|
|
Enron Mail |
Mime-Version: 1.0
Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: IssueAlert@SCIENTECH.COM X-To: ISSUEALERTHTML@LISTSERV.SCIENTECH.COM X-cc: X-bcc: X-Folder: \RSHAPIRO (Non-Privileged)\Shapiro, Richard\Deleted Items X-Origin: Shapiro-R X-FileName: RSHAPIRO (Non-Privileged).pst <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scient= ech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg<=09 <http://secure.s= cientech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/C= orner_TR.jpg<=09 =09 <http://secure.scientech.com/rci/wsimages/ia_banner02.gif<=09=09 <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_BR.jpg<=09 <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.sciente= ch.com/specialpages/Multi_Client.asp< <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scient= ech.com/images/spacer.gif<=09 =09 <http://secure.scientech.com/rci/wsimages/will100border_copy.jpg< <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_TR.jpg<=09 =09 <http://secure.scientech.com/images/spacer.gif<; <http://www.thestructu= regroup.com< <http://secure.scientech.com/images/spacer.gif<; <http://secure.scientech.= com/specialpages/Strategic_Planning.asp< <http://secure.scientech.com/ima= ges/spacer.gif< <http://secure.scientech.com/rci/details.asp?ProductID=3D90= 9< <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_BR.jpg<=09 November 19, 2001=20 Montana Power:=20 Problems Continue to Overshadow Transformation Into Touch America By Will McNamara Director, Electric Industry Analysis [News item from CBS MarketWatch] Montana Power shares fell on Nov. 16, a da= y after the utility posted a loss for its third quarter, citing the slowdow= n in the economy and the company's transition from a diversified energy com= pany to a stand-alone telecommunications firm. The stock fell to a 52-week = low of $4.05 earlier in the session. It closed Nov. 16 at $4.18, down 52 ce= nts. As of early morning trading on Nov. 19, Montana Power shares remained = at $4.18.=20 Analysis: There is little doubt that Montana Power currently finds itself a= t a challenging crossroads. The company remains in the midst of becoming so= lely a telecommunications operation, having sold off much of its utility ho= ldings. However, the process has hit several snags, including an incomplete= transfer of its transmission and distribution unit to Northwestern Corp. C= ompounding Montana Power's current problems is a weakened financial perform= ance, which continues to worsen and also leaves little capital to build the= telecom business. In addition, the company faces a host of related challen= ges, including uncertainty about the final regulatory approval needed for t= he asset sale to Northwestern, requests for rate increases to fund the purc= hase of power that Montana Power must buy on the wholesale market, and insp= ection of the long-term power-purchase contracts that the company has forme= d with various suppliers. The question that investors should be asking with= regard to Montana Power's current plight is whether or not the financial l= osses and resulting drop in stock price represent a temporary setback or so= me larger indication of doubt about the company's viability as a telecom op= eration.=20 For its third quarter 2001, Montana Power posted a loss of $27.5 million, o= r 26 cents a share, representing a $57.3-million swing from its 3Q 2000 pro= fit of $30.4 million, or 29 cents a share. During the third quarter of 2000= , Montana Power had reported a net income of $31.3 million. Montana Power h= as noted that the losses in the current quarter were not solely related to = Touch America, but also included a $14.8-million pre-tax write-down of inve= stments in two other telecommunications companies. One had filed for bankru= ptcy and the other defaulted on loans that Montana Power had helped guarant= ee. In addition, company officials have attributed the loss to price decrea= ses and the slowing economy. However, note that the current third-quarter l= osses followed losses in the second quarter as well. Specifically, the comp= any reported a net loss of $10.9 million, or 11 cents a share, in the 2Q 20= 01, compared with net income of $35.5 million, or 34 cents a share, in the = second quarter of 2000. The company also previously reduced its expectation= s of revenue growth in 2001 to 10 percent from 25 percent. According to Mon= tana Power's CEO Bob Gannon, the company is merely experiencing a "short-te= rm liquidity problem."