Oct 19 - Billings Gazette, The

By Struckman, Robert

The cost per kilowatt of electricity in Troy, a small town of 957 residents about 17 miles northwest of Libby, has 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 city since 198Z It is Montana's sole publicly owned utility.

By comparison, electricity rates for NorthWestern Energy have risen sharply over the same period for the same amount of electricity, from $48.55 to $65.59, according to NorthWestern figures.

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 about 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, Hausman said.

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

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

"When there is a lot of uncertainty, like in today's energy markets, people have a tendency to grab onto 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, faithfully paying modest dividends year after year, Hausman said.

That climate began to change slowly as a result of the energy crisis of the 1970s. Deregulation was in the air at the time, 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.

Over the next decade, some utility companies ditched their risk- averse personas. Many made poor business decisions and took severe financial drubbings. Montana suffered a double whammy. Within months of Montana Power transforming itself into the telecom TouchAmerica, the company tumbled into bankruptcy and essentially disappeared. And NorthWestern is just now climbing out of bankruptcy.

At the same time, utility rates have climbed unrelentingly.

"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," Bellemare 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, 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 ear are the consumers," Richardson said.

Lower prices?

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.

The world of publicly owned power is not littered with highprofile crashes. Aside from enjoying slightly lower rates, most 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 are able to 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 Bonneville Power. 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 and will expire in 2011.

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

As gambles go, that one was pretty conservative. Prices in 1998 seemed high compared with 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 small 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.

Before 1987, power to Troy 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, of Troy Power.

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

Uncharted waters

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

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

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 Billings Gazette