UNITED STATES
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 earliest event reported February 21, 1997
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
ITEM 5. Other Events
On February 21, 1997, the Montana Power Company (Montana Power), its
subsidiary Western Energy Company (Western), and Puget Sound Energy (Puget)
(collectively referred to as the Parties) entered into a settlement agreement
to resolve a pending litigation matter regarding a power sales agreement and
arbitrable disputes relating to coal contracts for the Colstrip Generating
units in a way that will reduce adversarial issues between the parties and
will create a business alliance that will maximize the opportunity in the
future to enhance efficiency and create added value with respect to the
operation of the Colstrip properties. It is anticipated that the agreements
summarized below will result in an annual reduction in Montana Power's
revenues of between $11 and $13 million, before anticipated efficiency gains,
commencing January 1, 1997.
Settlement and Dismissal of Power Sales Agreement (PSA) Litigation between
Montana and Puget
The settlement calls for the PSA to be amended:
1. to reduce the monthly fixed charge by $6,500 per megawatt ($7.3 million
annually) beginning January 1, 1997 through expiration of the PSA on
December 30, 2010;
2. to provide to Puget three megawatts of additional capacity, resulting from
ruggedized rotor blade installations, at no additional monthly fixed
charge. Puget will make a one-time payment for the turbine blade upgrade of
$900,000;
3. to eliminate the 75% capacity factor limitation on Puget's right to
schedule 97 megawatts.
In addition the Parties agreed that the General Transmission Agreement
between Puget and the Bonneville Power Administration provides firm
contractual rights to transmission paths sufficient to carry out Montana's
obligations under the PSA.
Settlement of Colstrip 1 & 2 Coal Price Reopener Proceeding and Colstrip 3 & 4
Gross Inequity Proceeding between Western and Puget
1. The Parties agreed to cease to prosecute pending proceedings regarding the
Colstrip 1 & 2 price reopener, and Puget agreed to cease its participation
in and to forego any price benefit, if any, from the pending Colstrip 3 &
4 gross inequity claim;
2. To the extent not off-set on a going-forward basis as described in the
"Colstrip Restructuring" section below, Western will reduce the price of
Colstrip 1 & 2 and 3 & 4 coal sold to Puget beginning January 1, 1997
until the next price reopeners. This price reduction is expected to
reduce Western's revenues $4 to $6 million, annually.
Colstrip Restructuring
Montana Power operates, and Western owns and operates the Rosebud Mine
that supplies coal to, the four mine-mouth Colstrip generating plants. Montana
Power and Puget each own 50% of the twin-333 megawatt Colstrip Units 1 & 2.
Ownership shares of the 805-megawatt Colstrip Unit 3 are Montana Power 30%,
Puget 25%, Portland General Electric 20%, Washington Water Power 15%, and
PacifiCorp 10%. Colstrip Unit 4, a twin to Unit 3, has similar ownership,
except Montana Power sold and leased back its share of the plant.
The Parties agreed to work together to restructure the existing
contractual arrangements for the operation of the four Colstrip plants and the
associated Rosebud Mine as if they were under common ownership, in order to
achieve the savings and benefits that would result from integrated operations.
In this settlement, the Parties recognize that the contemplated restructuring
will require the participation of the other non-operating owners, and they
agreed to use their best efforts to work together to obtain commitments from
these owners and produce a determination by November 30, 1997. Restructuring
is sought to achieve savings and benefits that would include, but not be
limited to, increased power production, improved mine economies, buy-down
benefits and avoided transaction costs.
Certain statements contained herein are forward-looking statements and
accordingly involve risks and uncertainties which could cause actual results
or outcomes to differ materially from those expressed in the forward-looking
statements. The forward-looking statements contained herein are based on
various assumptions, many of which are based, in turn, on further assumptions.
Montana Power's expectations, beliefs and projections are expressed in good
faith and are believed by Montana Power to have a reasonable basis, including
without limitation, management's examination of historical operating trends,
data contained in Montana Power's records and other data available from third
parties, but there can be no assurance that management's expectations, beliefs
or projections will result or be achieved or accomplished. Furthermore, any
forward-looking statement speaks only as of the date on which such statement
is made, and Montana Power undertakes no obligation to update any forward-
looking statement or statements to reflect events or circumstances that occur
after the date on which such statement is made or to reflect the occurrence of
unanticipated events.
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 hereunto duly authorized.
THE MONTANA POWER COMPANY
(Registrant)
By:/s/ J. P. Pederson
J. P. Pederson
Vice President and Chief Financial and
Information Officer
Date: February 26, 1997
