July 19, 2008

Conditions for Selling Colstrip Power Unveiled

By Dennison, Mike

HELENA - NorthWestern Energy on Monday spelled out its conditions for dedicating its share of Colstrip 4 power to Montana customers - and said it would sell the power to investors if the conditions aren't met. The proposal, submitted to state utility regulators, would increase NorthWestern customers' electric rates for 2009 and 2010. But it provides cheaper, reliable power over the longer term, when compared to other power-purchase options, the company said.

As part of the deal, NorthWestern also said state regulators must agree that $346 million of federal tax benefits gained through the company's 2003 bankruptcy cannot be used to offset customer utility rates in the future.

NorthWestern officials and its attorneys said the proposal is the lowest-cost alternative for acquiring a huge chunk of reliable power for its 320,000 Montana customers, and therefore is "in the public interest."

Yet an attorney for consumers said Monday he has many questions about the proposal, which will be considered by the state Public Service Commission.

Montana Consumer Counsel Bob Nelson, a state lawyer who represents consumers in rate cases before the PSC, said the question remains whether NorthWestern improperly used ratepayer funds to buy its controlling interest in the power last year.

"There are a lot of things we're going to have to be looking at," he said.

At issue is 222 megawatts of coal-fired power produced by the Colstrip 4 plant east of Billings, enough power to supply one-fifth of NorthWestern's customers in Montana.

Last year, NorthWestern paid $187 million to gain full ownership of the power, which is being sold to its Montana customers and customers of Puget Sound Energy, a Seattle-area Utility.

Two weeks ago, NorthWestern announced it had arranged to sell the power to an investment group for $404 million, turning a tidy profit on its purchase. As part of that deal, the buyers would agree to sell back the power to NorthWestern's Montana customers at rates slightly discounted from the market.

Yet NorthWestern officials said they would give the Public Service Commission the option of "rate-basing" the power for Montana consumers at the same price. The power would remain under NorthWestern's control, be dedicated to Montana consumers, and go into the company's rate base, on which the company earns a set rate of return.

NorthWestern says the rate-base amount should be based on the $404 million sale price of Colstrip.

NorthWestern spelled out those terms in documents filed late Friday with the Public Service Commission and made widely available Monday.

It said, if the PSC doesn't accept the rate-base proposal within 120 days without changes, the company will sell the power to the investment group, operating through Bicent Power.

John Hines, chief energy supply officer for NorthWestern, estimated that the proposal to rate-base the power would increase the price consumers pay for electricity by about 7 percent next year.

Yet by 2011, the cost would be slightly lower than if that power is sold to Bicent Power, and by 2020, it would be 11 percent lower, he said.

NorthWestern President Mike Hanson urged the Public Service Commission to take a "long-term view" of the benefits for consumers and the company.

"NorthWestern Energy and the commission must align our views and create an ongoing partnership to accomplish our mutually held, long- run goal of providing high-quality service at stable and affordable prices to consumers, while providing (NorthWestern) and its owners with a fair and predictable return on its invested capital," he said in testimony filed with the proposal.

NorthWestern on Friday also asked the PSC to suspend its investigation of whether the company improperly used ratepayer funds to buy the Colstrip power last year.

Nelson, the consumer counsel, said the investigation is looking into whether ratepayers have been supporting the Colstrip 4 power for years - and possibly entitled to that power at a cost lower than proposed by the company.

He also questioned why ratepayers should get little or no credit for the bankruptcy-related tax benefits, because the bankruptcy put ratepayers at risk.

NorthWestern says the tax benefits stemmed from losses by non- utility companies, and should be available to the company to offset future taxes - such as the ones it would have to pay if it profits by selling the Colstrip 4 power to the investment group.

Copyright The Missoulian Jul 1, 2008

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