COMMITTEE ON ENERGY AND NATURAL RESOURCES

TESTIMONY OF THE HONORABLE JUDY MARTZ
GOVERNOR OF MONTANA
COMMITTEE ON ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
March 15, 2001

CHECK AGAINST DELIVERY

Thank you Mr. Chairman and members of the Committee. For the record, my name is Judy Martz and I am Governor of the Big Sky State of Montana. I appreciate the interest this Committee has shown in the struggles of Western states to deal with an emerging energy problem.

I would like to frame my testimony around a simple concept: Supply. As you know, the Western United States has experienced substantial growth in population and energy needs in the past decade. And while we have seen increasing power needs for economic development and other consumptive uses, we have seen nearly zero development in sources to provide additional power. The primary reason we have not seen interest in developing power generation is the regulated energy market. There have been no incentives to develop additional power. And while we have not developed additional power generation, there has also been a move to dismantle existing power generating facilities.

Montana entered into deregulation in 1997 in an effort to stay ahead of the curve. Our industrial customers have been deregulated since 1997 and our residential customers will enter into the free market in 2004.

Unforeseen circumstances hit the western states last summer with historically low winter snowpacks and drought continuing to present time. This gave us less water to produce electricity through hydroelectric facilities, while maintaining stream flows to comply with mandates under the Endangered Species Act.

California compounded our problems as the largest user of electricity, and as a partially deregulated electricity market. California capped retail prices, and did nothing to address wholesale generating prices. Adding to the problem, California has not built a power generating facility within the past decade.

With this scenario in place, there was almost no incentive for investment of additional power, nor an investment for California consumers to conserve. The result was a power drain from all northwestern states to meet the demands of California consumers.

This chain of events has hit Montana hard. Montana industrials that gambled on declining future power prices have been hurt by the resulting power prices. We have seen several closures in Montana, a state whose economic base cannot afford to lose one single job. Montana currently has sufficient energy supplies to meet its own needs. However, because we are tied into the western grid, any excess energy is pulled to other states. This past summer, industries that chose to shop for energy found their traditionally low rates of about $30 per megawatt rise to as high as $300. The artificially high prices brought “Closed for Business” signs to several businesses in Montana.

While Montana is facing one of the biggest challenges we have ever experienced, we are also looking at one of the biggest opportunities we have seen in quite some time.

Montana is a resource-rich state. From vast super-compliant coal fields in the east, to miles of timber land in the west, Montana has the natural resources to help quench the thirst for energy across our nation. Montanans are anxious for the opportunity to contribute to the economic health of this country through responsible and environmentally sensible development of these resources.

This nation has the ability to generate affordable and reliable energy. But we must be careful that we do not stifle the increasing interest to develop additional power. An overly heavy handed federal government can stymie efforts to address the long-term solution for our current energy problem. Capping prices regionally will take away individual states flexibility to address the problem. Capping does not take into consideration the difference in economies and per capita income. A reasonable cap to California may be prohibitive to Montana. And importantly, it extinguishes incentive to invest not only in conservation methods but also additional generating capabilities.

Just yesterday, I had a conversation with a representative of an out-of-state interest that is considering investing $200 million in a power generating facility in Montana. Now $200 million may not be a lot of money to a body that is accustomed to dealing in billions of dollars, but to Montana that is a tremendous investment. And the beauty of this proposal is that it helps address generation concerns not only for Montana and the west, but it also helps create good paying jobs.

It is important to note that I had a simple message delivered to me in that conversation: “Just keep the government out of the way.”

Mr. Chairman, Members of the Committee, all of us in the western states are struggling to deal with a situation that has no easy answers. And while I recognize the intent of price caps is to protect consumers, I believe it will only exacerbate an already difficult situation. We need to address our energy needs for the long run. Short-term responses such as this will only deter serious efforts to come up with long-term solutions. The ultimate long-term solution is the creation of additional power sources. Capping prices does not provide incentive to conserve. And capping prices does not provide incentives for additional generation.

The Western Governors Association recently reviewed possible solutions to the western crisis, including capping electricity rates. However, WGA members ultimately delivered a letter to the President opposing price caps. And as Governor of Montana, I signed that letter, recognizing that capping prices creates disincentives for long-term solutions.

While we do not want the federal government to come down on western states with a heavy regulating hand, we do want to work with the federal government to arrive at meaningful solutions. Work with us in an effort to address problems associated with a western grid straining to keep electricity flowing. Work with us by allowing individual states the flexibility to address the energy shortage by creating new generating facilities and transmission capabilities. Work with us to create incentives to conserve existing resources, while developing new resources. Work with us, not against us.

Thank you.

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