=20 Nevertheless, to say that Montana Power is having some growing pains is an = understatement. Since March 2000, it has been Montana Power's goal to total= ly divest all of its energy assets and re-emerge as a debt-free communicati= ons company, operating under the name of Touch America (presently the compa= ny's telecom subsidiary), with zero debt, $350 million in cash and 26,000 m= iles of fiber communications lines. CEO Gannon originally envisioned, and c= ontinues to see, Touch America as one of the largest broadband companies in= the country and a more lucrative business model than the formerly integrat= ed Montana Power. Much of the transition has already taken place, consideri= ng that Montana Power has successfully divested its oil and gas, coal and i= ndependent power production businesses. As noted, the last piece of the puz= zle is the sale of its electric and natural-gas utility operations to North= western Corp., a provider of electricity, natural-gas and communications se= rvices to Midwestern customers. This is a big piece of the puzzle, however,= as Touch America is counting on proceeds from the distribution sale to sup= port continued growth.=20 Therein lies one of the main challenges for Montana Power. The Montana Publ= ic Service Commission is the last regulatory agency that needs to approve t= he sale of these assets. Some analysts have suggested that Montana Power's = financial problems can be resolved only if the Montana Public Service Commi= ssion approves the sale of the electric and natural-gas distribution system= s, which could inject some $460 million in Touch America's operations. Yet,= state regulators are ensuring that the state consumer counsel's office, wh= ich represents ratepayers in utility cases, and a group of large industrial= electricity users also have an opportunity to raise any concerns about the= proposed sale of the assets. The less time provided for equal-opportunity = review and comment could increase the likelihood that the sale could be cha= llenged down the line.=20 After some early deliberation, the Montana Public Service Commission has no= w agreed to review the $1.1-billion proposed sale of the assets to Northwes= tern Corp. by Jan. 31, 2002, although lawyers for Montana Power are still l= obbying to have this review moved up to December. Part of the pressure for = the review, the company's attorneys have argued, is that if the sale is not= approved by the end of the year, investors and lenders may lose patience r= egarding the uncertainty of the deal and refuse to provide any further capi= tal support into the growing Touch America. Furthermore, the viability of t= he entire business plan for Touch America could be brought into question if= this asset sale is not approved by state regulators, considering that Mont= ana Power is counting on proceeds from the sale to support growth of the ne= w telecom company. The sales agreement between Montana Power and Northweste= rn Corp. expires March 31, 2002, so time is also a factor.=20 Another issue that has yet to be resolved is Montana Power's intent to rais= e rates to support purchases of wholesale power. In other words, as a tange= ntial issue related to the sale of its assets, state regulators also questi= on how Montana Power will recover certain power-supply costs as it continue= s to morph into a telecom business. The company has established that it exp= ects to pay nearly $2 billion over the next 30 years for wholesale power pu= rchases that have been necessitated by its transition to a telecom company = from a utility holding company, and hopes to increase electric rates by 20 = percent to support these expenses. Montana Power is still considered the de= fault provider to about 288,000 customers, and needs an average of 670 MW f= or its customers. However, the company also needs to keep a total of 1,050 = MW as a peak load during the winter months and aims to keep 100 MW of reser= ve power.=20 Since the company voluntarily divested its own generation facilities to PPL= Corp., it must procure its entire load on the open market at rates set by = the Montana Public Service Commission. The 20-percent rate increase reporte= dly would increase residential electricity rates by about $2.00 a month sta= rting in July 2002, making the average bill about $64 per month. In additio= n to the projected 20-percent increase for residential customers, Montana P= ower estimated that small businesses could see their rates increase by 21 p= ercent and medium industrial customers could see a 36-percent increase. It = is important to note that a recent survey by the Great Falls Tribune conclu= ded that, the increase in Montana Power's rates would produce some of the h= ighest residential electric rates in the Northwest.