UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(mark one)
   
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
For the quarterly period ended September 30, 2009
     
OR
     
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          

Commission File Number: 1-10499
NORTHWESTERN CORPORATION
Delaware
 
46-0172280
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3010 W. 69 th Street, Sioux Falls, South Dakota
 
57108
(Address of principal executive offices)
 
(Zip Code)

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer x         Accelerated Filer o         Non-accelerated Filer o         Smaller Reporting Company o
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o   No x
 
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes x No o
 
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date:
Common Stock, Par Value $.01
35,983,082 shares outstanding at October 23, 2009

 
 
 
 
 
NORTHWESTERN CORPORATION
 
FORM 10-Q
 
INDEX

 
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2
 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

On one or more occasions, we may make statements in this Quarterly Report on Form 10-Q regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. All statements other than statements of historical facts, included or incorporated by reference in this Quarterly Report, relating to management's current expectations of future financial performance, continued growth, changes in economic conditions or capital markets and changes in customer usage patterns and preferences are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Words or phrases such as “anticipates,” “may,” “will,” “should,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “will continue” or similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. We caution that while we make such statements in good faith and believe such statements are based on reasonable assumptions, including without limitation, management's examination of historical operating trends, data contained in records and other data available from third parties, we cannot assure you that we will achieve our projections. Factors that may cause such differences include, but are not limited to:

·  
potential adverse federal, state, or local legislation or regulation or adverse determinations by regulators could have a material adverse effect on our liquidity, results of operations and financial condition;
·  
changes in availability of trade credit, creditworthiness of counterparties, usage, commodity prices, fuel supply costs or availability due to higher demand, shortages, weather conditions, transportation problems or other developments, may reduce revenues or may increase operating costs, each of which could adversely affect our liquidity and results of operations;
·  
unscheduled generation outages or forced reductions in output, maintenance or repairs, which may reduce revenues and increase cost of sales or may require additional capital expenditures or other increased operating costs; and
·  
adverse changes in general economic and competitive conditions in the U.S. financial markets and in our service territories.

We have attempted to identify, in context, certain of the factors that we believe may cause actual future experience and results to differ materially from our current expectation regarding the relevant matter or subject area. In addition to the items specifically discussed above, our business and results of operations are subject to the uncertainties described under the caption “Risk Factors” which is part of the disclosure included in Part II, Item 1A of this Report.

From time to time, oral or written forward-looking statements are also included in our reports on Forms 10-K and 8-K, Proxy Statements on Schedule 14A, press releases, analyst and investor conference calls, and other communications released to the public. We believe that at the time made, the expectations reflected in all of these forward-looking statements are and will be reasonable. However, any or all of the forward-looking statements in this Quarterly Report on Form 10-Q, our reports on Forms 10-K and 8-K, our Proxy Statements on Schedule 14A and any other public statements that are made by us may prove to be incorrect. This may occur as a result of assumptions, which turn out to be inaccurate, or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Quarterly Report on Form 10-Q, certain of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of any of our forward-looking statements in this Quarterly Report on Form 10-Q or other public communications as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.


 
3
 

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent annual and periodic reports filed with the Securities and Exchange Commission (SEC) on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

Unless the context requires otherwise, references to “we,” “us,” “our,” “NorthWestern Corporation,” “NorthWestern Energy,” and “NorthWestern” refer specifically to NorthWestern Corporation and its subsidiaries.

 

 
4
 

 
PART 1.    FINANCIAL INFORMATION
 
FINANCIAL STATEMENTS
 
NORTHWESTERN CORPORATION
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
(in thousands, except share data)
           
   
September 30,
2009
December 31,
2008
ASSETS
         
Current Assets:
         
   Cash and cash equivalents
 
$
6,043
 
$
11,292
 
   Restricted cash
 
13,542
 
14,727
 
   Accounts receivable, net
 
90,458
 
155,672
 
   Inventories
 
62,271
 
70,741
 
   Regulatory assets
 
41,975
 
46,905
 
   Deferred income taxes
 
8,729
 
685
 
   Prepaid and other
 
14,394
 
13,395
 
       Total current assets  
 
237,412
 
313,417
 
Property, plant, and equipment, net
 
1,899,525
 
1,839,699
 
Goodwill
 
355,128
 
355,128
 
Regulatory assets
 
233,525
 
233,102
 
Other noncurrent assets
 
28,888
 
20,691
 
       Total assets  
 
$
2,754,478
 
$
2,762,037
 
LIABILITIES AND SHAREHOLDERS' EQUITY
         
Current Liabilities:
         
