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Enron Mail |
* I saw this in yesterday's business section
Paper: Houston Chronicle Date: SUN 05/13/01 Section: BUSINESS Page: 7 Edition: 2 STAR Montana 's power crisis may be more intense thanCalifornia's By JIM ROBBINS New York Times BUTTE, Mont. - The last large-scale metal mine is silent in this city that sits astride the Rocky Mountains. The 170-ton, house-sized ore-hauling trucks, which once rumbled with loads 24 hours a day, have not fired up their engines since last summer. Nor have the conveyors, the crushers, the concentrators and the grinders. And most of the 320 workers who carved out a living extracting copper, molybdenum and silver from the 600-foot deep Continental Pit have scattered to other states and other jobs. Montana Resources, which owns the mine, has been out of affordable power for nine months. At the beginning of 2000, the mine was paying $26 a megawatt hour, up from $19 the year before. Last week, however, a megawatt hour cost $320. While California has grabbed most of the national headlines for a power crisis caused by deregulation gone awry - rolling blackouts resumed there last week - another power deregulation crisis has been unfolding here in Montana . And in some ways, it is far more striking in its impact. While Californians may be somewhat protected from skyrocketing costs, Montanans are not. Paper companies, mines and other large industrial companies in Montana have been laying off workers because they cannot afford to pay their electric bills. Residents are expecting their household electric costs to as much as double by July 2002. A growing number of Montanans want to roll back the clock to a time when their state, blessed with its own sources of cheaply produced power, had some of the lowest electricity rates in the country. Many residents are directing their anger at the Legislature, which in their view deregulated the market for electrical power solely at the behest of the Montana Power Co., once the state's dominant utility. Under deregulation that took effect three years ago, Montana Power sold its hydroelectric and coal-fired generating plants to PPL Corp., the Allentown, Pa., company that sells power in 42 states and in Canada, Great Britain and Latin America. Like other owners of power generation sites, PPL has been profiting immensely under deregulation by charging rates based on the forces of supply and demand. Montana Power still distributes electric power around the state, but soon will be getting out of that business as well. The change has left large power consumers such as Montana Resources scrambling to survive. They have scoured the region for affordable alternatives. They have asked PPL to make at least some cheaper electricity available but it is unclear if that will happen. And they have lobbied the Legislature to reregulate electrical power. "We've got to play all of our cards," said Greg Stricker, president of Montana Resources, as he gazed over the company's open mining pit and a giant statue of the Virgin Mary that sits high on a mountain above it. "We're faced with extinction." PPL, however, says it has no choice but to sell its power at market prices. On a national scale, the plight of Montana , which has less than a million people, is not as visible as that of California, which has 34 million. But Montana 's experience shows what can happen when power prices spiral out of control and businesses and consumers are not protected. Montana 's power crisis is rooted in the history of the Montana Power Co. It was formed in 1912 by Anaconda Copper Mining to ensure power for Anaconda's extensive mining, milling and sawmill operations. Montana Power built hydroelectric dams on 11 rivers across the state, dams that still create power at low cost. Anaconda also was accustomed to getting its own way. The company owned most of the state's daily newspapers until 1959 and wielded tremendous influence among elected officials. Anaconda, the historian Bernard DeVoto wrote, "maintained a more thorough-going ownership of Montana 's wealth, government and inhabitants than any other corporation has ever been able to maintain in any other state." The Anaconda era ended in 1977 when the company was bought by Atlantic Richfield, the oil company that has since been acquired by BP. Arco closed the mines in 1980 and the smelter in 1983. Montana Power, which had become the state's regulated utility, outlived its creator. By the mid-1990s, however, Montana Power was worrying about its own future. Power deregulation, a national trend, looked inevitable, and the company's big industrial customers already were shopping for sources of cheaper electricity . So, trying to make a virtue of necessity, Montana Power began the process of getting out of the power business. It diversified, creating an Internet service provider called Touch America. It also began to push for power deregulation, saying it would result in lower costs and more customer choices. The company was hoping that deregulation would make itself attractive to investors and potential buyers. A deregulation bill, the Electric Utility Restructuring and Customer Choice Act, was introduced in March 1997, when the legislative session was nearly over. Lawmakers, most of them farmers and ranchers and businessmen, approved it hastily. To some critics of deregulation, the passage smacked of the era when Anaconda dictated what the Legislature should do. Few Montana lawmakers understood what was happening, said Ken Toole, a Democratic state senator and an opponent of the deregulation. "It was a steamroller with the mantra of free market," Toole said. "Debate took place in a compressed period of time and it was not brought before the public." Montana Power disputed that interpretation. Jack Haffey, its president and chief operating officer, said, "it was not a bill pulled out of somebody's pocket and foisted on the public." Still, Montana Power emerged with marketable power plants and its thriving Touch America business. The company sold its power plants to PPL, investing much of the proceeds in Touch America. Montana Power's shares, adjusted for an August 1999 split, soared to nearly $65 in March 2000 from less than $20 before deregulation. (The shares have since returned to a below-$20 range, closing on Friday at $16.48) Company insiders cashed in their stock options at the peak and some became rich. And, for a while at least, deregulation appeared to be working. Competition among power suppliers was pushing down the price of electricity . In January 1999, Montana Resources' power costs fell to $19 a megawatt hour from the regulated price of $30. But starting in June 2000, Stricker said, "the market started to go nuts." Rising demand, coupled with a lack of new supply, pushed up prices sharply. A megawatt hour spiked as high as $680 and then settled back into the $200-to-$400 range. The region's power crisis has been aggravated recently by a drought that has reduced the amount of hydroelectric power generated. Steve Walsh, a Montana Resources spokesman, said the company's suppliers told it that rates could reach $1,000 a megawatt hour in the third quarter. Montana 's labor force, meanwhile, has suffered. Since last summer, according to the Montana affiliate of the AFL-CIO, more than 1,000 workers have lost their jobs in layoffs caused by power price inflation.
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