1. Energy & Telecom Issues Presented by PSC to the Energy & Telecommunications Interim Committee September 16, 2003

2. Preparation for NWE bankruptcy PSC involved in ongoing discussions re: legal & technical issues related to utility bankruptcy. PSC involved in ongoing discussions re: legal & technical issues related to utility bankruptcy. Coordinating with other agencies. Coordinating with other agencies. Effective PSC involvement in bankruptcy will be expensive. PSC will seek budget amendment to pay for outside legal & technical support. Effective PSC involvement in bankruptcy will be expensive. PSC will seek budget amendment to pay for outside legal & technical support. Explicit PSC statutory authority over utility sales and asset transfers as well as explicit PSC oversight of affiliate transactions would be helpful. Explicit PSC statutory authority over utility sales and asset transfers as well as explicit PSC oversight of affiliate transactions would be helpful.

3. PSC actions related to NWE financial condition Ordered NWE to segregate USB public purpose funds in USB trust accounts. Ordered NWE to segregate USB public purpose funds in USB trust accounts. Considering whether to similarly segregate payments into and out of default supply, including QF funds. Considering whether to similarly segregate payments into and out of default supply, including QF funds. Continue to monitor compliance with PSC’s January financing order, as well as monitoring NWE service maintenance. Continue to monitor compliance with PSC’s January financing order, as well as monitoring NWE service maintenance.

4. PSC investigation of NWE 8/22/03 – Upon request of MCC, PSC opens investigation of NWE’s transactions with NW Corp. and creditors that may impair its financial solvency and public utility service obligations. 8/22/03 – Upon request of MCC, PSC opens investigation of NWE’s transactions with NW Corp. and creditors that may impair its financial solvency and public utility service obligations. Docket D2003.8.109 Docket D2003.8.109 Expedited procedural schedule Expedited procedural schedule

5. PSC investigation of NWE PSC will consider adopting measures to protect public interest such as: PSC will consider adopting measures to protect public interest such as: –Incorporation of NWE as separate, utility-only subsidiary of NW Corp. –Requiring NWE to use specific cost allocation procedures and manuals. –Implementing conditions on current & future financing involving NWE assets.

6. PSC investigation of NWE PSC order includes: PSC order includes: –Detailed questions about NWE financial matters. (NWE responses received 9/8). –Requirement that NWE respond with legal argument and/or evidence to order’s proposals for measures the PSC might implement to protect the public interest. NWE may suggest alternative or additional measures. (NWE response received 9/9.)

7. PSC investigation of NWE NWE must demonstrate that any additional or alternative measures it proposes achieve these objectives: NWE must demonstrate that any additional or alternative measures it proposes achieve these objectives: –Restore NW Corp. to financial health. –Achieve a balanced capital structure. –Protect ratepayers from risks of non-utility investments.

8. Update on Rates

9. Residential Electricity rates – NorthWestern Energy (Default Supply)– NorthWestern Energy (Default Supply)– – 7.34 ¢ - average total price per kwh (w/ T&D) 3.89 ¢ - supply only, inlcuding CTC-QF MDU MDU – 6.97 ¢ - per kwh energy charge $3.00/month - base rate $3.00/month - base rate

10. Electricity rates – MDU 8/26/03 - MDU files its first electric rate case in Montana since 1986. 8/26/03 - MDU files its first electric rate case in Montana since 1986. Seeks overall increase of 10.73%; proposed residential increase of 20%. Seeks overall increase of 10.73%; proposed residential increase of 20%. MDU proposes increase to recover investment and costs associated with new generation resource that serves MT customers, as well as other claimed increased costs. MDU proposes increase to recover investment and costs associated with new generation resource that serves MT customers, as well as other claimed increased costs. Current residential rate: 6.968¢/kwh Current residential rate: 6.968¢/kwh Proposed res. rate: 1 st 750 kwhs: 6.884¢/kwh; Over 750 kwhs: 3.403¢/kwh Oct.-May; 6.884¢/kwh June-Sept.  Proposed increase in res. base rate charge from current $3.00/mo. to $17.00/mo.

