NorthWestern Energy Pre-approval—AKA Another Way to Screw Consumers

NorthWestern Energy Pre-approval—AKA Another Way to Screw Consumers

It is often hard to understand the convoluted process of regulating electric utilities in Montana.  But that doesn’t stop us from taking a stab at it.

The basics

Electric utilities in Montana (NorthWestern Energy and Montana Dakota Utilities) are monopolies. The benefit of allowing these businesses to operate as monopolies is that it avoids risks created by a competitive market. No one wants to see their utility collapse because they provide a vital service. But monopolies can charge customers whatever they want and customers have no choice but to pay up.  To protect consumers and make sure power providers didn’t go out of business, utilities were allowed to operate as monopolies BUT the price and services they offer would be regulated by the government.  Here in Montana that is done by the Public Service Commission. 

Fast forward to the 1970s

Following the Arab Oil Embargo in 1973, America was in a panic about an energy crisis.  Coal became “America’s Ace in the Hole”  and utilities all over the country began building coal plants. The precursor to NorthWestern Energy, The Montana Power Company, and other utilities in the Northwest built four coal plants at Colstrip.  Units 1 and 2 came on line in 1975 and 1976.  Unit 3 came on line in 1983 followed by Unit 4 in 1985.

Colstrip Unit 3— Let the fighting begin

Though the Public Service Commission allowed Montana Power to charge customers for the cost of units 1 and 2 (including a profit for their stockholders), that was not the case with Colstrip Unit 3. Montana Power was not the only utility building generating plants in response to the Oil Embargo, and by 1983, utilities in the northwest were in surplus and the power from Colstrip 3 was not needed by Montana Power customers.  To make a long story short, Montana Power asked the Public Service Commission to make customers pay for Unit 3. The Commission ruled that the cost of Colstrip 3 would not be covered by Montana Power’s captive customers because the power was not “used and useful”, the standard at the time for deciding if a power plant would be paid for by consumers. Montana Power went off to court and eventually succeeded in forcing its Montana customers to pay for Unit 3. It was a long and ugly fight and as a result Montana Power opted to sell power from Colstrip Unit 4 in the open market rather than try to put it into customer rates.

Fast Forward to 2007—Pre-approval, NorthWestern Energy’s Holy Grail

After the Colstrip 3 fight Montana Power, and it’s successor NorthWestern Energy, never forgot how the requirement that power be “used and useful” had worked to their disadvantage. They argued that it takes a long time to build a power plant and no one could reasonably be expected to predict markets and energy requirements that far in advance. So, they came up with a nifty idea that they should be able to go to the Public Service Commission with their plan to build a power plant and get “pre-approval”. If granted, the cost of the plant (including a profit for their stockholders) would automatically be charged to customers— whether or not it was “used and useful”. They went off to the legislature, which they basically owned, and changed the law to grant them the ability to get pre-approval for future plants.

A brief editorial comment

Pre-approval screws consumers! It represents a huge shift in the risk of building big power plants from utility stockholders to customers.  Reasonable people can disagree whether pre-approval is good or bad for maintaining a healthy power system but there is no question that it reduces the monopoly’s risk from requiring the power be “used and useful” when placed in customer rates. In theory, if the utility’s risk is reduced, stockholders profit should be reduced as well. But NorthWestern remains remarkably silent on this issue.

Enter our Hero, Monica Trannel

Yes, that Monica Trannel. In addition to being the Democratic candidate for the Western District Congressional seat, Trannel is also a consumer advocate and utility lawyer. Representing the environmental group, 350 Montana, she looked at the law which allowed pre-approval in the 2007 legislature and said, “Wait just a minute, fellas This law is unconstitutional” and off to court she went. Her argument was that the law violated a couple of “special legislation” rules in the Montana Constitution because it only applied to one business entity in the state, NorthWestern Energy. The courts agreed, and the pre-approval law was found to be unconstitutional.

NorthWestern Energy Returns to The Legislature

So here we are at the beginning of 2023,.  and NorthWestern Energy is returning to the legislature to “clarify” the pre-approval issue. There will likely be several bills on the pre-approval issue but the first one out of the gate is by Rep. Jerry Schillinger, a Republican from Circle.  This bill will make the pre-approval law apply to all utilities, not just Northwestern energy, in order to bring it into harmony with the Montana Constitution.

NorthWestern Energy says jump!  Republican Legislators ask, “how high?”

WTF406 has already covered the attempt of Great Falls Senator Steve Fitzpatrick to muzzle the state consumer representative in utility matters in the legislative rules.  Fitzpatrick now says he will not pursue his rule making effort.  There will be plenty of bills NorthWestern Energy will try to pass given the Republican majority in the legislature.  Rest assured that Great Falls Republican Legislators will be lining up to give them whatever they want. They always have.