If you want to know why the biggest electricity supplier in Montana, Pennsylvania Power and Light (PPL), is trying to sell off its 15 power plants, you have to go back in time -- back before 2001, when California had rolling blackouts and Enron was pulling the strings of a shaky electricity market. You have to go all the way back to the mid-1990s, when neoliberal theories were being applied willy nilly -- even to electricity markets -- and PPL came to reign over Montana's energy economy. Reports today blame the sudden downturn in natural gas prices and Obama's "War on Coal" for PPL's decision to get out of Montana. But the story really begins in 1997, when the long drama of electricity regulation began.
Let's start in the present, though. This December the Missoula Independent reported on PPL's plans, quoting an industry publication saying that "PPL Montana is looking to sell all of its electricity-generation assets in the state." News coverage has explained PPL's plight primarily in terms of the crash in energy prices. In this narrative, a shaky economy and dirt-cheap natural gas have glutted the market with cheap electricity, making it hard for the company to turn a profit. On top of that, the story goes, federally-subsidized wind power is artificially lowering wholesale electricity prices, and there are costly new air pollution regulations being foisted on the coal industry, increasing overhead costs.
All of these factors are certainly making it harder for power dealers like PPL to make money in Montana. But there's a more basic reason why PPL is trying to skedaddle: it wants to take shelter in regulated markets in other states. Ever since Montana, along with 24 other states, deregulated its electricity utilities in the late '90s, suppliers like PPL haven't been guaranteed a profit. In good times, this meant the company's profits, while not guaranteed, also weren't capped -- meaning the company could pull in money hand over fist. But now that economic tides have turned, deregulation is causing PPL to lose money. Now, the company has decided that regulated markets are where the money is.
Ironically, PPL came into the Montana because of electric market deregulation. Starting in 1996, independent power dealers like Enron exploited loopholes in federal regulations and launched a coordinated effort through the American Legislative Exchange Council (ALEC) to break open states' regulated markets. In Montana, an industry-driven bill drafted secretly in a Helena motel room was rammed through the legislature in 1997.
Prior to deregulation, the Montana Power Co. had a monopoly in the state: it owned the generation (11 dams and 4 coal plants) as well as the power lines, substations and other distribution infrastructure. In exchange for earning a reliable profit in a market free of competition, "The Power," as it was known, agreed to be regulated by the state, which put a cap on rates. Profits were limited, but guaranteed, Montana had some of the cheapest electricity in the country, and the company's stock was golden.
Montana's grid was set loose on the free market with provisions to help the old Montana Power Co. deal with the transition. But the company floundered under the new rules and sold off all of the dams and coal plants to PPL, which at that time was a relatively small Pennsylvanian utility looking to expand into deregulated markets.
PPL raked in cash when California grappled with energy shortages in 2000-2001, sending electricity prices soaring. Montana ratepayers -- with the exception of the big industrial power users (like lumber mills and refineries) that signed on with Enron -- were shielded from the price-hikes as deregulation was phased in. The company still made a killing, though, selling cheap Montana juice out-of-state.
PPL continued to reap profits after 2002 as the price of natural gas climbed, pushing up electricity prices. Montana's hydro and coal facilities, by comparison, were a cheap source of raw power. But that all changed with the recent natural gas boom. Abundant supply of gas has sent wholesale energy prices plummeting, and there's seemingly no bottom to the price.
That's why PPL wants out. A recent PR release highlights the company's "repositioning" since 2010 to expand into regulated markets in Kentucky and the United Kingdom. The company is "reducing risk" from "unprecedented turmoil in competitive electricity markets.”
Meanwhile, it's uncertain how the deal might pan out for Montanans. NorthWestern Energy, the South Dakota-based utility that bought the distribution infrastructure from Montana Power Company, is most often cited as a potential buyer. If NorthWestern gets a good deal on the dams and coal-fired plants, the swap could benefit Montanans. Unlike PPL -- a wholesale supplier -- NorthWestern is still regulated by the state's Public Service Commission, so that authority would have more control over rates.
But if PPL tries to sell high, it could be trouble. Even though Montanans already paid off a good chunk of the capital costs of the dams and coal-fired plants through regulated rates before 1997, the purchase price to NorthWestern would be reabsorbed into rates, meaning higher electricity costs for average Montana residents.
"(In Montana) you're basically buying something back that you already gave away," says Tyson Slocum, director the energy program at Public Citizen, a D.C.-based advocacy group. "Now that (PPL) can't price-gouge you anymore because of low natural gas prices, they've decided to sell the assets. If they sell them for a high price, then PPL wins again -- and Montana loses."
Marshall Swearingen is an intern at High Country News.
Image courtesy Flickr user Wyoming_Jackrabbit