11. Natural gas commodity rates MDU, Energy West, NWE MDU, EW and NWE file monthly trackers. MDU, EW and NWE file monthly trackers. –MDU: Current residential rate = $6.784/dk –EW: Current residential rate = $6.924/mmbtu for first 9 mmbtus; $6.605/mmbtu over 9 mmbtus –NWE: Current residential rate = $8.007/dk

12. Update re: NWE gas trackers D2002.11.140 final order D2002.11.140 final order –Approved full 35% –Commission found NWE was imprudent in its procurement of gas supply –NWE appealed PSC order to district court D2003.6.66 – interim order D2003.6.66 – interim order –Requested 45% increase –Approved approximately 35%

13. PSC oversight re: utility assets Explicit authority to review and approve utility corporate organization and affiliate transactions; Explicit authority to review and approve utility corporate organization and affiliate transactions; Explicit authority to review and approve the transfer of utility assets (not in the ordinary course of business); Explicit authority to review and approve the transfer of utility assets (not in the ordinary course of business); PSC discretion and flexibility is key-one size PSC action in these matters does not fit all; but PSC must be able to act confidently when necessary. PSC discretion and flexibility is key-one size PSC action in these matters does not fit all; but PSC must be able to act confidently when necessary.

14. Updates on telecom, other issues Rulemaking proceedings: Rulemaking proceedings: –Adopted rules to implement HB 479, HB562, HB 392 – revisions to slamming/cramming law; bulk transfers of carriers’ customers; repeal of Universal Access Program. –Noticed proposed rules to implement HB641 related to intercarrier compensation.

15. Extended area service (EAS) petitions in six dockets: Qwest/Mid-Rivers/Project/Triangle: Musselshell/Billings region Qwest/Mid-Rivers/Project/Triangle: Musselshell/Billings region Qwest/Triangle Co-op/Central Montana: Qwest/Triangle Co-op/Central Montana: Havre, Lewistown, Martinsdale, Great Falls regions Qwest/Northern Telephone Coop: Qwest/Northern Telephone Coop: Shelby, Cut Bank region Shelby, Cut Bank region Qwest/Blackfoot Telephone Co-op: Qwest/Blackfoot Telephone Co-op: Missoula, Helena regions Ronan Telephone: Western MT EAS Ronan Telephone: Western MT EAS Qwest/Lincoln Telephone Coop: Helena region Qwest/Lincoln Telephone Coop: Helena region

16. Qwest retail rates investigation Docket D2003.2.22 Docket D2003.2.22 –PSC investigates the reasonableness of Qwest’s rates. –Recent annual reports show that Qwest earns well in excess of its 10.44% authorized rate of return. –Qwest refused to produce information requested by PSC; dispute is now in court.

17. Eligible telecommunications carriers PSC designates eligible telecommunications carriers (ETCs) that can receive federal universal service funds, and then certifies ETCs. Four pending dockets: PSC designates eligible telecommunications carriers (ETCs) that can receive federal universal service funds, and then certifies ETCs. Four pending dockets: –3 Rivers/Qwest: Shelby –Western Wireless/Qwest: all exchanges –Interbel/Citizens: Eureka & Rexford –Mid-Rivers Cellular/Mid-Rivers Telephone/Range Telephone: Mid-Rivers Cellular Service Area ETC Notice of Inquiry Issues: ETC Notice of Inquiry Issues: –Should PSC specify additional certification requirements in order to approve an ETC designation? –What criteria & procedures should be used to monitor and direct universal service funds to ETCs?

18. FCC’s Triennial Review FCC Order, effective 10/2: FCC Order, effective 10/2: - Delegates to PSC Impairment (1996 Act) Analysis (loops, transport, switches etc) Analysis (loops, transport, switches etc) -Limits Time to Do Analysis 90 days for enterprise market 90 days for enterprise market 9 months for mass market 9 months for mass market -PSC opened two dockets -Collaboration and Training with ROC, NARUC and TRIP

19. Universal service issues Universal Service Fund Activities Universal Service Fund Activities –10 th Circuit Remand –Federal State Joint Board  Definitions  Portability  Eligible carriers  Synthesis model Federal funding for Montana (annualized 4 th Quarter 2002): Federal funding for Montana (annualized 4 th Quarter 2002): –Rural: $55.2 million –Non-rural: $10.9 million