The price of power
Montana and the nation are at the crux of a changing energy future. What that future will look like depends on the choices we make now. These choices will require some tough decisions by both electricity consumers and the regulators of our utilities at the Montana Public Service Commission (PSC). Regulated electric and gas utilities in Montana include Northwestern Energy (NWE) and Montana-Dakota Utilities (MDU) in the eastern part of our state. Electric co-ops are not regulated by the PSC. The challenge for electricity providers and regulators is how to incorporate alternative forms of energy such as wind, biomass, solar and geothermal into our system as a long term investment towards clean energy and energy independence. As with most investments, the payoff comes over time, perhaps even over a lifetime. Judith Gap, Montana’s first wind farm, came on line in 2006, and customers are already seeing the benefits. The 135MW facility supplies 8% of NWE’s energy needs at a cost of about $40/MWH, considerably less than the cost of electricity produced at the coal fired power plant in Coalstrip ($54/MWH).
The cost of new generation and transmission, no matter what the resource, is always more expensive than conserving energy – often double the price or more. The energy we don’t use – energy efficiency- is by far our cheapest resource. So, whether we build a new wind farm or commission a new coal fired power plant, the costs for building the facility as well as generating and transmitting the electricity will be incorporated into the rates customers pay on their utility bills. This is a simple fact of regulation. By law, our regulated utility companies are guaranteed the right to recoup the prudently incurred costs of providing reliable electricity to their customers. This principle also applies to other regulated utilities such as water and telephone. Utilities recoup their costs through the rates they charge. In addition, regulated utility companies have the opportunity- but no guarantee- to make a reasonable profit.
Like any other business, our utility companies are interested in turning a profit. And like any other investor-owned business, the investors and Wall Street watch closely to see whether or not they do. The ability of a regulated utility to obtain capital, retire debt, and produce energy efficiently is directly related to its Wall Street credit rating. The higher the rating, the lower the cost of capital and the lower the cost of retiring debt, both of which are incorporated into the rate making process. It is of direct financial benefit to customers to have a healthy utility with a high credit rating. After years of struggling through bankruptcy and an attempted buyout by a foreign company, NWE is once again on solid financial ground. Part of the credit for this transformation goes to the PSC for doing its job regulating the business of the company.
NWE and MDU are regulated for a simple reason: they are monopolies. Since customers of these utilities do not have a choice about where to purchase their electricity, these utilities fall under the purview of the PSC. It is up to the PSC to see that utility companies practice sound accounting, prudently incur costs, and provide safe and reliable service.
PSC regulators, who are also charged with ensuring that customers pay fair, just and reasonable prices, work hard to find a reasonable balance. This is not always an easy task.
Regulators are faced with tough questions every day:
1. Is it fair to allow rate increases to repair or replace aging infrastructure?
2. Is it prudent for the utility to build a regulated gas plant instead of buying this volatile commodity on the open market?
3. Is it reasonable for a utility to acquire clean, renewable wind at a cost that might initially be higher than the cost of traditional fossil fuel?
The results of our decisions have a direct impact not only on your utility bills, but on the course of our energy future. Will Montana continue to rely on dwindling fossil fuels with a big carbon footprint or look to the cleaner, renewable resources that abound in the treasure state to power our future? Will customers understand and voice approval when our utilities invest in renewable energy, even if it means higher rates in the short run? Will customers be open to education about how to conserve energy, and be eager to implement conservation strategies that use less energy for the benefit of current and future generations?
It’s not for the PSC alone to decide. We face these challenges together. It’s important that every customer of a regulated utility ponder these questions. It’s important that customers understand what rates are based upon and why. It’s important that we work together to choose our energy future wisely.
Gail Gutsche is a commissioner on the Montana Public Service Commission. She represents District 4 which includes Powell, Granite, Ravalli, Missoula, Mineral, Lincoln and Sanders Counties. She can be reached at 406-444-6167 or ggutsche@mt.gov.