Deregulation Sun Still Rises

By Bob Decker
January 18, 2009

"In modern Montana history, there is one defining moment, and that defining moment is deregulation."
- Cal Sweet, founder of Kalispell Electric, February 18, 2001

The "defining moment" occurred on May 2, 1997, when then-Governor Marc Racicot signed into law SB 390, the "Electric Utility Restructuring and Customer Choice Act," known otherwise and since as energy deregulation.

A sweeping statement like Mr. Sweet's would often be burnished by the passage of years into the hyperbole of a foregone era, but history has borne his judgment out. Deregulation was one of the worst, most harmful political decisions in Montana's history for most of the state’s people.

Many of the politicians - many of them Republicans, but some Democrats, too – who supported deregulation at the time have expressed regret for their support of the policy, but the decision holds and Montanans continue to pay for the mistake.

In dismantling a regulatory system that yielded some of the nation’s lowest energy prices to citizens, the corporate politicians who passed SB 390 offered one sop to Montanans: a program called Universal System Benefits (USB), a policy which obligated utilities to fund the "public purposes" of energy conservation, renewable energy development, and aid to low-income energy consumers. You can read a detailed description and history of the program here.

If you're a customer of Northwestern Energy in Montana, a small part of your monthly utility bill is dedicated to the USB program. Along with the customers of regulated utilities, the state's 26 rural electrical cooperatives and about 60 "large customers" (businesses and large institutions that consume significant amounts of energy) were required by the 1997 legislation to support the USB program. The USB statutes were constructed, however, to allow most cooperatives to provide little USB support and to allow large customers to direct their USB obligations internally, i.e., to projects that provide benefit for the company.

Making matters worse, the funding level required to support Montana's electrical USB program (there is a somewhat different USB program for natural gas) hasn't changed since its inception, meaning that inflationary forces have eroded about a fourth of its modest initial buying power. If the Legislature doesn't change USB funding requirements soon, inflation will sunset the program in spite of any permanence assured by statutory language offered in a bill now before the Legislature.

Progressive legislators in past sessions tried to strengthen the USB program, but the power of the utilities, cooperatives, and industrial users prevented change. In this session, so far, there has been no bill to overhaul the program, but HB 27 was introduced to simply drop the sunset provision in the enabling statute (USB is scheduled to end at the end of 2009) and to direct an interim legislative committee to provide oversight of the program.

Brady Wiseman (D-Bozeman), one of the Legislature's strongest proponents for state energy policy that puts public interest before corporate interest, introduced HB 27, not because he doesn't wish to prescribe stronger medicine for a sick program, but because the dropped sunset and a perfunctory oversight charge were all that the Energy and Telecommunications Interim Committee would go for.

The hearing for HB 27 occurred on January 14 in front of the House Committee on Federal Relations, Energy, and Telecommunications. Utility and cooperative lobbyists supported the bill, as did several environmental lobbyists.

On behalf of The Policy Institute, I testified in favor of the bill, endorsing the sunset provision, but suggested that the oversight provision of the bill be amended to direct a more aggressive approach to the USB program, including a study of alternative administrative structures, which have been used by Oregon and Vermont to establish much more effective programs.

Rep. Art Noonan (D-Butte) eventually decided that my testimony was not relevant to the bill and asked me to halt.

The committee took no action on the day of the hearing. Look for updates to this report to learn of committee actions and votes when they occur.