July 7, 2008

Officials Wary of Colstrip Proposal

By Dennison, Mike

HELENA - NorthWestern Energy announced Tuesday that it plans to sell its share of Colstrip-produced electric power to an investment group for $400 million - or give Montana ratepayers a chance to gay a similar price.

The announcement raised eyebrows at the state Public Service Commission, where utility regulators said they'll take a hard look at how the offer could affect the company's 300,000-plus electric ratepayers in Montana.

The state's consumer lawyer also said he was "pretty disappointed" with the announcement, because it comes while regulators are investigating whether NorthWestern improperly bought the share of Colstrip power last year.

Consumer Counsel Robert Nelson also said the proposal could leave electricity consumers at the mercy of market prices, which is just what NorthWestern said last year that it wants to avoid.

"We'd continue to rely on the market and the risks there, rather than developing our own generation," he said. "It seems to me to be 180 degrees from the approach and philosophy that (the company) was talking about just 18 months ago in the Legislature.''

A Northwestern spokeswoman disagreed, saying that the company is merely giving ratepayers the chance to buy a share of Colstrip 4 power for long-term use, at a price tied to its current market value.

"An analysis we're working on may show that ratepayers would benefit by buying this asset and (paying for it long term), as opposed to continuing to buy the power at market price from the new owner," said Claudia Rapkoch in Butte.

NorthWestern, the state's largest electric-and-gas utility, owns 222 megawatts of power produced at the coal-fired plant known as Colstrip 4, about 100 miles east of Billings.

NorthWestern uses half of that power as part of its portfolio of electricity sold to Montana customers. Most of the Colstrip power is priced at $35 per megawatt-hour, well under the current market price for electricity.

On Tuesday, NorthWestern announced that it has agreed to sell ownership of that power to Bicent Power Co., an affiliate of Beowulf Energy and Natural Gas Partners, for $404 million.

Bicent Power owns other power-producing assets in Montana. Beowulf Energy and Natural Gas Partners, according to an April press release about its acquisition of a power plant owned by the city of Vernon, Calif., sees itself as "the leading investment franchise in the energy industry."

Yet while NorthWestern announced the possible sale to Bicent, it also gave state regulators the option of keeping NorthWestern as the owner, if the PSC agrees to change the power's long-term price, based on the $404 million offer from Bicent.

That means ratepayers would pay much higher than $35 per megawatt- hour. State regulators would determine the amount, after hearing arguments from NorthWestern, the Consumer Counsel and others.

Rapkoch said the price for the power, if NorthWestern maintained ownership, would still be cheaper than buying power elsewhere or building a new plant to provide the power in the future.

"We're trying to balance the needs of the customers and the shareholders," she said.

Public Service Commission Chairman Greg Jergeson, D-Chinook, said he's pleased that NorthWestern is giving regulators a chance to leave the power under company ownership for long-term use by consumers.

But he said he expects "some very hard questioning about how to ascertain the true value and the appropriate value for rate-basing that asset."

Commissioner Brad Molnar, R-Laurel, said the value should be tied to what NorthWestern paid for the power share originally, rather than the proposed sale price to Bicent, he said.

"We might have a fight over what that value is," Molnar said. "To me, rate base is what (the power production) is worth and what did you buy it at, and then you get a reasonable return on that" value.

Commissioner Ken Toole, D-Helena, said a 2007 law may require the long-term price to be tied to the current market value of the power, he said.

"I'm going to be very interested to see if Colstrip 4 power at the current market is a good deal," Toole said. "I'm not sure that it is."

NorthWestern had controlled the power many years through a lease agreement, but bought out the lease last year and now owns the 222 megawatts.

The PSC is investigating whether NorthWestern improperly used ratepayer funds to buy that share of power, which is now controlled by company's shareholders.

"The bottom line is that we think the ratepayers have an interest in that (power), because the company used utility (income) to finance the purchase," Nelson said.

Copyright Billings Gazette Jun 11, 2008

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