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Power generator challenges PSC

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PPL sues, claims rates are governed by federal law

HELENA - In a move that could determine how much 288,000 Montanans will pay for electricity starting July 1, 2002, PPL Montana on Tuesday sued the state Public Service Commission over its attempts to regulate the cost of the power that the company sells to Montana Power Co.

PPL Montana is asking U.S. District Court in Helena to declare the PSC's June 26 action "preempted, unconstitutional and void." The company also asked the court to issue an order enjoining the PSC from "seeking to exercise any authority, control or regulation of wholesale sales from PPL Montana's generating assets."

On June 26, the PSC, on a 4-0 vote, formally asserted it has the authority to continue to regulate Montana Power's electricity rates, even after a current rate freeze runs out June 30, 2002. The PSC order continues regulation until the regulators issue a transition order to Montana Power.

In the same order, the PSC declared that PPL Montana, which bought Montana Power's dams and coal-fired generating plants for $767 million in 1999 and now sells wholesale power to MPC, must provide electricity in the future at a price reflecting what the costs would have been if the generation plants had not been sold.

However the federal court rules could determine what Montana Power's 288,000 residential and small business customers ultimately pay for electricity after June 30, 2002. Montana Power's electricity supply rates were frozen by the 1997 deregulation law until mid-2002.

In its lawsuit, PPL Montana asserted that the Federal Power Act gives the Federal Energy Regulatory Commission exclusive jurisdiction over the sale of wholesale electricity sales in interstate commerce, including rates, terms and conditions for the purchase and sale of wholesale power. As a result, PPL said, states are pre-empted from exercising regulatory authority over the sale of electricity.

PPL Montana said FERC in September 1999 granted special status to sell power solely in the wholesale market.

The lawsuit came as no surprise to anyone.

It has been in the making since March when the PSC first indicated it would assert its authority over what Montana Power paid PPL Montana for the cost of wholesale power. That assertion was modified several times because of action by the Legislature on utility bills.

"Hell, we expected it," said PSC Chairman Gary Feland, R-Shelby. "It's going to get us started to get a decision to see where we're headed. This is just one of those things that's going to have to be resolved - whether we've got authority or we don't."

Feland said there has been "enough foot-dragging going on and enough bucking our authority."

"Let the games begin," said Commissioner Matt Brainard, R-Florence. With a tinge of sarcasm, Brainard said he's hopeful that other states where PPL is considering building power plants will see "what kind of a good-neighbor policy" the company has.

Commissioner Jay Stovall, R-Billings, said he wants to work on getting some kind of settlement to resolve the issue so the PSC doesn't have to depend on a court decision

Robert J. Grey, senior vice president and general counsel for PPL Corp., parent company of PPL Montana, said it was unfortunate but not surprising that the lawsuit had to be filed against the Montana PSC.

"We have said on numerous occasions that we would vigorously challenge any attempt by state authorities to regulate sales from these power plants, which clearly are under the jurisdiction of a federal agency," Grey said.

"We are very disappointed that the Montana PSC is persisting in a misguided and unconstitutional attempt to regulate sales from our power plants," Grey added. "This PSC action will only serve to distract attention from productive efforts - of which we have been a part - to provide adequate energy supplies for the state's residents and businesses."

"We've testified before the PSC and have said many time that the state does not have the legal authority to regulate the wholesale prices of a wholesale seller," said Montana Power spokeswoman Claudia Rapkoch. "Nor does the state have the legal authority to regulate the price that wholesale buyers pay for electricity. Those activities are solely under the auspices of the Federal Energy Regulatory Commission."

Gov. Judy Martz said, "It really is too bad that this matter has to be solved by litigation. It's been headed that way for a long time. If our office can help facilitate a settlement or agreement, we're glad to do that."

Martz added, "My primary objective is to protect the consumers. Whatever path best protects our consumers is best for Montana."

In the lawsuit, PPL Montana also said the PSC efforts to regulate wholesale electricity sales unconstitutionally interferes with interstate commerce. The PSC order also would require PPL to sell Montana Power electricity at prices that are "contrary to an existing power purchase agreement between the two companies," PPL said.

The PSC order also would require PPL Montana to sell electricity at below-market prices, leading to an unconstitutional taking of property without just compensation, it said.

The company noted that it has offered to supply Montana Power with 500 megawatts of power at $40 per megawatt hour beginning July 1, 2002, and extending for five years. However, one of the condition of that offer was that the PSC drop any efforts to reregulate PPL Montana.

The Legislature complied with the other two conditions of the deal by killing an excess-revenue tax aimed at PPL Montana and passing another bill that guarantees Montana Power Co. with full-cost recovery for the power it purchases to serve Montanans.

The lawsuit does not affect industrial customers.

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