*  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.