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Montana Power warns of similarities to California

HELENA - Lining up to protect consumers, the state Public Service Commission unanimously declared Wednesday that it still is authorized to regulate Montana Power Co.'s electricity supply costs for the next six years and hold rates down.

The commission has been trying to determine what authority it has over Montana Power under the 1997 deregulation law that was modified considerably by utility-backed amendments to House Bill 474, enacted by the 2001 Legislature.

A report released Wednesday concluded the PSC still has authority over Montana Power's electricity supply obligations under the law. But the analysis pointed out a conflict in legislative intent in which the PSC is supposed to protect ratepayers and "foster the financial integrity" of Montana Power.

Commissioners clearly came down on the side of protecting Montana Power customers, but acknowledged they don't want to jeopardize the company financially.

The move is intended to hold down electricity prices for Montana Power's 288,000 residential and commercial customers when the current supply rate freeze expires June 30, 2002. Industries, facing the risk of shutdowns and layoffs because of escalating power prices, are not included in the PSC action because they have already been deregulated.

Pat Corcoran, Montana Power's vice president of regulatory affairs, expressed disappointment in the decision and warned it could lead to a California situation "where we would be buying (power) high and selling it low to consumers."

"This not only puts Montana Power at risk financially depending on how this turns out, but it puts the consumer at risk," he said.

Corcoran suggested Montana Power may appeal the interpretation in court, and PSC members conceded the matter may be settled there.

The PSC is expected to issue an order next week requiring Montana Power to prove that its electricity supply rates are not higher than what would reasonably be expected under regulation.

During the brief PSC meeting, Commissioner Bob Anderson, D-Helena, said state law contains conflicting provisions, and the only way to find out what is right is to assert one and let the courts decide.

He said the PSC's first responsibility is the welfare of ratepayers. He even suggested that the PSC could set a rate cap on Montana Power's electricity supply costs for the next six years to protect consumers, although no action was taken on that idea.

"They got us into this mess, and I think there should be some burden on them to get us out of it," Anderson said, referring to Montana Power's leading the effort for the 1997 utility deregulation law.

Although the PSC's action may be challenged in court, Anderson said risks occur no matter what the PSC does.

"If we do nothing, there's the risk of higher rates," he said. "If we take this path, there's some risk to Montana Power's financial health."

Commissioner Matt Brainard, R-Florence, offered the motion that the PSC declare its authority under a particular section of state law.

Commissioner Bob Rowe, D-Missoula, said the commissioners need to think about "the end game" and what could result from litigation. He said it's better "to get these issues addressed sooner or later."

Rowe suggested that after the Montana Supreme Court rules on a separate legal dispute between Montana Power and the PSC, it might be appropriate for all sides to sit down and work out "a very structured global settlement" to resolve all of these issues.

Commissioner Jay Stovall, R-Billings, agreed with Rowe but defended the PSC move.

"I don't think we have very much choice but to go forward with it," Stovall said of the declaration. "We've been dealt these hands and have to play them."

PSC utility administrator David Hoffman said later that the PSC "will do what it can to preserve MPC's financial integrity"

Hoffman wasn't sure if the PSC would maintain the freeze in Montana Power's electricity supply rates or authorize "a modest increase" because of inflation and higher costs of production. He raised the possibility that MPC rates could drop if the PSC can make the legal stretch that its decision also covers costs of power generated by PPL Montana.

Because of the change in law, the PSC took a different path Wednesday than it headed down in March when it declared it had authority to regulate the price charged by PPL Montana for electricity sold to Montana Power.

The PSC action may jeopardize a proposed contract under which PPL Montana would sell Montana Power 500 megawatts of power at $40 per megawatt-hour or 4 cents per kilowatt-hour for five years, starting July 1, 2002. This deal, which would raise the electricity bills on the typical MPC customer by 50 percent, hinged in part on the PSC not asserting its authority over PPL Montana.

"It could call into question the contract," said PPL spokesman Dan McCarthy, who called potential PSC attempts to stretch its authority to cover PPL "totally inappropriate and illegal."

However, McCarthy said the contract, which is still being drafted, calls for PSC approval.

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