Mystic Lake

Water pours over the Mystic Lake Dam in the Beartooth Mountains southwest of Absarokee. 

Gazette Staff

HELENA — The state Public Service Commission Thursday approved NorthWestern Energy’s proposed $870 million purchase of 11 hydroelectric dams, paving the way for return of the Montana dams to utility ownership 15 years after they were sold off by Montana Power Co.

Commissioners who voted for the deal called it the “opportunity of a lifetime” that would provide a stable, long-term source of electricity for NorthWestern’s 340,000 electric customers in Montana.

The approval, however, comes at a price for those customers, who will see an estimated 5 percent electric rate increase this fall  and put those rates among the highest for among major utilities in the region. The average household customer’s bill will go up about $4.50 a month.

The PSC voted 4-1 Thursday to approve the purchase, with a few minor adjustments to the company’s proposal, culminating nine months of study and a two-week hearing in July.

Commission Chairman Bill Gallagher, R-Helena, made the motion to approve the deal, saying ownership of the dams by the utility offers ratepayers a reliable source of pollution-free power for years to come.

“I am sorry that we ever gave up the dams, because they were a cost-effective resource,” he said, referring to the 1999 sale by NorthWestern’s corporate predecessor, Montana Power Co., to PPL Montana, as part of utility restructuring and deregulation. “I hope these will stay in the portfolio long enough so that they do get paid off. …

“I’m willing to stand up and say, 'This is my legacy, this is my position.’ … If history judges me a fool, then so be it.”

The only commissioner voting against it was Travis Kavulla, of Great Falls, who said putting ratepayers on the hook for the full $870 million price gives NorthWestern a hefty guaranteed profit over many years, while consumers get only a promise of below-market rates in the distant future.

He also discounted the idea that the deal is an “opportunity of a lifetime” for ratepayers and the company.

“I just don’t feel that way,” he said. “(The dams) are in the rivers they’re in. They’re not going anywhere. … Whoever owns them is going to have very little choice” but to sell the power in Montana.

NorthWestern President and CEO Bob Rowe commended the PSC decision and said Thursday the company hopes to take possession of the dams later this year. The commission still must vote on its final, formal order, after which NorthWestern needs final approval from the Federal Energy Regulatory Commission.

Rowe said with the purchase of the dams, the company’s Montana customers are getting a dedicated source of electricity that will insulate them from the volatility of the Western power market.

NorthWestern currently buy about 50 percent of the power it needs to supply its Montana customers from the market. Once NorthWestern takes possession of the dams, that amount will drop to about 10 percent, company officials said.

“We don’t have the luxury of not doing this,” said John Hines, vice president of supply for NorthWestern “We had to do something. The (electricity supply) portfolio needs power. …

“The bottom line is we had an incredible opportunity presented to us, we negotiated as strongly as we could, and got to a transaction that was better than any of the other alternatives over the long term, that we saw available to us.”

Kavulla and Commissioner Roger Koopman, R-Bozeman, said they thought the purchase is a good idea for NorthWestern and its customers, but questioned whether customers are paying too much for it.

They twice tried to reduce the cost of the deal to ratepayers by few dollars a year, but were rejected on 3-2 votes, with Gallagher and Commissioners Bob Lake, R-Hamilton, and Kirk Bushman, R-Billings, voting against any changes.

Koopman asked fellow commissioners to reduce the amount of the transaction charged to consumers by a straight $30 million, while Kavulla suggested reducing it by $60 million, based on a contingency.

Kavulla said NorthWestern justified much of the higher price by predicting that future market power prices would increase because of environmental regulations on carbon-based power, like coal.

He said if that prediction turns out to be false, then NorthWestern — not just its customers  should share in the short-term higher cost of the dams, by reducing the amount charged to consumers.

Gallagher, however, said he simply wasn’t willing to risk NorthWestern walking away from the deal, if it decided the reduced return-on-investment was unacceptable.

Hines acknowledged that under NorthWestern’s proposal and purchase price, its Montana customers will pay higher-than-market electricity prices for at least seven years. However, he said he wouldn’t be surprised if customers see a benefit sooner, with market prices rising faster than predicted.

NorthWestern is buying the 11 hydroelectric dams and one storage dam and reservoir from PPL Montana, a subsidiary of the Pennsylvania-based PPL Corp. The dams are along the Missouri, Madison and Clark Fork rivers in western Montana and West Rosebud Creek in south-central Montana.

Once the purchase is completed, 67 percent of the power to serve NorthWestern’s Montana customers will be generated by the company  a near complete rebuilding of the vertically integrated utility, 15 years after it power-production plants were sold off in the wake of Montana’s infamous 1997 electric utility deregulation law.

The purchase also includes Kerr Dam along the Flathead River near Polson, but, as part of an earlier deal between PPL Montana and the Confederated Salish and Kootenai Tribes, the dam will be transferred to the tribes next year.