October 13, 2008

PSC Hears Dispute Over Plant’s Value

By Dennison, Mike

HELENA - If regulators think NorthWestern Energy's Montana customers should buy a long-term chunk of electricity from the Colstrip 4 power plant, it should be at a much lower price than that offered by the company, a consumer witness testified Friday.

John Wilson, an economist hired by the Montana Consumer Counsel, said a fair price is probably closer to $250 million, instead of the $407 million proposed by NorthWestern.

"They should get a fair return on their investment, not the highest number that they can gin up," he told the state Public Service Commission.

But another witness at Friday's hearing said it's not just a question of raw price - it's a question of how the cost of acquiring the Colstrip 4 power compares to other long-term options for consumers.

"I don't think you can find a fixed (power) resource at a relatively fixed cost below what you face here (with the company proposal)," said Tom Power, a retired University of Montana economics professor who has testified at many utility hearings.

Power and Wilson spoke on the third day of a PSC hearing on NorthWestern Energy's proposal to set aside 222 megawatts of power from the Colstrip 4 plant for its 300,000-plus electric customers in Montana.

The PSC, which regulates utilities in Montana, can decide to accept, reject or attempt to modify the proposal.

The company wants to put the power into its "rate base," meaning that it would be reserved for long-term use by customers.

However, NorthWestern says the price at which it goes into the rate base should be tied to what the power can fetch on the open market. The company has a potential buyer that has agreed to pay about $400 million.

Under that proposal, NorthWestern's Montana customers would see higher electric rates over the next decade, the company has said, but probably lower rates over the long term.

Wilson has criticized the proposal, saying NorthWestern shouldn't be able to demand and get whatever it says the market will bear.

At Friday's hearing, Wilson noted that NorthWestern paid $187 million last year to gain ownership of the power, which it had been leasing from two private companies.

The cost of the power to customers should be based on what NorthWestern paid, plus the power's original value, less depreciation, and the value of the land under the coal-fired plant, Wilson said, in the vicinity of $250 million. The Colstrip plant is about 100 miles east of Billings.

The correct way to do this is to compensate (the company) for their costs and to give them a profit," he said. "But to go beyond that is really not the way that it's supposed to work, for a company that has been given a monopoly franchise."

Wilson said if the PSC accepts NorthWestern's proposal, consumers will pay an additional $186 million over the next 10 years.

Power agreed that consumers would pay a higher price for power in the short term, but that doesn't necessarily mean the proposal is a bad deal.

Power, who said he's not recommending precisely what the PSC should do regarding the NorthWestern proposal, said commissioners should consider how it looks over the long term.

Placing the Colstrip 4 power into rate base has its risks for consumers, he said, but so does doing nothing and leaving NorthWestern to continue buying power on the open market for consumers.

Power said he thought the commission and policymakers want NorthWestern to move toward being a traditional utility again, one that owns and develops power sources to serve customers rather than just buying it on the market.

"The choice the commission really faces is a choice between this and what else you can find," he said. "It is a high-cost, high-risk proposal - but so is every other option."

Copyright Billings Gazette Sep 13, 2008

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