   Current maturities of capital leases
 
$
1,187
 
$
1,193
 
   Current maturities of long-term debt
 
6,123
 
228,045
 
   Accounts payable
 
58,511
 
94,685
 
   Accrued expenses
 
224,187
 
215,431
 
   Regulatory liabilities
 
37,051
 
49,223
 
       Total current liabilities  
 
327,059
 
588,577
 
Long-term capital leases
 
35,882
 
36,798
 
Long-term debt
 
884,280
 
634,011
 
Deferred income taxes
 
149,072
 
114,707
 
Noncurrent regulatory liabilities
 
235,881
 
222,969
 
Other noncurrent liabilities
 
346,670
 
401,442
 
       Total liabilities  
 
1,978,844
 
1,998,504
 
Commitments and Contingencies (Note 14)
         
Shareholders' Equity:
         
   Common stock, par value $0.01; authorized 200,000,000 shares; issued and outstanding 39,539,612 and 35,983,082, respectively; Preferred stock, par value $0.01; authorized 50,000,000 shares; none issued
 
395
 
395
 
   Treasury stock at cost
 
(90,050
)
(89,487
)
   Paid-in capital
 
807,531
 
805,900
 
   Retained earnings
 
46,048
 
34,371
 
   Accumulated other comprehensive income
 
11,710
 
12,354
 
       Total shareholders' equity  
 
775,634
 
763,533
 
      Total liabilities and shareholders' equity
 
$
2,754,478
 
$
2,762,037
   
             

See Notes to Condensed Consolidated Financial Statements

 
 
5
 
 
NORTHWESTERN CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
(Unaudited)
 
(in thousands, except per share amounts)
 

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2009
 
2008
 
2009
 
2008
 
Revenues
                     
   Electric 
 
$
198,416
 
$
207,687
 
$
579,277
 
$
582,687
 
   Gas
 
34,179
 
45,603
 
253,976
 
297,357
 
   Other
 
291
 
18,954
 
6,249
 
54,681
 
     Total Revenues
 
232,886
 
272,244
 
839,502
 
934,725
 
Operating Expenses
                 
   Cost of sales
 
105,183
 
130,503
 
420,033
 
508,941
 
   Operating, general and administrative
 
57,893
 
63,411
 
184,210
 
177,348
 
   Property and other taxes
 
20,866
 
21,718
 
63,401
 
65,898
 
   Depreciation
 
21,977
 
21,292
 
66,959
 
63,608
 
     Total Operating Expenses
 
205,919
 
236,924
 
734,603
 
815,795
 
Operating Income
 
26,967
 
35,320
 
104,899
 
118,930
 
Interest Expense
 
(17,267
)
(15,629
)
(50,403
)
(47,478
)
Other Income
 
403
 
1,218
 
1,192
 
1,640
 
Income Before Income Taxes
 
10,103
 
20,909
 
55,688
 
73,092
 
Income Tax Benefit (Expense)
 
8,797
 
(7,530
)
(7,877
)
(26,759
)
Net Income
 
$
18,900
 
$
13,379
 
$
47,811
 
$
46,333
 
 
Average Common Shares Outstanding
 
35,968
 
38,057
 
35,947
 
38,665
 
Basic Earnings per Average Common Share
 
$
0.53
 
$
0.35
 
$
1.33
 
$
1.20
 
Diluted Earnings per Average Common Share
 
$
0.52
 
$
0.35
 
$
1.32
 
$
1.19
 
Dividends Declared per Average Common Share
 
$
0.335
 
$
0.33
 
$
1.01
 
$
0.99
 


See Notes to Condensed Consolidated Financial Statements
 





 
6
 

NORTHWESTERN CORPORATION
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

   
Nine Months Ended
September 30,
 
   
2009
 
2008
 
OPERATING ACTIVITIES :
         
   Net Income
 
$
47,811
 
$
46,333
 
   Items not affecting cash:
         
      Depreciation
 
66,959
 
63,608
 
      Amortization of debt issue costs, discount and deferred hedge gain
 
1,640
 
1,818
 
      Amortization of restricted stock
 
1,631
 
2,699
 
      Equity portion of allowance for funds used during construction
 
(828
)
(432
)
      Gain on sale of assets
 
(306
)
(154
)
      Unrealized gain on derivative instruments
 
—
 
(3,763
)
      Deferred income taxes
 
26,320
 
28,831
 
   Changes in current assets and liabilities:
         
      Restricted cash
 
1,185
 
(1,684
)
      Accounts receivable
 
65,214
 
35,027
 
      Inventories
 
8,470
 
(27,310
)
      Prepaid energy supply costs
 
(436
)
436
 
      Other current assets
 
(514
)
597
 
      Accounts payable
 
(34,478
)
(20,001
)
      Accrued expenses
 
12,424
 
50,334
 
      Regulatory assets
 
(537
)
7,365
 
      Regulatory liabilities
 
(12,172
)
15,381
 
   Other noncurrent assets
 
3,000
 
902
 
   Other noncurrent liabilities
 
(56,072
)
(23,238
)
Cash provided by operating activities
 
129,311
 
176,749
 
INVESTING ACTIVITIES:
         
