The Milwaukee's horrible profile - requiring more locomotive power than the competition - would have doomed the Western Extension regardless. But getting rid of the electrification was the right move, whether the gap would have been "filled" or not.
The efficiency of an electrified operation cannot be denied if one only looks at the cost of an electric vs. diesel from point A to point B. It's interesting that the many disadvantages and inefficiencies of electrification are usually overlooked.
The chief disadvantage of an electrified railroad is its geographic limitations. In a day when railroads are touting the advantage or hauling crude oil by train over a pipeline because railroads go most everywhere and the pipeline network is limited, much the same comparison can be made between diesel and electrified railroad operations. Except for rare instances such as the tunnels entering Penn Station in New York as an example, diesel-electric locomotives can run on any track, anywhere. Electric locomotives can only run where there is an existing power source (catenary, third rail). On the Milwaukee, this was only from Harlowton to Seattle and Tacoma, excluding the gap. None of the branch lines, or any east of Harlowon was electrified.
Today, locomotives run from coast to coast on numerous carriers with changing power, and the most efficient train is one that travels from origin to destination with the least number of power modifications. The limited scope of the Milwaukee electrification made this type of operation (especially considering how railroading has evolved since the demise of the Western Extension) inherently costly and inefficient.
As an example, say that both the BN and MILW were handling a unit grain train between two points common to both railroads, Great Falls, Montana and Portland, Oregon. BN would assign power in Great Falls and it would be used to take the train to Portland with the only modification likely cutting power, if needed, at Whitefish, Spokane, or Pasco. The MILW would need actually more diesel power to get the train to Harlowton than BN assigned (the grade on the MILW between Great Falls and Harlowton was actually greater than on BN from Great Falls to Portland). At Harlowton, the diesel power would come off and be replaced by electric power which would handle the train to Tacoma (receiving helpers, as necessary, at three locations, and assuming the Avery-Othello electrification gap to be filled). At Tacoma, the electric power would come off and be replaced with diesel power (again) for Portland (and a lot of it, given the three percent grade of Tacoma Hill).
In addition to the cost of physically changing power en route, a bigger expense is "locomotive dwell" and train delay. When power has to be changed, it often waits at a location for the next assignment, or if the train is delayed inbound, the planned outbound train is delayed for its arrival. There is a cost for both of these cases, and the Milwaukee would incur these costs once or more for any relatively long-haul movement. Diesel power just runs through.
Of course, the Milwaukee could have "simply" electrified every route to fix this problem, but that's another huge cost to do that. Also not considered by electrification proponents is that the Milwaukee really didn't have a lot of electric power. Their newest electrics - the "Little Joes" - were over a quarter-century old when electrification was discontinued, and there were only 12 of them. Considering the size of today's trains, if would take 8 of the 12 Little Joes (each one would pull about as much as a C44 does today) to move a standard "shuttle" grain train west of Harlowton to the West Coast (assuming no auxiliary helper power), or 75% of the existing locomotives. To completely handle the number of trains that would be necessary to made the Pacific Extension viable (relatively speaking) would take literally hundreds more locomotives, which would be a huge expense for locomotives that would be limited to electrified lines on the Milwaukee alone, because no other railroads could accommodate this power.
The Milwaukee did mix their electric and diesel power, with the diesel power running through (again because that is most efficient, but also because of the "gap"), but the electric power was basically extra power for use over the steepest grades. In this scenario, you lose the primary benefit of electrification, and there are still the dwell and connection costs between assignments.
The potential scenarios on "what if" are numerous, but in the end you get the same result. Too much cost for additional electrification, too much cost for additional electric locomotives, too much cost for electric and diesel locomotives dwelling at the power change location awaiting the next assignment, too much cost for trains dwelling at the power change location awaiting a delayed inbound train, or as it really was, too much cost needing more power than the competition, and a route structure that created a lot of circuity.