Thursday, May 22, 2014

Climate Change Insurance

A Public Service Commission hearing in Missoula a week or so ago produced an odd and somewhat heated exchange between John Hines, the vice-president for supply at Northwestern Energy, and Monica Tranel, an attorney representing the Montana Consumer Counsel. Hines was trying to convince the PSC (and the public in attendance) that Northwestern should be allowed to purchase a bunch of power dams to the tune of some $900 million, and Tranel was having none of it. Too much money, she said, and ultimately it would be the consumers who would have to foot the bill. 

Now I don’t know much about putting a price tag on a power dam, let alone a whole slew of them, so I don’t know whether $900 million is too much, too little, or just about right, but I do appreciate the fact that some part of that money is intended to buy a kind of insurance that will protect Northwestern’s ratepayers from the adverse impacts of future climate change policies.  Here’s the way it works.

The EPA, operating under its Clean Air Act authority, will soon be coming out with regulations to limit carbon emissions from both new and existing power plants (the standards for new plants have been in the works for some time now). Although the details remain to be seen, these regulations will almost certainly raise the cost of generating electricity at coal fired power plants (and possibly at natural gas fired plants as well). The corollary is that power dams, which have no emissions, will have a distinct competitive advantage over coal and natural gas and as a result their value will rise.  That means that anyone (like Northwestern) wanting to buy a power dam will have to pay something extra for the privilege of avoiding the cost of complying with carbon regulations. Of course Northwestern is not going to pay that extra dough out of the goodness of its corporate heart. No, it is going to ask the Public Service Commission to pass on to its rate payers the cost of owning the dams, including the premium attached to the fact they don’t emit carbon.

That’s the downside. The upside is that if it owns the dams, Northwestern is not going to have to go out on the market, buy electricity from those costly coal fired plants, and pass the cost of that pricey electricity on to ratepayers.

But one way or another, the result of carbon regulations is that rate payers are going to pay more. The question is: how much more? And what’s the best way to deal with this situation? Is it cheaper for consumers to incur the extra cost of buying the dams in order to avoid buying the pricier electricity resulting from carbon regulations? Or would it be cheaper not to buy the dams and instead pay for more expensive electricity at some point in the future? Northwestern obviously likes option one. No one knows with certainty how much the regulations will raise the price of electricity, but Northwestern appears to believe that the price increases are likely to be large enough to justify paying extra for the dams. Whether they are right about that or not is a legitimate question, and it’s the question the Public Service Commission should be asking.*

And here’s where the Consumer Counsel comes in. Because if I heard Tranel correctly, she was saying that in buying the dams, Northwestern shouldn’t pay any premium at all to avoid the cost of controlling carbon emissions.  And she implied that if that means that Northwestern can’t complete the purchase, it will be no skin off the company’s nose: After all, she said, if the company has to pay more for electricity after the carbon regulations take effect, it can always go to the Public Service Commission and arrange to pass the extra cost on to rate payers.

Well yeah, but doesn’t that beg the question? Doesn’t it assume that consumers will be better off if, after the regulations take effect, Northwestern buys electricity on the market rather than generating it in its own dams, regardless of what it pays for the dams? That’s a little like assuming that no insurance policy is ever worth what you pay for it. And if the Counsel makes that assumption does it really have the interests of consumers at heart? Apparently not: When it says that Northwestern can always be held harmless in the face of rising electricity costs by passing on those rising costs to consumers, the Counsel seems to be more concerned about insuring Northwestern than the ratepayers.

* There are a lot of other aspects of the proposed dam purchase and the proposed price that the PSC needs to look at of course.

Monday, May 19, 2014

If You Don't Like It, Call It Illegal!

Senator Debby Barrett is in high dudgeon.

It turns out Barrett learned last week that the Governor and a small bipartisan group of legislators and interested citizens have been “quietly gathering in secret meetings” to develop a Medicaid expansion bill to be enacted by the 2015 Legislature, or perhaps even sooner in a special session. In a column in the Hungry Horse News, Barrett tells us that this “series of non-publicized meetings” violates Montana’s constitution and open meeting laws, which she finds particularly hypocritical coming from a Governor and legislators who champion transparency.

It would be much better, Barrett says, for one of the Legislature’s interim committees to develop this legislation in the clear light of day. Those committees know, she says, that “denying the public access to bill drafts and other documents” violates the Montana Constitution. And in the end, if legislators meet privately with one another and with constituents and interest groups to craft legislation, we cannot be sure that what will emerge will serve the public interest, or just the narrow interests of the lucky few who attend the “secret” meetings.

It’s hard to know where to begin with this nonsense, but for starters, can we agree that there is nothing very secret about meetings to discuss Medicaid that were widely reported in the press? Is it really a secret that the Governor, every Democratic legislator and a solid minority of Republican legislators want to find a way to provide health care coverage for 70,000 low income, uninsured Montanans? Does anybody who’s read the papers recently not know that another group of Republican legislators, convened by Sen. Fred Thomas, is meeting privately to develop its own, more conservative proposal?

And can we please dispose of the ridiculous notion that whenever a small group of legislators meets privately to discuss legislation, it is violating the open meeting law? Has the senator ever actually read the Montana law which makes it clear that a quorum has to be present for a meeting to be subject to the open meeting law?* Does she really think that when a few of her colleagues – Republican or Democrat or both – get together at a Helena watering hole or their party convention or a local fundraiser or the county fair and talk about legislation, they are violating the open meeting law? Does she really think that Senator Thomas is violating the open meeting law? Really?

Does Barrett really not understand that the Constitution requires that a bill draft become public only when a legislator has asked for drafting to begin? Does she not know that all that has happened so far is that a group has met and talked about possible avenues for Medicaid expansion? There is no bill draft. There are no documents. Does Barrett really think that the Montana Constitution requires that the public have access to documents that don’t even exist?

All these legalisms aside, the real problem here is that Barrett is attacking legislators and the Governor for doing something that they do, and should do, all the time. Namely, during those long interims between sessions, legislators should be meeting with constituents and interest groups, they should be thinking creatively about initiatives to make life better for the people they represent and they should be drafting bills that will make those initiatives a reality. That’s what good legislators do, or at least we hope so. Does Senator Barrett not understand that?

Well of course she does. You can figure that out by going to the Legislature’s website, where you will discover that Senator Barrett herself has already asked for three different bills to be drafted. There are no drafts available to the public yet for any of Barrett’s bills, none of them were vetted by an interim committee, and as far as I know, Barrett didn’t hold some kind of a meeting for the public to comment on them (if she did, I’ll bet you weren’t invited). I don’t know if the senator met with other legislators to talk about these bill drafts, but I wouldn’t be surprised if she did: After all, one of the bills is a “Resolution to not confirm Jonathon Motl as commissioner of political practices.” So far as I know, Barrett isn’t in any trouble with Motl, but several of her cronies are, and it’s hard to imagine that she didn’t check in with them before she decided to try to deep six Motl. In the public interest, of course.

OK, it’s obvious that what’s going on here is just another episode in the internecine bloodletting that passes for Republican party politics these days. Barrett is part of the faction that thinks that being a good Republican means stopping every good idea in its tracks. These folks are incensed by the efforts of moderates in their party to get something done by cooperating with (shudder) Democrats! For them, talking to the Governor about Medicaid expansion amounts to abandoning everything Republicans stand for.  It’s fine to think that, but to drum up some cockamamie story that talking to the Governor violates the law and the Constitution is not just hypocritical, but laughably absurd to boot.

See Section 2-3-202 of the Montana Code Anotated.