Deregulation Hits Montana
And not in a good way (LA Times–registration required).
When the old Montana Power Co. came to lawmakers in 1997 with a plan to offer customers a multitude of choices for cheap power, deregulation was seen as inevitable. But power today isn’t cheaper — it’s far more expensive — and the other promises made that year now ring hollow.
Montana Power sold off its dams and power plants, and then its utility business, to pursue an ill-timed pipe dream to become a fiber-optic company. It quickly filed for bankruptcy.
The company that bought the utility piece of Montana Power, NorthWestern Energy, filed for bankruptcy protection itself and reorganized.
Along the way, Montana went from having some of the lowest electricity prices in the country to having among the highest in the region.
Often times deregulation is promoted as some sort of utopian vision. “We’ll deregulate and prices will come down forever and ever!” The problem is that markets change over time and what was true at a given time can be untrue latter on. Right now natural gas is very expensive and one reason for this is that most of the power plants built in the past several decades have been combined cycle gas fired plants. The increase in demand pushed up prices.
Another problem is that a vertically integrated and regulated monopoly has not incentive to game things in terms of transmission to drive up prices. With deregulation this incentive is removed. On top of this, a vertical integrated and regulated monopoly has strong incentives to build a transmission system that does not have much redundancy built into it. If one transmission line at 250 KV is more than sufficient that is what will be built. Later that same path might not be sufficient for a deregulated market, but going in and building a second path is pretty difficult to do and will take years to finish even if it is approved.
When discussions of deregulation come up, people should realize that things could turn out good for awhile, but that things can also turn out bad. For example, the housing market has been red hot for the past several years. This increase in prices has also increased people’s housing expenses. A deregulated electricity market will behave like all other markets. Sometimes the price will be high, orther times low. In Montana’s case, part of the problem appears to be self inflicted. The company that runs the current power plants and system is prohibited from building power plants and it appears to not any power plants. Hence it may very well be at the mercy of whatever the going rates are for electricity on the market.