Montana Power rates to rise 20% on supply, transition costs

By the OGJ Online Staff

HOUSTON, Oct. 30, 2001 — Montana Power Co. said it expects to pay $2 billion over the next 30 years as part of its transition from an integrated electric utility holding company to a utility supplying default power customers and transmission and distribution services.

The company estimated customers' bills will rise 20% or about $10/month, reflecting transition charges and higher costs for power. It said a new supply portfolio contains a mix of long and short-term contracts from new and existing generators to serve customers who have not chosen alternative suppliers, also known as default supply customers, beginning July 1, 2002.

The portfolio also includes existing long-term contracts with qualifying facilities (QFs) — power that federal law required Montana Power to purchase at rates set by the Montana Public Service Commission. Montana Power said it estimates about $1.2 billion of the total is at above market rates.

The company said it buys 100 Mw of electricity from QFs and intends to incorporate the power from these contracts at current market prices into the default supply portfolio that will serve customers who do not choose another electricity supplier.

Costs of the QF contracts will be partially offset by a $2/month charge to customers beginning in July 2002, in addition to gains from the company's $60 million sale of generating assets to PPL Montana, a unit of PPL Corp., Allentown, Pa. Montana Power said about $304.7 million in out-of-market costs would not be offset.

The company said its supply portfolio also includes increments of short-term power (less than 1 year) to round out the portfolio. The company is asking the commission to review all of the contracts to determine if they comply with the "prudency standard."

Jack Haffey, president of Montana Power's Utility Division, said the supply portfolio seeks to balance the need for fostering development of new generation resources with "wise use of existing resources."

Transition costs are the costs a company incurred and collected under regulation but will not be able to recover in a competitive market. These costs are allowed to be collected under Montana law.

Montana Power filed its first transition plan in July 1997 when the case was divided into two parts. The initial piece was concluded in 1998. The latest filings include all transition costs as a single one-time settlement and developing competitive transition charges, said Pat Corcoran, Montana Power's vice-president of regulatory affairs.

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