   Property, plant, and equipment additions
 
(115,855
)
(81,016
)
   Proceeds from sale of assets
 
326
 
86
 
Cash used in investing activities
 
(115,529
)
(80,930
)
FINANCING ACTIVITIES:
         
   Treasury stock activity
 
(563
)
(78,568
)
   Dividends on common stock
 
(36,134
)
(37,977
)
   Issuance of long-term debt, net of discount
 
249,833
 
55,000
 
   Repayment of long-term debt
 
(137,780
)
(88,953
)
   Line of credit borrowings
 
275,000
 
94,000
 
   Line of credit repayments
 
(359,000
)
(42,000
)
   Financing costs
 
(10,387
)
(1,519
)
Cash used in financing activities
 
(19,031
)
(100,017
)
Decrease in Cash and Cash Equivalents
 
(5,249
)
(4,198
)
Cash and Cash Equivalents, beginning of period
 
11,292
 
12,773
 
Cash and Cash Equivalents, end of period
 
$
6,043
 
$
8,575
 
Supplemental Cash Flow Information:
         
   Cash paid during the period for:
         
      Income taxes
 
$
2
 
$
78
 
      Interest
 
29,506
 
35,112
 
   Significant non-cash transactions:
         
      Capital expenditures included in trade accounts payable
 
3,065
 
3,269
 

See Notes to Condensed Consolidated Financial Statements

 
 
7
 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Reference is made to Notes to Financial Statements included in NorthWestern Corporation’s Annual Report)
(Unaudited)
 
(1)   Nature of Operations and Basis of Consolidation
 
NorthWestern Corporation, doing business as NorthWestern Energy, provides electricity and natural gas to approximately 656,000 customers in Montana, South Dakota and Nebraska. We have generated and distributed electricity in South Dakota and distributed natural gas in South Dakota and Nebraska since 1923 and have generated and distributed electricity and distributed natural gas in Montana since 2002.

The Condensed Consolidated Financial Statements (Financial Statements) for the periods included herein have been prepared by NorthWestern Corporation, pursuant to the rules and regulations of the SEC. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Actual results could differ from those estimates. The unaudited Financial Statements reflect all normal recurring adjustments that are, in the opinion of management, necessary to fairly present our financial position, results of operations and cash flows. The actual results for the interim periods are not necessarily indicative of the operating results to be expected for a full year or for other interim periods. Events occurring subsequent to September 30, 2009, have been evaluated as to their potential impact to the Financial Statements through the date of issuance, October 29, 2009.

The Financial Statements included herein have been prepared by NorthWestern, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, management believes that the condensed disclosures provided are adequate to make the information presented not misleading. Management recommends that these unaudited Financial Statements be read in conjunction with audited Financial Statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2008.

On July 1, 2009 the Financial Accounting Standards Board (FASB) Accounting Standards Codification (the Codification or ASC) became the single source of authoritative GAAP. Throughout these notes, references to ASC are presented parenthetically along with references to pre-Codification GAAP.

(2)   New Accounting Standards
 
Accounting Standards Issued

In June 2009, the FASB issued Statements of Financial Accounting Standards (SFAS) No. 167 (ASC 810), Amendments to FASB Interpretation No. 46(R) (SFAS No. 167). SFAS No. 167 is a revision to FASB Interpretation No. 46(R) (ASC 810), Consolidation of Variable Interest Entities (FIN 46R), and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar) rights should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The statement includes the following significant provisions:
·  
requires an entity to qualitatively assess the determination of the primary beneficiary of a variable interest entity (VIE) based on whether the entity (1) has the power to direct matters that most significantly impact the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE,
·  
requires an ongoing reconsideration of the primary beneficiary instead of only upon certain triggering events,
·  
amends the events that trigger a reassessment of whether an entity is a VIE, and

 
 
8
 

·  
for an entity that is the primary beneficiary of a VIE, requires separate balance sheet presentation of (1) the assets of the consolidated VIE, if they can be used to only settle specific obligations of the consolidated VIE, and (2) the liabilities of a consolidated VIE for which creditors do not have recourse to the general credit of the primary beneficiary.

The statement is effective for us beginning January 1, 2010. We are currently evaluating the impact of adoption, if any, on our financial position and results of operations.

Accounting Standards Adopted

In March 2008, the FASB issued SFAS No. 161 (ASC 815), Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133 (SFAS No. 161). This statement requires expanded disclosures about derivative instruments and hedging activities, but does not change the accounting for derivatives. We adopted this statement on January 1, 2009. The disclosures required by this statement are included in Note 7, Risk Management and Hedging Activities.

