Oct 08 - Missoulian

By Struckman, Robert

The cost per kilowatt of electricity in Troy, a town of 957 people, remained unchanged from January 2001 to July 2005.

A household using 750 kilowatts per month paid $40.85 to Troy Power and Light, which has been owned by the northwestern Montana city since 1987.

It is the state's sole publicly owned utility.

By comparison, electricity rates for NorthWestern Energy customers have increased sharply over the same period - with the cost of that same amount of electricity jumping from $48.55 to $65.59.

Comparisons between publicly and privately owned utilities across the United States show a simple trend. On average, the rates at publicly owned utilities are lower, said Will Hausman, an economics professor at the College of William and Mary in Virginia. Hausman has studied and written extensively on the utilities industry.

Yet the difference has been slight enough that cities or other public entities have rarely purchased the assets of investorowned utilities in hopes of securing low rates for themselves.

The percentage of customers served by public versus private utilities has remained virtually unchanged for the past 50 years, said Hausman and others.

Over the coming months and years, that may change. A public backlash against power companies has a number of cities across the country - from Oregon to Florida and in between launching independent efforts to buy out utilities.

That includes a bid by five Montana cities - Missoula, Helena, Great Falls, Bozeman and Butte-Silver Bow - to buy and then run NorthWestern Corp., the state's largest electric and natural gas utility.

Bob Bellemare, a New Mexico-based consultant who does some business with NorthWestern, agreed. He added that the movement may be ill-advised and affected by generally unstable energy markets such as petroleum and natural gas.

"When there is a lot of uncertainty, like in today's energy markets, people have a tendency to grab on to things. 'If I had control, I could do better,' " Bellemare, said.

A new day?

Stolid, predictable and stable - not long ago those were the watchwords of the heavily regulated utility industry. Entities like Montana Power Co., the predecessor of NorthWestern, were considered by stock analysts to be among the safest investments, paying modest dividends year after year like clockwork.

That climate began to change slowly as a result of the energy crisis of the 1970s. Deregulation was in the air, and a number of industries emerged from under mantles of government oversight.

Beginning in the 1980s, small generators were built to supply energy to the nation's power grid. By 1992, segments of the utility world had entered a process of restructuring commonly known as deregulation.

That's when the large, integrated utilities began to sell off power plants and delve into new fields of business, Hausman said.

Over the next decade, some utility companies ditched their riskaverse personas. Many made poor business decisions and took severe financial drubbings. Some sought bankruptcy protection. All that time, utility rates climbed unrelentingly, said Hausman and others.

"Enron did a tremendous amount of damage to the image of the whole industry," Hausman said.

Some analysts such as Bellemare describe the recent turbulence as part of a longer cycle.

"A lot of companies have shed themselves of the unregulated parts of the business. They're getting back to being more conservative and methodical," he said. Over the long run, investor-owned utilities will do a better job providing power, he said.

But others say the time is right for a new day in the utilities industry.

Turmoil yields change, said Alan Richardson, the head of the Washington, D.C.-based American Public Power Association.

"You're dealing with the lifeblood of the economy. People will pay what they have to pay in order to get (electricity). That's the perceived beauty of deregulation, except for when the prices go haywire. The folks that take it through the car are the consumers," he said.

By contrast, when it comes to utilities, a public entity will make the right choices, Richardson said.

"You can usually trust the citizens ' even with a community the size of Troy. You put these issues to debate. This is not rocket science," he said.

Lower prices?

Aside from enjoying slightly lower rates, most publicly owned utilities operate almost exactly as investor-owned utilities do, Hausman said.

Public utilities are able to offer lower rates because they are exempt from some taxes, and because they can buy power cheaper in some instances, said

Hausman and others.

Troy Power and Light's rates are lower than NorthWestern's for two main reasons. First, the city enjoys a slight discount when buying from the Bonneville Power Administration. Second, when faced with a decision, the city has chosen stability over risk, said manager Clinton Taylor.

The city-owned utility signed a 10-year agreement with Bonneville Power Administration in 1998. The contract went into effect in 2001.

"We wanted stability. It was a gamble, and it paid off for us," Taylor said.

As gambles go, this one was pretty conservative. Prices in 1998 seemed high compared to rates just a few years earlier. Across the West and the rest of the nation, the utility industry was in the midst of change, and some experts predicted that electricity rates might drop.

The Troy City Council, which governs the town's utility with the mayor and the manager, listened to testimony from an expert from Bonneville Power and argued back and forth.

In the end, the council opted to settle on what seemed like a moderately high but predictable price.

"We went ahead and locked it away," said Troy Mayor Jim Hammons. And now, say residents of the town, those outside Troy Power's service area wish they were inside.

Most cities, like the town of Troy, entered the utilities arena for the simple reason that the opportunity arose.

Prior to 1987, Troy's power came from a local lumber mill, which owned a nearby dam. When the mill was sold, the new owner didn't want to manage a utility, said Taylor.

Troy Power has operated smoothly ever since. It has four employees and operates apart from the rest of the city government. Revenues are not used to lower taxes but stay within the company and are used to upgrade the lines and on other infrastructure needs, Taylor said.

Uncharted waters

Strong proponents of public and private utilities rarely see eye to eye.

On one important level, the debate over the future of power in America is idealistic. Some suspect bungling, at best, and price gouging, at worst, on the part of investor-owned utilities. On the other hand, many believe that government has no business in business.

This debate isn't new but dates back to the birth of power companies in the late 1800s.

"The debate was really a lot more heated back then," Hausman said.

One thing that hasn't changed much is the field of utility players.

"The problem is the big power companies are regulated monopolies. They don't have a tremendous incentive to keep rates low," he said.

The loosening of regulations over recent decades has launched the utilities into new territory.

The bid by the five Montana cities to buy the assets of NorthWestern Energy is unprecedented.

"I think people would perk up and take notice. If it can be done there (in Montana), it could happen anywhere," said Richardson of the American Public Power Association.

Advocates of public and private ownership agree on one other point. The efforts of cities to buy investor-owned utilities won't end soon.

"These dreams never die. If this (the bid in Montana) goes away for some reason, it'll come back," Bellemare said.

Copyright The Missoulian Sep 05, 2005