Is electricity contract best deal for state?

It’s no surprise Great Falls officials and NorthWestern Corp. found cause to celebrate last week’s awarding of a big electricity contract to NorthWestern’s mothballed power plant in Great Falls.

By MIKE DENNISON
Tribune Capitol Bureau

The contract will supply the corporation’s own subsidiary, NorthWestern Energy, with power for its 290,000 Montana customers beginning late next year. It apparently assures that the $140 million natural gas-fired plant will be built.

That means jobs in Great Falls, the potential for future development near the site, and cash flow for NorthWestern Corp.

But is this deal a good one for NorthWestern Energy ratepayers, or the future of energy markets in Montana?

According to some folks in Montana’s energy industry, the answer to both questions may be no.

A spokeswoman for MDU Resources, whose subsidiary, Centennial Power, bid on the contract, says its bid offered lower-priced power from proposed coal- and gas-fired plants in Hardin.

"According to our figures, we were highly competitive, and should have been considered," says Linda Donlin, MDU’s corporate communications director in Bismarck, N.D.

Donlin wouldn’t reveal the price of electricity that MDU offered, so we’ll have to take her word for it.

But we also don’t know the true cost of the contract awarded by NorthWestern Energy to its sister company. The company says it’s a good deal, but hasn’t released the contract publicly.

NorthWestern Energy spokesman Claudia Rapkoch says the company is still working out some details on the contract, and hasn’t actually signed it. Once that’s done, NorthWestern will decide whether to release it publicly, she says.

Eventually the contract will be submitted to the state Public Service Commission, which must decide whether NorthWestern Energy can pass the costs on to ratepayers.

Whether this deal was the best to be had for NorthWestern Energy ratepayers also goes to the question of whether the company conducted a fair bid process — or whether it favored its affiliate in awarding the contract.

Some energy industry figures say it’s hard to believe the process was anything but slanted toward the affiliate, to help bail out a plant and a company in financial difficulty.

"This solicitation was tailor-made for the (Great Falls) plant," says Jim Kelly of Billings, a partner in Comanche Park, which had proposed building a coal-fired electric power plant in southcentral Montana. "I think it further damages the development of competitive (energy) supply in Montana. (NorthWestern) is using their monopoly power for their own self-interest."

Kelly’s company sought a contract with NorthWestern Energy (then Montana Power Co.) last year, but was rejected. It said NorthWestern Energy didn’t fairly consider Comanche Park’s offer.

Ron Perry, president of Commercial Energy of Montana, a Cut Bank-based energy marketing company, says NorthWestern Energy’s bid restrictions probably discouraged bids from some large companies that have existing gas-fired plants in the region.

NorthWestern said it didn’t want "virtual power," which is power from a company that owns a gas-fired plant but might deliver the actual power from a different source, he says.

"By excluding virtual power, you’re not availing yourself of all the potentials," Perry says. "It those were cheaper, because those plants are already paid for, we missed an opportunity."

Perry and Kelly also say there’s no reason for NorthWestern Energy to rush out and award the contract now. A long-range glut of power is predicted for the region, so NorthWestern has no immediate need to line up power for its customers, they say.

The state Public Service Commission is in the middle of devising rules on transactions with affiliates, and NorthWestern easily could have waited until those rules were in place before awarding a contract to its affiliate, they say.

"I think the timing on this (award) had everything to do with their own needs on the financing of their project," Kelly says.

NorthWestern Energy denies that it unfairly favored its affiliate. Rapkoch says the company ran numerous pricing scenarios on the proposal from its affiliate and the other bids, and determined that the Great Falls plant offered the best deal on electricity for NorthWestern Energy customers.

"We are confident that the projects that we chose represent the best options for our (electric) customers," she says.

She also says the company felt it needed to line up some "peaking" power, to fill in gaps in its electricity supply for customers in central and western Montana. The power from the Great Falls plant can be provided at a moment’s notice, to meet peak demands.

"We are trying to be responsive and meet the needs that we feel we have to meet," she says.

Perry says this rationale simply doesn’t wash. The Great Falls plant won’t provide any power until late 2003, and NorthWestern has presented no evidence that it’s facing a critical shortfall in power availability next winter, he says.

The power from the plant also appears to be more costly than what’s available in the market, he added.

The deal still has the smell of favoritism toward an affiliate, Perry says.

"Everyone who wants to do (electricity) business in this state, whether they’re a marketer or a generator, is afraid that they won’t get a fair shake, because NorthWestern will take care of its affiliates first," he says. "That’s the big elephant sitting in the corner of the room that NorthWestern does not want to talk about."

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