In April 2009, the FASB issued three Final Staff Positions (FSPs) intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. FSP 157-4 (ASC 820), Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4), provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have decreased. The FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. Finally, the FSP expands the disclosure requirements for fair value measurements to include further disaggregation in the tabular disclosures. FSP 115-2 and 124-2 (ASC 820), Recognition and Presentation of Other-Than-Temporary Impairments (FSP 115-2 and 124-2), provide additional guidance on presenting impairment losses on securities to bring consistency to the timing of impairment recognition, and provide clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. The FSP also requires increased and more timely disclosures sought by investors regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. We adopted these FSPs as of June 30, 2009 with no effect on our financial position or results of operations.

FSP 107-1 (ASC 825), Interim Disclosures about Fair Value of Financial Instruments (FSP 107-1), increases the frequency of fair value disclosures required by SFAS No. 107 (ASC 820), Disclosures About Fair Value of Financial Instruments (SFAS No. 107). This FSP requires that companies provide qualitative and quantitative information about fair value estimates for all financial instruments not measured on the balance sheet at fair value in each interim report.  Previously, this was only an annual requirement.  We adopted this FSP as of June 30, 2009. The disclosures required by this statement are included in Note 8, Fair Value Measurements.

In May 2009, the FASB issued SFAS No. 165 (ASC 855), Subsequent Events (SFAS No. 165), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The statement does not result in significant changes in the subsequent events that an entity reports, rather, it requires disclosure of the date through which subsequent events have been evaluated and whether that date represents the date the financial statements were issued or were available to be issued. We adopted this statement as of June 30, 2009. The disclosures required by this statement are included in Note 1, Nature of Operations and Basis of Consolidation.

In June 2009, the FASB issued SFAS No. 168 (ASC 105), FASB Accounting Standards Codification (SFAS No. 168), as the single source of authoritative nongovernmental GAAP. All existing accounting standards are superseded as described in SFAS No. 168, aside from those issued by the SEC. All other accounting literature not included in the Codification is nonauthoritative. We adopted the Codification as of September 30, 2009, which is reflected in our disclosures and references to accounting standards, with no impact to our financial position or results of operations.

(3)  Variable Interest Entities
 
We are required to consolidate VIEs if we are the primary beneficiary, which means we have a controlling financial interest. Certain long-term purchase power and tolling contracts may be considered variable interests. We have various long-term purchase power contracts with other utilities and certain qualifying facility (QF) plants. After evaluation of

 
 
9
 

these contracts, we believe one QF contract may constitute a VIE. We continue to account for this QF contract as an executory contract as we have been unable to obtain the necessary information from this QF in order to determine if it is a VIE and if so, whether we are the primary beneficiary. Based on the current contract terms with this QF, our estimated gross contractual payments aggregate approximately $474.9   million through 2025, and are included in Contractual Obligations and Other Commitments of Management's Discussion and Analysis. We will reassess this contract under the new accounting guidance discussed in Note 2 above.

(4)   Income Taxes
 
In December 2008, we filed a request with the Internal Revenue Service (IRS) to change our tax accounting method related to costs to repair and maintain utility assets. The IRS approved our request in September 2009, which allows us to take a current tax deduction for a significant amount of repair costs that were previously capitalized for tax purposes.

These repair costs are capitalized and depreciated for book purposes. We record a deferred income tax liability as we flow the temporary timing differences between book and tax treatment through to our customers in the form of lower rates. A regulatory asset is established to reflect that future increases in taxes payable will be recovered from customers as the temporary differences reverse. Due to this regulatory treatment, we recorded an income tax benefit of approximately $12.4 million during the third quarter of 2009 to reflect this change in tax accounting method, of which approximately $8.0 million and $4.4 million related to the 2008 and 2009 tax years, respectively. For years prior to 2008, we have not recorded a regulatory asset for the repairs deduction as the benefit was not flowed through to customers. This change in tax accounting method will have the effect of extending our net operating loss carryforwards.

We compute the income tax (benefit) expense for each quarter based on the estimated annual effective tax rate for the year, adjusted for certain discrete items. The effective tax rate was (87.1)% and 14.1% for the three and nine months ended September 30, 2009, respectively, compared to 36.0% and 36.6% for the same periods of 2008. The 2009 rates reflect the impact of the change in tax accounting method for repairs described above and lower estimated 2009 taxable income.

Uncertain Tax Positions

We have unrecognized tax benefits of approximately $117.5 million as of September 30, 2009, including approximately $79.7 million that if recognized, would impact our effective tax rate. We do not anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statutes of limitations within the next twelve months.

Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. During the nine months ended September 30, 2009, we have not recognized expense for interest or penalties, and do not have any amounts accrued at September 30, 2009 and December 31, 2008, respectively, for the payment of interest and penalties.

Our federal tax returns from 2000 forward remain subject to examination by the Internal Revenue Service.

(5)   Goodwill
 
There were no changes in our goodwill during the nine months ended September 30, 2009. Goodwill by segment is as follows for both September 30, 2009 and December 31, 2008 (in thousands):

       
Regulated electric
 
$
241,100
 
Regulated natural gas
 
114,028
 
   
$
355,128
 

 
 
10
 
 
( 6)   Other Comprehensive Income
 
The following table displays the components of Accumulated Other Comprehensive Income (AOCI), which is included in Shareholder’s Equity on the Condensed Consolidated Balance Sheets (in thousands).
 

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2009
 
2008
 
2009
 
2008
 
Net income
 
$
18,900
   
$
13,379
   
$
47,811
   
$
46,333
   
Other comprehensive income (loss), net of tax:
                                 
Reclassification of net gains on hedging instruments from OCI to net income
   
(297
)
   
(297
)
   
(891
)
   
(891
)
 
Foreign currency translation
   
155
     
(81
)
   
248
     
(143
)
 
Comprehensive income
 
$
18,758
   
$
13,001
   
$
47,168
   
$
45,299
   

(7)   Risk Management and Hedging Activities
 
Nature of Our Business and Associated Risks
 
We are exposed to certain risks related to the ongoing operations of our business, including the impact of market fluctuations in the price of electricity and natural gas commodities and changes in interest rates. Commodity price risk is a significant risk due to our lack of ownership of natural gas reserves and minimal ownership of regulated electric generation assets within the Montana market. Several factors influence price levels and volatility. These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation availability and reliability within and between regions, fuel availability, market liquidity, and the nature and extent of current and potential federal and state regulations.

Objectives and Strategies for Using Derivatives

To manage our exposure to fluctuations in commodity prices, we routinely enter into derivative contracts, such as fixed-price forward purchase and sales contracts. The objective of these transactions is to fix the price for a portion of anticipated energy purchases to supply our regulated customers. These types of contracts are included in our electric and natural gas supply portfolios and are used to manage price volatility risk by taking advantage of seasonal fluctuations in market prices. While we may incur gains or losses on individual contracts, the overall portfolio approach is intended to provide price stability for consumers; therefore, these commodity costs are included in our cost tracking mechanisms. We do not maintain a trading portfolio, and do not currently have any derivative transactions that are not used for risk management purposes. In addition, we may use interest rate swaps to manage our interest rate exposures associated with new debt issuances or to manage our exposure to fluctuations in interest rates on variable rate debt.

Accounting for Derivative Instruments

The accounting requirements for derivative instruments require that all derivatives be recognized in the balance sheet, either as assets or liabilities, at fair value. We evaluate new and existing transactions and agreements to determine whether they are derivatives. Mark-to-market accounting is the default accounting treatment for all derivatives unless they qualify, and we specifically designate them, for one of the other accounting treatments. Derivatives designated for any of the elective accounting treatments must meet specific, restrictive criteria both at the time of designation and on an ongoing basis. The permitted accounting treatments include: normal purchase normal sale; cash flow hedge; fair value hedge; and mark-to-market. The changes in the fair value of recognized derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction.

Normal Purchases and Normal Sales

We have applied the normal purchase and normal sale scope exception (NPNS) to most of our contracts involving the physical purchase and sale of gas and electricity at fixed prices in future periods. During our normal course of business, we enter into full-requirement energy contracts, power purchase agreements and physical capacity contracts, which

 
 
11
 

qualify for NPNS. All of these contracts are accounted for using the accrual method of accounting; therefore, there were no amounts recorded in the Financial Statements at September 30, 2009 and December 31, 2008. Revenues and expenses from these contracts are reported on a gross basis in the appropriate revenue and expense categories as the commodities are received or delivered.

Mark-to-Market Accounting

Certain contracts for the physical purchase of natural gas associated with our regulated gas utilities do not qualify for NPNS. These are typically forward purchase contracts for natural gas where we lock in a fixed price; however the contracts are settled financially and we do not take physical delivery of the natural gas. We use the mark-to-market method of accounting for these derivative contracts as we do not elect hedge accounting. Upon settlement of these contracts, associated proceeds or costs are refunded to or collected from our customers consistent with regulatory requirements therefore we record a regulatory asset or liability based on changes in market value.

The following table represents the fair value and location of derivative instruments subject to mark-to-market accounting (in thousands). For more information on the determination of fair value see Note 8.

