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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 27,
1995
THE MONTANA POWER COMPANY
(Exact name of registrant as specified in its charter)
Montana 1-4566 81-0170530
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
40 East Broadway, Butte, Montana 59701
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (406) 723-5421
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ITEM 5. Other Events
Power Purchase Agreement Dispute
The Montana Power Company (the Company) sells 94 MW of
electricity to Puget Sound Power & Light Company (Puget) under a
25-year agreement which expires in 2010 (the Agreement). On
February 27, 1995, Puget notified the Company of its intention to
terminate the Agreement, effective the next day, alleging the
Company had failed to satisfy a requirement to secure firm
contractual rights to transmission paths for the delivery of the
electricity.
If Puget establishes its right to terminate the Agreement,
the Company would be at risk for the difference between the power
purchase price under the Agreement, approximately 4.6 cents/kWh
($29 million in revenue) for the current contract year and
escalating annually thereafter, and the prices it might receive
from future sales of the electricity. In addition, the Company
would be obligated to reimburse Puget approximately $37 million
for the amount by which Puget's payments for the electricity have
exceeded its projection of avoided costs. This reimbursement
obligation would peak at approximately $47 million by the end of
1995 and would be reduced to zero by the end of the Agreement's
term in 2010. The Company also may be required to make a non-
cash adjustment to its accounting records reducing an asset
related to the Agreement by an amount currently estimated to be
approximately $20 million, pre-tax.
The Company believes that it has performed its obligations
under the Agreement and that Puget has no basis for termination.
On February 28, 1995, the Company obtained, from a Montana
district court, a temporary restraining order enjoining Puget
from terminating the Agreement. A hearing has been set for
March 15, 1995 to determine whether a preliminary injunction
should be issued. The Company also has filed with that court a
complaint for a declaratory ruling that it has complied with the
Agreement and that Puget has no basis for termination. The
Company will seek to enforce the Agreement and to obtain damages
for any breach; however, it cannot predict the outcome of this
controversy.
Coal Price Arbitration
In addition, the Company's subsidiary, Western Energy
Company (Western) is party to a dispute with Puget regarding the
coal supply agreement for Colstrip Units 1 and 2 between Puget
and the Company's Utility Division, as co-owners of the units,
and Western, as coal supplier. The coal supply agreement
provides for periodic price redetermination over the life of the
contract, commencing in 1991. Negotiations with respect to the
1991 redetermination were unsuccessful and an arbitration
proceeding was held in January 1995. A decision is expected in
late March 1995. Based upon the positions of the parties, the
estimated effect on pre-tax net income at December 31, 1994 would
range from an increase of approximately $4 million to a decrease
of approximately $12 million on coal sold to Puget and in
addition, an increase of approximately $2 million to a decrease
of $12 million on coal sold to the Company's Utility Division.
The Company believes Western presented a convincing position in
the arbitration. Further, the Company believes because its
electric rates have been adjusted by a coal cost disallowance,
they should not be subject to further adjustment. The Company,
however, cannot predict the outcome of the arbitration nor any
related rate proceeding.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
THE MONTANA POWER COMPANY
(Registrant)
By /s/ J. P. Pederson
J. P. Pederson
Vice President and Chief
Financial Officer
Dated: March 7, 1995
