Montana's deregulation dilemma

  • Mont. Reps. Hal Harper, left, and Bob Raney

    George Ochenski photo

Helena, Mont. - A fly fisherman crouches in the streamside alders, watching intently as large trout rhythmically rise to sip tiny flies from the smooth surface of the river. Just upstream, the concrete hulk of a Montana Power Co. dam dominates the horizon. The vibration of powerful generators courses through the river's bed.

All seems in order: the fish healthy, the river clean and the power company making money. But in reality, this idyllic scene is part of the biggest political fight to hit Montana in years.

In December 1997, just months after the legislature passed an electrical deregulation bill, Montana Power announced that it intended to sell all of its electrical generation facilities. Up for bid: 13 dams straddling the mighty rivers of western Montana and five coal-fired power plants, including the huge complex at Colstrip in eastern Montana.

Since the announcement, this sparsely populated state has been wracked by acrimonious debate over the fate of jobs, rivers and fish.

"What does Montana, a state which enjoys some of the lowest electrical rates in the nation, have to gain from deregulation?" asks Rep. David Ewer, a senior officer for the State Board of Investments. Though deregulation is usually touted as a means to lower electric rates for consumers, Ewer's concern went largely unaddressed during the 1997 legislative session. About one-third of the Democratic minority joined Republican majorities, Gov. Marc Racicot and a phalanx of utility lobbyists to introduce and push the bill through late in the session.

Montanans were caught like deer in the headlights by the announcement of the proposed sale. Debate in the state legislature had focused on rosy projections of the benefits of free-market competition. Suddenly, all the dams and plants were "for sale" and everything became a lot less abstract.

The old and familiar Montana Power will now simply become a "wire company," transmitting electricity on its lines to Montana's residents and businesses.

Its power plants and dams may fall into the hands of some out-of-state or even out-of-nation owner, who might prefer to sell the power into the high-priced California market rather than continue to sell it at very low rates within Montana. The state won't be deprived of electricity, but residential consumers may have to pay more to get what they need. Montana Power Co. stockholders, meanwhile, will likely walk away with the proceeds of the sale.

In response, Rep. Ewer, D-Helena, and 17 other legislators requested a special session to delay deregulation; the governor and Republican leaders denounced that effort.

In the 30 days it took to poll the legislature, newspapers across the state began a belated examination of the sale and how the deregulation bill was handled. A disturbing picture emerged.

"Sen. Harp must resign from the legislature," thundered a Billings Gazette editorial in early March. "" he voted for deregulation, he voted against the special session." John Harp, the current Senate majority leader, who some say would like to be governor, owns a power line company that did $5.2 million worth of business with Montana Power in 1997.

Meanwhile, the Gazette gave Rep. Chase Hibbard a choice. Hibbard, scion of a rich and powerful Helena-area ranching family, owns about $85,000 in Montana Power stock and sits on its board, receiving more than $20,000 annually for his efforts.

The Gazette reasoned that although Hibbard "didn't debate or vote on the measure," he did "campaign for it outside the legislature" and "voted against the special session." The editorial said Hibbard's choice was clear "" either resign from the legislature or the Montana Power board of trustees," and concluded, "He cannot serve two masters."

Neither Harp nor Hibbard has resigned from anything so far.

Water rights, fisheries and rivers

It won't be known for years if deregulation will benefit or hurt small power consumers. But it is clear that deregulation has put agriculture at risk. If whoever buys the dams exercises the full water rights that come with them, upstream irrigated lands could be reduced by nearly 250,000 acres, with a loss of $45 million in agricultural sales and farm labor.

This has irrigators shaking in their hip boots. The Montana Farm Bureau and the Broadwater County Farm Bureau have appealed to the governor, stating, "Although Montana Power has owned the water rights, it has never enforced them. We are very worried that the entity which buys the dams from Montana Power might enforce its senior rights because they will want to generate as much electricity as they can."

In response, Montana's Department of Natural Resources and Conservation issued a "Draft Position Paper" suggesting that the Federal Energy Regulatory Commission, which regulates the operation of energy-producing facilities, should limit Montana Power's senior water rights to "historic use," thus subordinating those rights to junior upstream users.

But a memo from the Department of Environmental Quality (DEQ) asserts the traditional view that water rights are a matter of state rather than federal control. "DEQ advocates that state water rights are not a federal issue and should not be resolved through a federal licensing process."

Ironically, Western Republicans, like many in the Farm Bureau who generally support states' rights and abhor federal mandates, now find themselves turning to the feds to save them from their own state water-rights laws.

Irrigators aren't the only ones who are worried. Montana's trout fisheries are famous but fragile, and they can be damaged or destroyed by how releases from dams are managed. That has sportsmen and environmentalists more than a little concerned.

Although Montana Power says the pending sale will not endanger fisheries or recreational access, long-time fisheries supporters such as Rep. Bob Raney remain skeptical.

"These are our rivers, our water, our economy and our ecology. It was our decision to allow the rivers to be dammed for our benefit. There isn't much doubt that Montanans will have a significantly reduced role in what happens to our rivers. What does dereg give us? Corporate rivers."

Not to worry, says Montana Power's recreation and public safety coordinator, Elvin "Speed" Fitzhugh, in a recent news article: "We are not selling off fishing spots and campgrounds. That is just not in the cards."

"I wish that was the case," says former Speaker of the House Hal Harper, "but the sale maps show almost all the river and lakeside property is up for sale ' including fishing spots and campgrounds."