Mark-to-Market Transactions
 
Balance Sheet Location
 
September 30,
2009
 
December 31, 2008
 
               
Regulated natural gas net derivative liability
 
Accrued Expenses
 
$
23,602
 
$
29,156
 

The following table represents the net change in fair value for these derivatives (in thousands):

   
Unrealized gain recognized in
Regulatory Assets
 
Derivatives Subject to Regulatory Deferral
 
Three Months Ended September 30, 2009
 
Nine Months Ended
September 30, 2009
 
             
Natural gas
 
$
8,377
 
$
5,554
 

Credit Risk

We are exposed to credit risk primarily through buying and selling electricity and natural gas to serve customers. Credit risk is the potential loss resulting from counterparty non-performance under an agreement. We manage credit risk with policies and procedures for, among other things, counterparty analysis and exposure measurement, monitoring and mitigation. We may request collateral or other security from our counterparties based on the assessment of creditworthiness and expected credit exposure. It is possible that volatility in commodity prices could cause us to have material credit risk exposures with one or more counterparties.

We enter into commodity master arrangements with our counterparties to mitigate credit exposure, as these agreements reduce the risk of default by allowing us or our counterparty the ability to make net payments. The agreements generally are: Western Systems Power Pool agreements (WSPP) – standardized power sales contracts in the electric industry; (2) International Swaps and Derivatives Association agreements (ISDA) – standardized financial gas and electric contracts; (3) North American Energy Standards Board agreements (NAESB) – standardized physical gas contracts; and (4) Edison Electric Institute Master Purchase and Sale Agreements – standardized power sales contracts in the electric industry.

Many of our forward purchase contracts contain provisions that require us to maintain an investment grade credit rating from each of the major credit rating agencies. If our credit rating were to fall below investment grade, it would be in violation of these provisions, and the counterparties could require immediate payment or demand immediate and ongoing full overnight collateralization on contracts in net liability positions.

The following table presents, as of September 30, 2009, the aggregate fair value of forward purchase contracts that do not qualify as normal purchases in a net liability position with credit risk-related contingent features, collateral posted, and the aggregate amount of additional collateral that we would be required to post with counterparties, if the credit risk-related

 
 
12
 

contingent features underlying these agreements were triggered on September 30, 2009 (in thousands):

Contracts with Contingent Feature
 
Fair Value Liability
 
Posted Collateral
 
Contingent Collateral
 
                 
Credit rating
 
$
24,601
 
$
—
 
$
24,601
 

Interest Rate Swaps Designated as Cash Flow Hedges

If we enter into contracts to hedge the variability of cash flows related to forecasted transactions that qualify as cash flow hedges, the changes in the fair value of such derivative instruments are reported in other comprehensive income. The relationship between the hedging instrument and the hedged item must be documented to include the risk management objective and strategy and, at inception and on an ongoing basis, the effectiveness of the hedge in offsetting the changes in the cash flows of the item being hedged. Gains or losses accumulated in other comprehensive income are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the related hedged item. Any ineffective portion of all hedges would be recognized in current-period earnings. Cash flows related to these contracts are classified in the same category as the transaction being hedged.

We have used interest rate swaps designated as cash flow hedges to manage our interest rate exposures associated with new debt issuances. These swaps were designated as cash-flow hedges with the effective portion of gains and losses, net of associated deferred income tax effects, recorded in AOCI. We reclassify these gains from AOCI into interest expense during the periods in which the hedged interest payments occur. The following table shows the effect of these derivative instruments on the Financial Statements:

Cash Flow Hedges
 
Amount of Gain Remaining in AOCI as of September 30, 2009
 
Location of Gain Reclassified from AOCI to Income
 
Amount of Gain Reclassified from AOCI into Income during the Nine Months Ended
September 30, 2009
 
               
Interest rate contracts
 
$
10,761
   
Interest Expense
 
$
891
 
                     

We expect to reclassify approximately $1.2 million of pre-tax gains on these cash-flow hedges from AOCI into interest expense during the next twelve months. These gains relate to swaps previously terminated, and we have no current interest rate swaps outstanding.

(8)   Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Measuring fair value requires the use of market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, corroborated by market data, or generally unobservable. Valuation techniques are required to maximize the use of observable inputs and minimize the use of unobservable inputs.

A fair value hierarchy that prioritizes the inputs used to measure fair value, and requires fair value measurements to be categorized based on the observability of those inputs has been established by the applicable accounting guidance. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). The three levels of the fair value hierarchy are as follows:

·  
Level 1 – Unadjusted quoted prices available in active markets at the measurement date for identical assets or liabilities;

 
 
13
 

·  
Level 2 – Pricing inputs, other than quoted prices included within Level 1, which are either directly or indirectly observable as of the reporting date; and
·  
Level 3 – Significant inputs that are generally not observable from market activity.

