If the Montana Public Service Commission approves NorthWestern Energy’s proposal to acquire the PPL dams, those great facilities will be dedicated to serve our Montana customers, at prices based on the cost of producing electricity, for as long as there is water in the Missouri and Clark Fork river basins.
Over the past week, The Billings Gazette has editorialized on the dam purchase. While the editorials recognized some of the reasons we think buying dams is important and makes sense for our customers, the core motivation is straightforward: We need to acquire energy to meet our customers’ needs. The Montana dams are the long-term, lowest-cost supply available to us.
We have act now to meet these electricity needs. There are two choices: We can buy electricity from the market where we have no control over the price (like renting a house). Or, we can buy the dams and have the costs regulated by the PSC, based on the cost of producing power. Like buying a house, over time the cost can go down. Utility customers pay prices based on “original cost minus depreciation,” which means that over the depreciation period (in this case 50 years) the net amount on the books goes down, like paying off a mortgage, and customers get the benefit. Over the last few years, we’ve paid PPL $1.5 billion dollars to buy power – like renting a house. Now, we have the chance to buy the house and build equity for our customers.
The price of electricity is relatively low now. An improving economy, current and proposed environmental regulations, and rapidly changing conditions in the Western energy market will bring higher prices in coming years. Buying the dams and locking in a clean, renewable source of electric generation with low, predictable costs, is a smart thing to do.
Late in 2012, PPL Montana announced plans to mothball its J.E. Corette generating plant in 2015, citing market conditions and the high cost of complying with air quality regulations. Add in the announced closures of large coal-fired generating plants in Boardman, Ore., and Centralia, Wash., the impact of new proposed EPA regulations on new and existing carbon-fueled generating plants across the U.S., including those at Colstrip, and the desire of Washington state political leaders to get their utilities off electricity generated with coal in Montana, and you’ve got a market clearly in flux. The outcome of all this change will be long-term higher prices for electricity, not just occasional market “spikes,” as one of The Gazette editorials contended.
The market price of electricity matters to NorthWestern customers. Right now, we buy almost half of the electricity we need to serve our Montana customers on the market. If we are successful in purchasing the dams, that figure will drop to just 10 percent. Reducing our dependence on market prices and diversifying our electricity portfolio is the right thing to do for our customers.
From the moment we announced the proposed purchase in September 2013, we acknowledged that the project would lead to an initial increase of about $5 per month for a typical residential customer. No increase is welcome news. In the long term, buying the dams will allow us to deliver the electricity at lower rates, saving money for customers for decades to come.
Contrary to the Gazette assertions, dams in good conditions are not going to be available at a “bargain price” in the current market. The $870 million purchase price resulted from many months of negotiation with PPL. It is right in the middle of recent hydro deals across the country. It’s a fair market price for high-quality generating assets.
Short-term thinking got Montana into trouble with supply deregulation and the sale of the dams by MPC to PPL. Now, we have the chance to assemble a portfolio of resources dedicated to serve Montana customers at prices based on cost, and regulated by the Montana PSC. I hope The Gazette and its readers won’t give in to short-term thinking once again.