they could shop for lower power prices can be shipped out of state by PP&L. After July 1, 2002, they can ship it all out of state, if they wish to.

Some are now crying that we have a need to build new power plants to, one: supply the power that Montana used to have but which is now leaving the state, and two: to ship even more power out of state. So, here’s a little background. Total annual generation capacity of all the power plants in Montana is about 5000 Megawatts (MW). (A megawatt is a unit of power, and for now, all we have to know is that it’s a whole bunch of electricity, and we’ll use MW just as we use cup measures in cooking or gallons at the gas pump.) Typically, power plants don’t run at full bore, so average annual generation is more like 3,200 MW. Except for the now unregulated companies, the average retail consumption of electricity in Montana is about 1,600 to 1,700 MW, including Co-op customers. That’s about 50 to 55% of the power produced here. If these figures say anything to us, it should be that there’s plenty of power that could still be used in Montana, and PP&L produces about 1,275 MW of it which is about 80% of our retail power needs. Typically, Montana has always had surplus power to export, even when the now unregulated companies were still in the regulated fold.

Should we build power plants to send power out of state? After all, there’s sure a need for it in the West, and it’s cheaper to put the plant at the mouth of the coal mines and ship the Megawatts instead of the coal, to points South and West. That’s a good idea except for two things. First, there is a whole bunch of new power plants that will come on line in Arizona, California, and Mexico in the next two years, and second, we couldn’t get it to them, or, at least not enough to matter. We all know those big towers that carry juice all over the place. We might not think of it, but they can only carry so much of it, and they’re right close to capacity now. Total capacity of the transmission lines leaving Montana is 2,840 MW, and they’re not building any more of them. In fact, that’s not just a problem here, it’s a problem all over the country. To me, it doesn’t make a lot of sense to break our necks to get industry to build new power plants when we already have it home grown. If the free market works, it works, and we don’t need to offer additional incentives. Anyway, in the five to seven years that it takes to build a new power plant it will be a whole ’nuther ball game. That’s the way I see it, but others see it differently. Obviously.

Jim Elliott
Phone: 406-444-1556
Mail: State Senate Helena, MT 59620

jim@jimelliott.org