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<title>February 2000: Montana Public Service Commission Imposes Out-of-Market QF Costs on Customers Opting For Choice Under Restructuring</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="81%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u><br>
February 2000<br>
</u><font face="Arial"><big><big><big>Montana Public Service Commission
Imposes Out-Of-Market QF Costs On Customers Opting For Choice Under
Restructuring </big></big></big></font></b><strong><br>
by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
2000/02</em>)</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">On February 1, 2000, the Montana
Public Service Commission (MPSC) issued an interim order relating to the
restructuring plan of Montana Power Company (Montana Power). The MPSC’s
order terminates the provisions of its earlier accounting order for
generation-related regulatory assets, and extends the accounting order for
recovery of out-of-market qualifying facility costs to December 31, 2000.
Following Montana Power’s sale of generating assets and certain purchase
power contracts on December 17, 1999 at an above-book price, Montana Power
sought a reduction in rates, because Montana Power had previously stated
above-book proceeds would be returned to customers. Montana Power’s
obligations to qualify facilities, in contrast to the generation-related
regulatory assets, continue to be recoverable in rates. The interim order
shares these QF costs between customers receiving bundled Montana Power
service and customers who have opted for choice. The MPSC reserved the
determination of the amount of regulatory asset related transition costs
which Montana Power may recover. Montana’s restructuring statute defines
transition costs as a public utility’s net verifiable generation-related
and electricity supply costs that become unrecoverable as a result of
restructuring which include, among other things, the cost of qualifying
facility contracts.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">According to the order, $16,722,212
of generation related regulatory assets is currently in rates. The MPSC
found that the December 17, 1999 sale of generating assets produced
sufficient above-book proceeds to eliminate all costs associated with
generation related regulatory assets. As such, the MPSC found that there
is no longer any need for these costs to be recovered from customers who
have opted for choice or from customers who continue to receive bundled
service from Montana Power. Therefore, the MPSC terminated the accounting
order which tracked and incorporated rate recovery of those costs, thereby
reducing rates for customers.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The order states, however, that
Montana Power will continue to incur costs associated with its obligations
to qualifying facilities until the final order on Montana Power’s
transition costs is issued by the MPSC. The order further recognizes that
the MPSC has authorized recovery of these qualifying facility costs in
Montana Power’s rates. Montana Power maintains that the out-of-market
qualifying facility costs inherent in current rates is $20,229,070. While
customers receiving unbundled Montana Power service are allocated their
share of the qualifying facility costs, customers opting for choice would
not pay their share absent an accounting order. Montana Power proposed two
options to the MPSC relative to recovery of out-of-market qualifying
facility costs. The first option, which the MPSC elected in its interim
order, was to accumulate from customers opting for choice as deferred
revenue the unrecovered out-of-market qualifying facility costs by the
continuation of an accounting order. The second option proposed the
unbundling of those costs and separate billing for the out-of-market
qualifying facility costs.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The MPSC’s interim order
establishes a formula for the recovery of the qualifying facility deferred
revenues to be collected from customers opting for choice. The formula
apportions the out-of-market qualifying facility costs among customers
opting for choice by multiplying the energy delivered to the meters of
these customers by a kWh charge and dividing that product by total retail
energy. The formula also permits the deferred revenues to vary by customer
class, as adjusted for losses. The MPSC’s order also compensates Montana
Power with a six percent carrying charge, compounded annually, for the
delay in receipt of these deferred revenues, which will be accrued on
outstanding balances.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">In the order, the MPSC stated that
its interim approval of any issues, calculations, or methodologies should
not be considered an endorsement of such matters for the final order. The
MPSC added that it will provide a treatment for the regulatory assets
created by its interim accounting order in its final order which will
attribute qualifying facility transition costs to customers opting for
choice. The order further provides that the MPSC is not precluded from
adopting in its final order a different revenue requirement for such costs
from that contained its interim order.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The MPSC’s interim order is
effective for service rendered on and after February 1, 2000. The order
directs Montana Power to submit a compliance filing, tariff filings, and
associated work papers implementing the interim rate reductions.</font></p>
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<blockquote>
<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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