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Utility not looking for bailout

Despite its parent company’s financial woes, NorthWestern Energy will provide the natural gas to keep Montanans warm this winter and will pay off its late property taxes — but the company needs help bucking up its weak credit to buy energy supplies, a utility official told Gov. Judy Martz on Thursday.

By CHARLES S. JOHNSON – IR State Bureau

NorthWestern Energy President Mike Hanson outlined NorthWestern Corp.’s many financial problems, but said it isn’t interested in selling its money-making utility and hopes it can restructure its finances to avoid filing for bankruptcy in 2005 when it must pay back some debt. It is trying to sell a pair of money-losing non-utility subsidiaries and its partially built but mothballed gas-fired power plant in Great Falls.

‘‘We’re not asking for any kind of a government bailout,” Hanson told Martz during the wide-ranging, 90-minute session called by the governor.

However, Hanson said serving as the default supplier providing electricity and natural gas for more than 300,000 Montana consumers who have no other provider ‘‘is a public service” and is not one in which the company is allowed to make a profit. It automatically assumed that role when it bought Montana Power Co.’s utility business last year.

‘‘How can you provide credit support for this?” he asked, suggesting some kind of credit backing for its natural gas and electricity purchase might be needed.

Afterward, Hanson said the company either needs to shore up its credit within NorthWestern or to find this third-party credit support elsewhere. The company now must post letters of credit or cash guarantees to buy energy, he said, because of the parent company’s financial problems.

‘‘Certainly the state could be one to offer that third-party credit support,” he said.

The idea was first broached by Rep. Dave Lewis, R-Helena, and former executive director of the state Board of Investments. He suggested last week the state could guarantee energy suppliers that NorthWestern would pay its bills.

Martz told Hanson, ‘‘There’s nothing I want more than to see NorthWestern succeed.” However, she made it clear that the cash-strapped state has no extra cash to bail out the struggling company.

Afterward, Martz told reporters: ‘‘I think we can’t rule anything out, but I think we should not be in the utility business. Neither did the people of Montana.” She was referring to voters’ overwhelming rejection of a 2002 initiative that would have allowed the state to condemn, buy and operate dams owned by private utilities.

Martz said her administration is working on an unspecified plan that she will unveil in a week or so.

The governor said she was reassured that the company would have sufficient gas and electricity to meet its commitments in Montana. Martz was also pleased the company wasn’t planning to sell the utility or its assets.

Hanson told her the company couldn’t ‘‘cannibalize the utility system by selling the assets.”

The NorthWestern official summarized as parent’s company’s problems in one sentence: ‘‘We have way too much debt.”

The South Dakota-based parent corporation has $2.2 billion in debt, wrote off $880 million, primarily in its non-utility businesses last year and saw its stock drop from $23 to $2 a share. Its stock closed Thursday at $1.56 a share.

It had to restate its 2002 quarterly results and is the subject of an informal federal Securities and Exchange Commission investigation over these restatements. Ratings agencies now classify its debt as junk-bond status, he said. The company faces 18 shareholder lawsuits.

Hanson told Martz the company is undertaking a number of steps to put its financial affairs in better order, including suspending dividends on common stock and changing its top executives. Its company’s goal is to refocus on its core electric and natural gas utility businesses, which generate consistent revenues and cash flow, and sell its money-losing non-utility businesses and use the proceeds to reduce the corporation’s debt.

Because of the corporate parent’s financial problems, NorthWestern, which last year had 54 days to pay for the natural gas it purchased, now must pay in advance. This further exasperates the company’s cash flow problems, he said.

House Minority Leader Dave Wanzenried, D-Missoula, called after the meeting and said, ‘‘I think the system is broken. The leadership (in the Martz administration) has looked the other way too long. They have a responsibility to protect the economic viability right now and into the future and not rely on the corporations that got us into this mess.”

On other topics, Hanson said:

The NorthWestern sister company, NorthWestern Energy Marketing, that breached a contract to supply Montana cities and schools with electricity at reduced prices is going to offer to pay the difference between discount price and the higher rates they would have to pay. But that would be only for up to two years of the remaining four years of the contract. It was unclear whether the cities and schools would accept this offer or pursue other means. Hanson apologized for the contract breach being poorly handled by the marketing arm.

After the company failed to pay its $24 million in Montana property tax bills in May, it paid $8.1 million in June and $3 million this month and hopes to pay off the balance, plus penalties and interest, by November.

NorthWestern Energy already 1.8 billion cubic feet of natural gas in storage, compared with 1 billion cubic feet last year, that it will use to supply Montanans this winter and has signed total contracts of 6 billion cubic, counting the gas in storage, by the end of October vs. 4.9 billion cubic feet in 2002.

NorthWestern Energy is supporting efforts, as is Martz, to seek more federal money for low-income energy assistance and weatherization programs. The utility recently received a pair of temporary rate increases from the Public Service Commission a 35 percent natural gas hike and a 14 percent electricity hike – that will raise its typical consumer’s annual bills by $356 if they get both commodities from NorthWestern.

NorthWestern disagrees with a recent PSC order that disallowed $6 million this year and $6 million next year because the company failed to prudently line up fixed-price natural gas contracts. Hanson said the company can’t continue if it’s not allowed to cover the cost of its supply. The utility has asked the PSC to reconsider its decision.

http://www.helenair.com/articles/2003/07/18/montana_top/a01071803_04.txt

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