Property Tax Losses

Also at risk are school children, county governments, and others who depend on taxes. The proposed sale of the dams has been excellent for Montana Power's stock, but for Montana, the sale could mean an estimated $7 million less in property tax revenue.

That's because the dams and coal-fired power plants may change from the 12 percent "utility" tax classification to the 6 percent "business equipment" rate. Since property taxes are the primary source of school funding in Montana, that loss will have to be made up by other taxpayers.

Montana may be a great place to live and raise kids, but it is not a great place to make money. The state ranks just off the bottom in per capita income and was one of three states that had a growing poverty rate last year.

Rep. Diana Wyatt, who is a teacher as well as a legislator, is concerned that education will suffer. "There's no question that K-12 and higher education will be trying to function with either no new money or by asking students to support an increase with higher tuition."

Derailing dereg - is it possible?

With so much at stake, public attention has turned to Gov. Marc Racicot, and he is not happy being in the spotlight.

Ken Toole, energy consultant for the Montana Environmental Information Center, says, "Gov. Racicot is an excellent politician but a very poor leader. He is at his worst in the big money issues." Toole predicted Racicot "will do damage control and attempt to reassure the people."

So far, Toole's prediction is on the money. The governor recently moderated a sparsely attended forum after refusing to debate Ewer or allow him a speaker's role at the forum. Ewer, who boycotted the forum, says, "Marc Racicot was elected governor to be our leader, not a talk-show host. This is an attempt by Racicot to obscure the fact that he supported deregulation last year. Instead of moderating a forum, Racicot should be one of the principal speakers explaining why deregulation is such a good idea."

Plans have emerged to derail dereg, including a new call for a special session and a recently filed ballot initiative.

The initiative would require the state to use condemnation power to purchase MPC's water rights at fair market value and lease them back to the operators of the dams.

Initiative backer Toole says the initiative will enable the state to have some say over managing water, as well as providing revenue from leasing to replace the tax breaks Montana Power received in the dereg legislation.

"If we have a drought, the state could protect agriculture, recreation and municipalities by having call-back provisions in the water-leasing agreements," Toole says.

Other initiatives under consideration include repeal of the dereg legislation and a proposal for public ownership of the hydro facilities as well as the water rights.

Split decision

In the meantime, Montana Power's proposed de-reg plan has been dumped in the lap of Montana's Public Service Commission (PSC). The commission split 3-2 in support of deregulation earlier and a look at the opposing views of commissioners Bob Anderson and Danny Oberg reflects the turmoil in which Montanans find themselves.

According to Anderson, one of the opposing votes, "The timing is bad. We should have taken a "go slow" approach and tried to balance the interests in this issue. In our neighboring states, the utilities are balanced by environmental and social concerns." But Montana, he continues, lacks that balance.

Oberg, an outgoing commissioner, disagrees: "We seem to have become quite good at preserving the status quo, of stopping change, of being reactive instead of proactive. I believe the price we have paid for a lack of leadership and vision in responding to the changing world and global economy is declining per capita Montana incomes, a service work force, declining population."

In the halls of the capitol, deregulation supporters tout new technologies as the answer. They say new utilities will ship natural gas in pipelines to small but efficient combustion generation plants spotted around the state to make cheap electricity - the kind of innovative steps that are difficult for a large, traditional utility like Montana Power. But folks in Roundup, such as retired lineman Rudy Pfister, who spent his career with a rural electric co-op, don't think Montanans are in for a bargain.

"Pretty hard to believe they're going to make electricity cheaper than water running downhill," says Pfister.

Economic theory has it that free-market competition will produce lower rates. But some factors, such as the state's remote location, count. Transportation costs that plague Montana's exports, such as beef, coal and wheat, do the same for power. Transmitting electricity long distances consumes much of the power in "line loss," which makes it unlikely that out-of-state generators will find it feasible to compete with in-state production.

Instead, some fear that Montanans will soon find themselves in a bidding war for electricity with wealthy, power-hungry states like California, which might find Montana's low-cost power a bargain - even with the long-distance transmission losses.

What's next?

Two major municipalities - Helena and Great Falls - are exploring putting together bids in cooperation with the federally financed rural electric cooperatives to keep power cheap and maintain in-state control of their nearby dam and hydropower facilities - and the rivers that run through them.

Given its druthers, Montana Power would probably prefer to sell to a high bidder like energy-giant Enron, based in Houston, Texas. Enron can afford to pay more because it would probably market the power out of state at higher prices. But public backlash to the pending sale has been enormous.

If, as PSC's Oberg says, Montana Power has enjoyed a "stranglehold" on consumers because of its historic monopoly, it was a monopoly Montanans had learned to live with.

That may be because the utility did not exercise its full water rights, tried to take care of fisheries and let people camp on some of its land by rivers and lakes. The company has faults, but it's viewed as a Montana company.

That relationship is on thin ice now. Not since the old Anaconda Co. walked out the door have Montanans seemed more upset by the actions of a corporation. Public Service Commissioner Anderson thinks the uproar over the sales has Montana Power on the defensive, which may cause it to look more favorably on bids by Montana's rural electric co-ops.

"That way," Anderson says, with a cynical reference to the state's experience with utilities, "we could have somebody here to love and hate."

George Ochenski writes in Helena, Montana.

You can contact ...

* Public Service Commission, 406/444-6199;

* Rep. David Ewer, 406/443-4599;

* Montana Environmental Information Center, 406/443-2520;

* Governor's office, 406/444-3111;

* Montana Power Company, 888/467-2669.

High Country News Classifieds