=20 Montana Power is attempting to establish long-term power contracts with sup= pliers to meet its entire load requirements. For instance, Montana Power fo= rmed a buy-back agreement with PPL as a condition of the generation sale tw= o years ago. This contract expires July 1, 2002. Beyond that date, Montana = Power announced that it signed a one-year contract to buy 111 MW from Duke = Energy at an undisclosed price. PPL also has formed a new contract to provi= de 450 MW to Montana Power over a five-year period after its current contra= ct expires. Northwestern Power, the purchaser of Montana Power's distributi= on system, has said that it wants Montana Power to assemble a diverse packa= ge of power-purchase deals (instead of buying all its load from one source)= to encourage the development of new generation sources in the region. Mont= ana Power has reportedly submitted a portfolio of power-purchase deals to t= he Montana Public Service Commission to determine the inclusion of those de= als within the rate structure, and the portfolio contains about three-fourt= hs of the 1,129 MW that Montana Power will need to cover its peak demand of= customers and maintain an adequate reserve. The company will probably purc= hase the balance of its requirements on the short-term market.=20 Also, on the legal front, Montana Power continues to navigate through at le= ast two litigious proceedings. First, in August, a group of Montana Power s= hareholders initiated a lawsuit against the utility, claiming the company's= effort to get out of the electricity business was illegal and cost them $3= billion in lost stock value. The complaint, filed in the District Court at= Butte, said the sale of Montana Power generation plants to PPL Montana in = December 1999 was done without the required shareholder approval and should= be overturned. The suit also asks for a court order putting the plants and= an estimated $100 million in profits realized by PPL from operating the pl= ants into a trust until the case is resolved. What this means is that the s= ale of Montana Power's generation assets are in a state of litigation, even= though the sale of the generation assets was completed two years ago. Anot= her lawsuit is related to Montana Power's $200-million purchase last year o= f Qwest Communications' long-distance and other telephone businesses within= a 14-state service area. Essentially, Montana Power has launched a suit ag= ainst Qwest, alleging that Qwest has violated anti-trust laws and constrain= ed competition in the long-distance and voice and data market.=20 Consequently, as Montana Power closes out the year and hits the two-year ma= rk in its transformation into Touch America, the future for the company loo= ks rather questionable. Although there are market doubts about the future o= f the telecom sector, Montana Power remains confident that its long-term pr= ospects as a telecom company remain very strong. Nevertheless, the current = question for investors is how quickly and how successfully Montana can comp= lete its transformation into Touch America. In other words, what Montana Po= wer sees on the horizon may not be so easily reached. The path to the compa= ny's final destination is obviously marked by several financial and legal o= bstacles.=20 An archive list of previous IssueAlert articles is available at www.scientech.com <http://secure.scientech.com/issuealert/<;=20 _____ =20 We encourage our readers to contact us with their comments. We look forward= to hearing from you. Nancy Spring <mailto:nspring@scientech.com< Reach thousands of utility analysts and decision makers every day. Your com= pany can schedule a sponsorship of IssueAlert by contacting Jane Pelz <mai= lto:jpelz@scientech.com<at 505.244.7650. Advertising opportunities are also= available on our Website.=20 _____ =20 Our staff is comprised of leading energy experts with diverse backgrounds i= n utility generation, transmission and distribution, retail markets, new te= chnologies, I/T, renewable energy, regulatory affairs, community relations = and international issues. Contact consulting@scientech.com <http://consulti= ng@scientech.com< or call Nancy Spring at 505.244.7613.=20 _____ =20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let u= s know if we can help you with in-depth analyses or any other SCIENTECH inf= ormation products. If you would like to refer colleagues to receive our fre= e, daily IssueAlert articles, please register directly on our site at secur= e.scientech.com/issuealert <http://secure.scientech.com/issuealert/<;.=20 If you no longer wish to receive this daily e-mail, and you are currently a= registered subscriber to IssueAlert via SCIENTECH's website, please visit = <http://secure.scientech.com/account/<; to unsubscribe. Otherwise, please se= nd an e-mail to IssueAlert <mailto:IssueAlert@scientech.com<, with "Delete = IA Subscription" in the subject line.=20 _____ =20 SCIENTECH's IssueAlert(SM) articles are compiled based on the independent a= nalysis of SCIENTECH consultants. The opinions expressed in SCIENTECH's Iss= ueAlerts are not intended to predict financial performance of companies dis= cussed, or to be the basis for investment decisions of any kind. SCIENTECH'= s sole purpose in publishing its IssueAlert articles is to offer an indepen= dent perspective regarding the key events occurring in the energy industry,= based on its long-standing reputation as an expert on energy issues.=20 Copyright 2001. SCIENTECH, Inc. All rights reserved. <http://infostore.consultrci.com/spacerdot.gif?IssueAlert=3D11/19/2001<;
|
