Guest editorial: Be skeptical of energy issues – Missoulian, June 20, 2014

June 24, 2014

Categories: Fossil Fuels, Legislature, News

http://missoulian.com/news/opinion/columnists/be-skeptical-of-energy-issues/article_7b982f12-f88b-11e3-9213-0019bb2963f4.html

By Travis Kavulla

When NorthWestern Energy gave the Public Service Commission the sales pitch for Colstrip Unit 4 several years ago, the coal plant came under scrutiny. The Montana Consumer Counsel suggested its age meant it might have more outages and require more upkeep than NorthWestern expected.

The utility told the PSC not to worry. The plant was, according to NorthWestern’s lawyer, “at least as good as when it was new, if not better.”

Since that time, CU4 has suffered two significant outages. The plant has been off-line nearly one-fifth of the time since it started showing up on customers’ bills.

Stuff breaks. Bad bets are made. Things happen. That much is true. But unlike the farmer whose combine breaks, or the gas station whose pumps short-circuit, or pretty much any other business on the planet, in the world of the “regulated utility,” the business is made whole by consumers. Because they take service from a monopoly, they often end up paying rates that include costs that no business in a competitive market would be able to pass through to its customers.

Such is the case with CU4. Whether or not the plant operates, NorthWestern makes the same profit either way.

NorthWestern’s rates cover all the costs associated with owning and running CU4 – including an 8.25 percent annual return on investment, amounting to nearly $20 million payable for the time the plant was out of service, from July 2013 to January of this year. In addition, consumers are being asked to pay another

$11 million, which PSC staff estimates is the incremental cost of energy purchases NorthWestern had to make to replace CU4’s usual output.

The PSC approved the rate increase associated with these costs last Tuesday. This rate hike can be refunded to customers in the future, but only if the PSC finds that those costs were not prudently incurred. That can be a high bar, depending on one’s reading of the law. For instance, it is unclear that expenses could be called “imprudent” merely because the plant that was supposedly “better than new” has turned out to be a bit of a lemon.

So what can be done to make sure our regulated utilities have skin in the game? For the PSC, we will hold to a promise we made when we signed off on the plant to “conduct rigorous examinations” of the plant’s operations. We can also exhibit a bit of healthy skepticism the next time a sales pitch is made. Thinking about how to apportion risk fairly between a utility’s shareholders and consumers should be the bread and butter of what we at the PSC do.

Meanwhile, the Legislature should re-think laws that amount to corporate welfare for utilities. Already, there are far too many laws on the books that shift business risk from the utility itself to its customers, which take away utilities’ incentives to perform efficiently, and which virtually guarantee utilities a profit even when things go wrong. These laws tie the PSC’s hands, and tip the scales in favor of the utility.

The public can help out, too. Montanans have been too trusting when it comes to energy issues, whether on deregulation or the SME debacle. Be vigilant, ask questions, and remember: If something sounds too good to be true, it probably is.

Travis Kavulla, R-Great Falls, is a public service commissioner. Parts of this column were adapted from his dissenting opinion on the PSC’s decision last week to approve a 6.44 percent interim rate increase for NorthWestern electric customers.

 

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