Montana legislation would permit state to invest in power projects

By Ann de Rouffignac
OGJ Online

HOUSTON, Apr. 24 -- The Montana Legislature overhauled its electricity deregulation laws authorizing the state to invest in 250 Mw of new generation and set regulated electric service rates for consumers at lower than expected market prices.

House Bill 474 which passed Saturday will allow consumers, even those who previously switched to competitive providers, to return to the "default provider" or provider of last resort for guaranteed below market rates.

The new state supported generation will produce electricity that will be sold to Montana Power Co. as the supplier of last resort. Montana Power has been designated by regulators as the company to serve consumers wanting to remain with the default service provider instead of choosing another electric supplier.

Fears electricity prices will go through the roof this summer and next year because of a supply shortage throughout the western US prompted efforts to protect electricity consumers in Montana. The state has already passed deregulation laws allowing large commercial and industrial customers to choose suppliers since 1998. All other customers will be able to choose suppliers July 1, 2002.

But the new legislation allows consumers to remain or even return to the default service supplier until 2004. As the default supplier, Montana Power will purchase power for customers and will not earn any profit, according to the legislation.

Plants already sold
Separately, PPL Montana, a unit of PPL Corp., will provide 500 Mw of electricity for default customers at a price substantially below market rates. Montana Power had already sold its power plants to PPL Montana as part of the state's deregulation plan.

Montana PPL agreed to supply electricity to Montana Power at $40/Mw-hr from July 2002-July 2007.

"This agreement assures our default supply customers with below-market priced electricity over the next few years, " said Bill Pascoe, Montana Power vice-president responsible for managing the company's supply.

The anticipated blended cost of the entire default supply portfolio for Montana Power, including the $40/Mw-hr power, will be in the range of $60/Mw-hr, assuming industrial customers don't return to default service, he said. Currently, Montana Power customers pay 2.6¢/kw-hr until July 2002.

When choice begins at that time, Pascoe said the average bill could still increase by 50% even with the new blended portfolio. Other electric utilities in the Northwest have experienced as much as 100% increases in power costs.

If the Montana Public Service Commission finds reliability is an issue or Montana consumers are at a competitive disadvantage, regulators can delay customer choice until 2004. The legislation is an attempt to lower the sticker shock to consumers after July 2002 by requiring the utility provide regulated default service. It also seeks to increase the amount of lower cost and locally produced generation that the default provider can access in order to provide that service.

Separately, the bill authorized a State Board of Investment to invest in new generation projects as long as the project developer and owners enter into long-term contracts with the default supplier for the output. Proceeds from power sales to the default provider will be pledged to repay the state for the investment.

New power plants built under the state-sponsored program must be completed by July 1, 2003. Power from the plants must be sold to the default provider for up to 25 years for no more than 5¢/kw-hr, escalating at the annual inflation rate.

Besides financing new power plant construction, the legislation also will permit the state to purchase up to 120 Mw of energy from qualifying facilities or QFs located in Montana. The QF output will be used to provide the default consumers with low-cost reliable electrical energy.