Bob Rowe: Hydro power deal will help customers for a long time

2014-07-24T00:00:00Z Bob Rowe: Hydro power deal will help customers for a long timeBy BOB ROWE President and CEO NorthWestern Energy The Billings Gazette

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.

Last week, a Billings Gazette editorial suggested that NorthWestern Energy might be trying “to stick it to” customers in its proposed purchase of the dams.

The author was apparently concerned about future electric rates. In fact, achieving long-term price stability for at least part of our supply portfolio is a key reason we have worked so hard to buy these dams.

We must act now to meet our customers’ current and future 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. Homeowners build equity. During 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. The loss of the Billings plant’s 154-megawatt generating capacity alone could lead to higher electricity market prices in Montana.

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 the Gazette editorial contends.

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 bill increase of about $5 per month for a typical residential customer. No increase is welcome news. But in the long term, buying the dams will allow us to deliver electricity at lower rates, saving money for customers for decades to come.

Contrary to the Gazette editorial’s assertion, dams in good conditions are not going to be available at a “bargain price” in the current market. The $900 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.

Copyright 2014 The Billings Gazette. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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