Dollars and sense in the West’s power market

An outgoing utilities commissioner discusses Montana’s changing energy landscape.

 

Wind has become one of the most inexpensive sources of energy in the state of Montana.

In 2009, Great Falls, Montana, was racking up debt from the city-owned Electric City Power Company. Travis Kavulla, then a journalist for National Review, a conservative magazine, joined a campaign to replace the city leadership and nix the public utility. The effort triumphed, and the new administration had the utility file for bankruptcy, freeing Great Falls from the floundering power company. The following year, with a newfound interest in utility regulation, Kavulla successfully ran for a seat on the Montana Public Service Commission.

Public utilities commissions don’t usually catch headlines, but their decisions are important — they literally keep the lights on. The governmental bodies negotiate rates with private utility companies and play an important role in deciding the mix of where energy comes from: renewable sources like solar or wind, or fossil fuels like natural gas or coal. Commissioners also negotiate agreements to transfer power across the nation’s electrical grid and build new infrastructure.

One of the jobs of the Montana Public Service Commission, Kavulla said, is to advocate for electricity consumers in the state. With his latest term, as vice-chair of the commission, wrapping up this month, he will be departing for Washington, D.C., to become the director of energy and environmental policy for the conservative R Street Institute, a public policy think tank. High Country News recently spoke with Kavulla to learn more about the energy landscape in Montana and the future of renewable power in the West.

High Country News: How has the conversation surrounding renewable energy in Montana shifted from 2010 to 2018?

Travis Kavulla: Wind energy in Montana has gone from being some of the most expensive electricity to some of the most inexpensive electricity in the course of less than a decade, and that’s cause for celebration. Wind energy is, if not the cheapest, then in a very close race with natural gas to be the cheapest source of electricity in the state of Montana. And, frankly, natural gas is hard to get at, because it requires so much pipeline infrastructure.

HCN: What are some of the barriers to building a power grid based on renewable energy?

TK: One of the biggest problems with weather-dependent resources like wind and solar, and hydro for that matter, is the inability to depend on those resources at times when consumers are most in need of energy. If just California — or certainly, if all other states in the West — were to go to something like 80 percent or all clean energy, you would need a grid that is a lot bigger and a lot more knit together in order for the system to work.

The only alternative is to just mine a ton of lithium and cobalt and build huge sets of batteries around the West. For as expensive and as difficult as it is to knit together the West through electric transmission, it’s even more expensive to do it all by batteries.

Travis Kavulla, testifying before the U.S. House Energy and Commerce Committee in January 2018.
Travis Kavulla/Twitter

HCN: What are some examples of energy policies that promote renewable energy?

TK: If we’re going to make a priority of anything in energy policy, it should probably be to allow customers who are showing more and more interest in clean energy to go off on their own and put their money where their mouth is (by letting them secure their own electricity supply instead of being subject to utilities that monopolize regional energy markets). Those customers have an ingrained financial incentive to get the best deals on the clean energy that they are seeking.

You look at Microsoft, you look at Amazon: Those companies have knocked it out of the park and saved themselves significant sums of money compared to what they would be paying to an incumbent electric monopoly. They’ve also managed to be cleaner in their sources of energy.

HCN: Major electrical companies, like Xcel Energy, which operates in Colorado, New Mexico, and several other states, have committed to significant carbon reductions. Xcel has plans to reduce its carbon emissions by 80 percent by 2030, and to produce zero carbon emissions by 2050. What incentives do utilities have to do this?

TK: It’s sort of like that old saying that people start to look like their pets, or the other way around. When you’re a regulated monopoly that is wholly dependent for its revenue on what are fundamentally political decisions of state officeholders, then you have a significant degree of motivation to anticipate the political currents of those jurisdictions.

An interesting thought experiment would be to think about what would happen if they (Xcel Energy) existed only in states that had just elected very loud pro-coal governors. Would they be doing this? I don’t think so. It’s clearly tied up to some significant degree in politics.

HCN: How do utility companies profit from investing in different types of energy infrastructure? 

TK: When a regulator sets rates, they set them on the basis of all of the capital spending and expenses that a utility has made in a certain period. Utilities rates are set in order to return to them a certain percentage, usually 7 to 8 percent on their overall capital investment. The more they spend, the more profit they make.

That’s how they make money on renewables, gas plants, coal plants, anything. But it especially impacts renewables, because renewables are essentially all capital. You put them in the ground, they’re just steel in the ground, and they produce energy without any fuel costs. Whereas, say, (with) a gas plant, you have a certain amount of capital investment to build the structure and then you have to buy natural gas on which you do not earn a return. You just pass through those expenses to consumers.

HCN: So there are big profits to be made by utilities investing in renewable energy?

TK: Absolutely, and anyone who writes it up and says they’re just doing this because the scales have fallen from their eyes, and it’s a new day for climate — that might be part of it — but that is not the primary motivator. It would be silly and dangerous to think that companies act solely on this basis. This utility is not Patagonia, it’s a huge firm and it is primarily making money by investing capital.

This interview has been edited for clarity and length.

Carl Segerstrom is a contributing editor at High Country News, covering Alaska, the Pacific Northwest and the Northern Rockies. Email him at [email protected] or submit a letter to the editor 

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