October 7, 2008

PSC Hearing Opens on Colstrip Power Deal

By Dennison, Mike

HELENA - As a high-stakes hearing opened Wednesday on how NorthWestern Energy's Montana customers might buy a share of Colstrip-generated power, regulators heard starkly different takes on the multimillion-dollar deal. The company, which is proposing the deal, and others said it's a first step toward rebuilding the utility and insulating its Montana customers from the "vagaries" of the electricity market.

"I believe so doing will benefit me as a customer," said Gerald Mueller, a Missoula consultant who has done work for the company. "(Colstrip) will be a long-term source of electricity at a reasonable cost."

Yet Montana's Consumer Counsel, which represents consumers in legal cases before the Public Service Commission, said the proposal is a blatant consumer rip-off that gives the company millions more than it deserves.

"You have the opportunity today with this proceeding to call a halt to this charade," said attorney John Coyle of Washington, D.C., for the Consumer Counsel. "The company's proposal to rate-base Colstrip at $407 million is beyond the pale of any reasonableness."

Coyle, Mueller and a string of company officials appeared Wednesday before the PSC, which must decide whether to accept, reject or modify the company's proposal. Mueller said he was speaking as a citizen, and wasn't being paid by anyone to appear.

At stake is whether NorthWestern's 300,000-plus electric customers will pay the equivalent of $407 million for a long-term share of power from Colstrip 4, a coal-fired power plant east of Billings.

NorthWestern says the price is based on a pending agreement to sell the power strip to another company, Bicent Power Co. - and that if the PSC doesn't approve the deal, NorthWestern will sell the power-share to Bicent.

If NorthWestern customers "buy" the share by having it placed in electric rates over time, those rates will increase in the short term, but flatten out over the long term and likely be lower than buying power on the open market, the company argued.

Yet the Consumer Counsel said the $407 million price is far more than NorthWestern customers should have to pay.

The PSC should agree to fold the power into the "rate base," meaning that NorthWestern can charge consumers to cover its cost over time, Coyle said.

But the true cost to NorthWestern of acquiring the power is somewhere between $37 million and $187 million, Coyle said - not the $407 million proposed by the company.

"Anything outside of that bandwidth is purely and simply a sham," he said.

On this first day of a hearing expected to last the rest of the week, the room was packed with attorneys, consultants, PSC staff and NorthWestern executives, including NorthWestern's new president, Bob Rowe, and its prior president, Mike Hanson.

The five-member PSC has been asked to rule quickly on the case, which witnesses said could have a lasting effect on the utility and energy policy in the state.

Chuck Magraw of Helena, an attorney for a trio of conservation and low-income groups, urged commissioners to take care with their decision and consider how it will affect the state, the company and its relationship with regulators, the Consumer Counsel and others.

"There is a lot at stake here," he said.

The groups represented by Magraw, including the Human Resource Council of Missoula, have sided with NorthWestern on most of its arguments.

Mueller said NorthWestern should be able to charge ratepayers for what it could sell the Colstrip power on the market now. He also said if that principle isn't honored, it may touch off a spate of litigation, harming both the company and the public.

Also at. issue. in the case is whether NorthWestern ratepayers have any claim to the more than $300 million of income-tax benefits gained by the company during its 2003 bankruptcy.

The company has asked the PSC to declare that those benefits are solely for the company, which wants to use them to offset capital gains taxes on the Colstrip 4 transaction. NorthWestern bought the Colstrip 4 power for $187 million last year and is asking to sell it for $407 million.

The Consumer Counsel said customers have been paying rates to cover income taxes for the company, and since it won't have to pay them, the ratepayers should get something back.

Copyright The Missoulian Sep 11, 2008

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