COST OF ENERGY IS RISING
The cost of energy was the most important legislative issue this session. The bottom line is that there is an extreme electricity shortage caused by factors such as price regulation, environmental constraints, drought, federal energy policy and incorrect federal long term electricity supply projections. Electricity demand has outstripped supply and all states are fighting over the supply. The problem is bigger than Montana and it makes no sense to blame deregulation, past legislators, present legislators or even Flathead co-op.
The fact that a state has or has not deregulated has little impact on their cost of power. For example, Washington state is regulated and has granted rate increases ranging from 18-43%. Seattle City Light has a request in for up to 23 cents a kilowatt hour. The recent agreement between Montana Power and PPL is a long term contract for 500 megawatts for 4 cents a kilowatt. This is a great deal. This price is presently at least 30% below the cost of power from natural gas fired generators. This long term contract will meet 2/3 of Montana Powers need. The negotiation on this agreement was completed last week. During caucus, Republicans met with both companies and were free to ask questions. At this time or any other time, I did not hear a statement that this agreement was contingent on passage or non passage of any legislation.
In regard to our local power distributor, Flathead Electric Co-op, we have a unique situation that was created when Flathead Electric purchased Pacific Power. With this purchase came a contract to purchase 70 megawatts of power from PacificCorp, the parent company of Pacific Power. This contract requires that the 70 megawatts is to be purchased at the mid-Columbia Index, starting Oct 1. In other words, this power is pegged to the spot market which fluctuates. The other 71 megawatts (cost based) of needed power (141 total) comes from Bonneville (federally owned) which will also increase on October 1 because they do not sufficient revenue to meet their costs. The amount of increase is based on the amount of power available from the hydroelectric projects which are dependent on the amount of water available to generate power. In addition, Bonneville must buy power to replace power they can not generate to meet their contracts. Hungry Horse Dam is currently generating 75 megawatts which is less than 25% of its capacity of 400 megawatts.
Senate Bill 512 viewed as a bail out for Flathead Electric would have destroyed the contract made between Flathead Electric and PacificCorp. This contract was made in good faith by both parties and based on market analysis from energy consultants. It was initially a very good deal, but will not be after Oct. 1. The right to contract is protected by the constitution and the legislature can not pass a law that encroaches on this right. Flathead Electric and PacificCorp must mutually agree to renegotiate their contract. They have agreed. The agreement between Montana Power and PPL sets a precedent that should help Flathead Electric in their negotiations. A rate of 4 cents a kilowatt may even be below the cost of power from Bonneville until the drought is over.
Members of the Flathead Legislative Delegation started working on legislation to help solve the electrical energy problems last summer. We met with the Flathead Electric Co-op board during December before the legislative session. During the last three weeks, the Flathead legislative delegation and legislators from Lake and Lincoln counties have met with the Montana Public Utilities Commission twice and with the senate and house leadership to help solve the Flathead co-op dilemma. Local legislators will continue their effort this summer.
Representative Verdell Jackson, House Distrist 79