We classify assets and liabilities within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement of each individual asset and liability taken as a whole. The table below sets forth by level within the fair value hierarchy the gross components of our assets and liabilities measured at fair value on a recurring basis as of September 30, 2009. Normal purchases and sales transactions are not included in the fair values by source table as they are not recorded at fair value. See Note 7 for further discussion.

September 30, 2009
 
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Margin Cash Collateral Offset
 
Total Net Fair Value
 
   
(in thousands)
 
Restricted cash
 
$
12,899
 
$
—
 
$
—
 
$
—
 
$
12,899
 
Derivative asset (1)
   
—
   
1,440
   
—
   
—
   
1,440
 
Derivative liability (1)
   
—
   
(25,042
)
 
—
   
—
   
(25,042
)
Net derivative position
   
—
   
(23,602
)
 
—
   
—
   
(23,602
)
Total
 
$
12,899
 
$
(23,602
)
$
—
 
$
—
 
$
(10,703
)
 
(1)
The changes in the fair value of these derivatives are deferred as a regulatory asset or liability until the contracts are settled. Upon settlement, associated proceeds or costs are passed through the applicable cost tracking mechanism to customers.

We present our derivative assets and liabilities on a net basis in the Condensed Consolidated Balance Sheets. The table above disaggregates our net derivative assets and liabilities on a gross contract-by-contract basis as required and classifies each individual asset or liability within the appropriate level in the fair value hierarchy, regardless of whether a particular contract is eligible for netting against other contracts. These gross balances are intended solely to provide information on sources of inputs to fair value and do not represent our actual credit exposure or net economic exposure. Increases and decreases in the gross components presented in each of the levels in this table also do not indicate changes in the level of derivative activities. Rather, the primary factors affecting the gross amounts are commodity prices.

Restricted cash represents amounts held in money market mutual funds. Fair value for the commodity derivatives was determined using internal models based on quoted forward commodity prices. We consider nonperformance risk in our valuation of derivative instruments by analyzing the credit standing of our counterparties and considering any counterparty credit enhancements (e.g., collateral). The fair value measurement of liabilities also reflects the nonperformance risk of the reporting entity, as applicable. Therefore, we have factored the impact of our credit standing as well as any potential credit enhancements into the fair value measurement of both derivative assets and derivative liabilities. Consideration of our own credit risk did not have a material impact on our fair value measurements.

Financial Instruments

The estimated fair value of financial instruments is summarized as follows (in thousands):

   
September 30, 2009
 
December 31, 2008
 
   
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
Liabilities:
                 
  Long-term debt (including current portion)
 
$
890,403
 
$
918,118
 
$
862,056
$
780,023
 

The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies; however, considerable judgment is necessarily required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we

 
 
14
 

would realize in a current market exchange.

We used the following methods and assumptions to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
 
·  
The carrying amounts of cash, cash equivalents, and restricted cash approximate fair value due to the short maturity of the instruments.
 
·  
We determined fair values for debt based on interest rates that are currently available to us for issuance of debt with similar terms and remaining maturities, except for publicly traded debt, for which fair value is based on market prices for the same or similar issues or upon the quoted market prices of U.S. treasury issues having a similar term to maturity, adjusted for our bond issuance rating and the present value of future cash flows.

(9)   Financing Activities

In March 2009, we issued $250 million of Montana First Mortgage Bonds at a fixed interest rate of 6.34% maturing April 1, 2019, which were discounted to yield 6.349%. The bonds are secured by our Montana electric and natural gas assets. The bonds were issued in a transaction exempt from registration under the Securities Act of 1933, as amended. We completed an offer to exchange these bonds for a like series of bonds registered under the Securities Act of 1933 during the third quarter of 2009. We used the proceeds to redeem our $100 million Colstrip Lease Holdings LLC term loan, repay outstanding borrowings on our revolving credit facility, repay other outstanding debt obligations of $31.7 million related to Colstrip Unit 4, fund a portion of the costs of the Mill Creek generation project, and fund future capital expenditures.

On June 30, 2009, we amended and restated our unsecured revolving line of credit scheduled to expire on November 1, 2009. The amended facility extends the term to June 30, 2012, and increases the aggregate principal amount available under the facility by $50 million to $250 million. The amended facility does not amortize and borrowings will bear interest based on a credit ratings grid. The ‘spread’ or ‘margin’ ranges from 2.25% to 4.0% over the London Interbank Offered Rate (LIBOR). On the closing date of the agreement, the applicable spread was 3.0%. A total of nine banks participate in the new facility, with no one bank providing more than 14% of the total availability. The amended facility contains covenants substantially similar to the previous facility.

