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  • Michael Uda

SB 331: Terrible Economics and Unconstitutional? Where do I sign up?

"When government - in pursuit of good intentions - tries to rearrange the economy, legislate morality, or help special interests, the cost come in inefficiency, lack of motivation, and loss of freedom. Government should be a referee, not an active player.”

-Milton Friedman


This quote from Milton Friedman summarizes aptly what could be called orthodox conservative economic dogma. The government should intervene as little as possible in the free market because doing otherwise risks causing market dislocations and unintended consequences that may well cause further and more serious problems in the economy. This idea that the economy should not be dictated by the government is a common pronouncement by conservative politicians and those who advocate for small government. It is rare, therefore, to see a Republican legislature adopt a bill as horrendously designed to prescriptively dictate the future of Montana’s economy in such a shameless and ham-handed way as SB 331.


That said, I can certainly see the argument that the economy of Colstrip Montana, the union workers, and the businesses of that area will benefit from a continuation of the Colstrip coal generating facilities. I also believe, truly, the State of Montana should do something to assist that community should the cessation of Colstrip Units 1 through 4 come to pass, which seems a virtual certainty at some point. However, that is not what SB 331 does, except as incident to the main purpose of the bill, which is ensuring that the ratepayers rather than the shareholders of NorthWestern Corporation end up footing the bill for the cleanup and closure of the Colstrip generating units. And, I might add, acquiring another 150 MW of dirty coal-fired generation which NorthWestern will acquire at a cost of $75 million without the pesky oversight of the Montana Public Service Commission over the inclusion of those costs in rates. Now, you may not want to take my admittedly jaundiced word for, so let’s look at what SB 331 purports to do, and then I will discuss why it is a phenomenally bad idea and why it is also plainly unconstitutional.

However, it is difficult to read the text of SB331 without wondering why anyone thought this would be a good idea. Coal plants, by and large, are going away. They are a relict technology designed for another era. When the automobile started eliminating the need for horses, the Montana legislature did not adopt a bill to protect the Montanans who directly or indirectly involved with the horse-drawn carriage business. The market has largely spoken, and that market for electric generation in the future is in favor of cheaper alternatives, including renewables such as wind and solar generation and a healthy sprinkling of batteries and demand side measures.


As I write this, word has come down that the Republicans in the legislature, in a fever to protect the horse drawn carriage industry, has decided to hold up Medicaid expansion upon which the poorest and most vulnerable Montanans rely for health care, in order to extort Governor Bullock’s signature on SB 331. This act of economic extorsion continues the subsidization of a small town in eastern Montana at the expense of the health of vastly more poor Montana residents, not to mention approximately 370,000 NorthWestern ratepayers.


SB 331 essentially does three things: (1) it allows NorthWestern to prudently incur cleanup and remediation costs associated with acquiring 150 megawatts of additional Colstrip 4 capacity (limited to post-transaction costs) at an undetermined cost to ratepayers for up to 30 years; (2) it allows NorthWestern to acquire that 150 megawatts of additional Colstrip capacity at a cost of $1 dollar, but does not contemplate PSC review of either the acquisition decision or the costs associated therewith (up to $75 million in costs over a period not to exceed ten years); and (3) it allows NorthWestern to recover the prudently incurred costs of acquiring interconnected transmission facilities of up to 150 kilovolts.

SB 331 is plainly an unlawful delegation of legislative power to a private company. Under SB 331, ratepayers must pay costs which nobody except NorthWestern must approve. In Williams v. Board of County Cmm’rs, 2013 MT 243, ¶ 52, 308 P.3d 88, 99, the Montana Supreme found a zoning statute unconstitutional for the following reasons: “First, the protest provision provides no standards or guidelines to inform the exercise of the delegated power. Second, the protest provision contains no legislative bypass.” Id. ¶ 51, ¶ at 98.


SB 331 imposes no standard and contains no legislative bypass. NorthWestern gets to acquire 150 megawatts of Colstrip 4 and the PSC has no authority over the transaction and must pass on up to $75 million in costs associated with this purchase for a period of not more than 10 years. There is no “legislative bypass” because the PSC does not have any authority. In short, SB 331 is plainly an unconstitutional delegation of legislative powers.


There is also a problem with prudence review by the PSC of the costs associated with the acquisition of transmission assets and cleanup and decommissioning costs. Although the PSC is familiar with prudence review of the acquisition of utility assets (e.g., the transmission assets described in SB 331), it is not familiar at all with the technical requirements and associated costs of doing cleanups and site decommissioning. Such a prudence review proceeding would likely involve intervention by environmental groups and others and would require the PSC exercise expertise that it does not have.

In short, SB 331 is intervention in the economy of Montana in the worst of all possible ways. It promotes the interests of an energy company and a few thousand people at the expense of virtually all other Montanans. Republican legislators, in their fetishist pursuit of protecting coal generation at the cost of good economic policy, fairness, or even common sense, have decided to promote the horse economy at the expense of the age of the automobile in a blatantly unconstitutional way.


What would Friedman say about this? Surely, it would give him pause.

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