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 Report (Date of earliest event reported) August 24, 1998
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.
Resolution of Colstrip Units 3 & 4 Coal Price Disputes
Western Energy Company (Western), a coal-mining subsidiary of The
Montana Power Company (Company), and owners of Colstrip Units 3 & 4 generating
plants have settled coal contract disputes and future coal price reopeners.
The resolution reached provides Western with a stable earnings platform by
eliminating all future price reopeners and a chance to enhance revenues
through performance incentives, while reducing the plants' delivered coal
prices and allowing the Colstrip owners to review and approve mining plans and
budgets.
Western remains the full requirements fuel supplier for all four
Colstrip plants. The Company operates the four units, and owns 50 percent of
Units 1 & 2. The Company owns 30 percent of Unit 3 and has a 30 percent leased
interest in Unit 4. Puget Sound Energy (Puget) owns the other half of Units 1
& 2. The other owners of Units 3 & 4 are Puget, 25 percent; Portland General
Electric, 20 percent; Washington Water Power, 15 percent; and PacifiCorp, 10
percent.
In July 1998, Western and the Units 3 & 4 non-operating owners (NOOs),
other than Puget, settled a gross inequity dispute. In February 1997, Western
settled coal price reopeners for Units 1 & 2 with Montana Power and Puget, and
a gross inequity claim for Units 3 & 4 with Puget only. The Company remained
apart from the other owners on the Unit 3 & 4 gross inequity issue,
maintaining, as did Western, that a gross inequity had not occurred.
The gross inequity settlement provided two options from which each NOO
could elect independently. The first option provided a reduction in base
price of $0.50 per ton on tons sold from April 1996 through June 2000. The
second option offered the same "incentive pricing" under the original Coal
Supply Agreement that Western offered during 1997 and the first quarter of
1998 to stimulate sales to the Buyers. The NOOs had until August 31, 1998 to
elect from the two options. Two of the NOO's selected the first option and the
other NOO selected the second option resulting in a third quarter 1998
reduction to the Company's pre-tax earnings of approximately $2,100,000 for
coal delivered prior to June 30, 1998.
In August 1998, the pricing provisions of the contract for coal supply
and the contract for coal transportation were amended. New procedures for mine
governance, dispute resolution and final reclamation were also implemented.
Under terms of the new coal supply agreement, Western will be paid for
its actual costs of mining coal for Units 3 & 4 and will earn a return on its
investment in the mine. Western will also have the opportunity to receive
incentive fees based on its ability to meet certain agreed upon performance
standards. New coal transportation fees also were established. This settlement
will result in a third quarter 1998 reduction to the Company's pre-tax
earnings of approximately $1,000,000 for coal delivered prior to June 30,
1998.
Until mid-year 2000, Western will realize a modest profit reduction to
account for the gross inequity settlement and the elimination of over
collections by Western in some cost categories. Under the new supply and
transportation agreements, the delivered coal price to Units 3 & 4 will be
significantly reduced from current price levels in increments beginning July
31, 2000 and 2001, the respective dates of the first scheduled coal supply and
coal transportation price reopeners under the original agreements. With the
pricing structure in effect on those dates, Western's contribution to the
Company's consolidated pre-tax income from these two contracts is expected to
be reduced in increments to approximately 50 percent of the 1998 projections
of $25,000,000. With the elimination of the price reopeners and the adoption
of the new pricing structure, Western does not anticipate any further
adjustments to profitability on these contracts throughout their terms, which
run through December 2019.
Electric Marketing and Trading
On August 26, 1998, the Company announced it is exiting the electric
commodity trading and marketing businesses. Due to the high volatility and
immaturity of the electric trading market and the Company's prior decision to
sell its generation assets, the Company believes that these activities create
unacceptable risks and would require very large volumes and supplies to be
successful. The Company is in the process of developing its exit strategy. The
departure from these businesses is not expected to have a material impact on
the Company's results from operations.
This Form 8-K contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements should be read with the cautionary statements and important factors
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 at Item 7, "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Safe Harbor for Forward-
Looking Statements." Forward-looking statements are all statements other than
statements of historical fact, including without limitation those that are
identified by the use of the words "expects," "believes," "anticipate" and
similar expressions.
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
Dated: September 21, 1998