On September 30, 2009, we entered into a purchase agreement under which we agreed to issue $55 million of 5.71% Montana First Mortgage Bonds due October 15, 2039, to certain purchasers. The transaction closed on October 15, 2009. See Note 15 – Subsequent Events for further discussion.

(10)   Regulatory Matters

Colstrip Unit 4

In January 2009, as a result of approval by the Montana Public Service Commission (MPSC), we placed our joint ownership interest in Colstrip Unit 4, which had previously been an unregulated asset, into utility rate base at a value of $407 million. The order included a capital structure of 50% equity and 50% debt, an authorized return on equity of 10% and cost of debt of 6.5%, which are set for 34 years, based on the estimated useful life of the plant. Our interest in Colstrip Unit 4 is expected to supply approximately 13% of our Montana base-load requirements through 2010 and approximately 25% thereafter (upon expiration of an existing power sale agreement). The generation related costs and return on rate base related to Colstrip Unit 4, including the cost of any replacement power purchased during outages, will be included in our annual electric supply tracker filing for inclusion in customer rates.

Mill Creek Generating Station

In August 2008, we filed a request with the MPSC for advanced approval to construct a 150 megawatt natural gas fired facility. The Mill Creek Generating Station, estimated to cost approximately $202 million, will provide regulating resources to balance our transmission system in Montana to maintain reliability and enable wind power to be integrated onto the

 
 
15
 

network to meet renewable energy portfolio needs. In May 2009, the MPSC issued an order granting approval to construct the facility, authorizing a return on equity of 10.25% and a preliminary cost of debt of 6.5%, with a capital structure of 50% equity and 50% debt. In addition, the MPSC determined the $81 million cost for the turbines is prudent, with the remainder of the project costs to be submitted to the MPSC for review and approval once construction of the facility is complete. Construction began in June 2009, and the plant is scheduled to be operational by December 31, 2010. As of September 30, 2009, we have capitalized approximately $40.5 million in construction work in process related to this project.

Western Electricity Coordination Council Compliance Audit

We have completed our compliance audit under the compliance monitoring and enforcement program of the Western Electricity Coordinating Council (WECC), a regional electric reliability organization. WECC has responsibility for monitoring and enforcing compliance with mandatory reliability standards within the U.S. established by the North American Electric Reliability Corporation (NERC). In connection with the compliance audit, WECC found no additional violations of the applicable standards. Since June 2007, we have identified and self-reported violations of 32 NERC requirements and submitted 19 corresponding mitigation plans to WECC. All but seven of these violations have been dismissed or were subject to expedited dispositions with no penalties. During the third quarter of 2009 we reached a settlement agreement with WECC addressing six of the remaining violations for a total penalty of $80,000, which has been accrued. This settlement is pending formal NERC and Federal Energy Regulatory Commission (FERC) approval. The remaining violation is pending a NERC interpretation of the standard. We anticipate resolving the remaining violation and receiving formal approval of the settlement during the first quarter of 2010.

Mountain States Transmission Intertie (MSTI) and Other Transmission FERC Developments

We have proposed two major transmission projects in Montana – MSTI and the Collector Project - to facilitate development of new generation. MSTI is a proposed 500kV transmission line from southwestern Montana to southeastern Idaho. The Collector Project consists of up to five new transmission lines in Montana that would connect new generation, primarily wind farms, to our existing transmission system and to the proposed MSTI line. Most of the new proposed wind generation that would be served by the Collector Project would be located in Montana. In January 2009, we filed a request with the FERC seeking negotiated rates for the proposed MSTI project and to directly assign the cost of the Collector Project to the generators. The request for negotiated rates for MSTI was not for specific rates rather it was for confirmation from the FERC that MSTI satisfies the FERC’s negotiated rate criteria. As a transmission export project in a region that lacks a regional transmission organization, MSTI has no readily available regional tariff through which to recover costs and thereby mitigate project development risk. The request was based on a rate approach that FERC had approved for similar projects in the region, which would provide us with the flexibility to meet market demand from primarily new renewable generation resources in Montana and to insulate our native load customers from the costs and risks of the project. FERC issued an order in May 2009 denying our request for negotiated rates, and encouraged us to meet our needs by pursuing the MSTI project on a cost-of-service basis by requesting appropriate waivers under our Open Access Transmission Tariff. As to the Collector Project, FERC approved our proposal to directly assign the cost of the project to the generators. This also has the effect of insulating native load customers from the cost of the project. While FERC deferred ruling on our request for tariff waivers, FERC specifically found the proposed Collector Project open season process to be a reasonable means of accommodating a large number of interconnection requests in the queue.

We are planning to conduct open seasons for both MSTI and the Collector Project during the first half of 2010 to identify potential interest for new transmission capacity on this path due to the changing nature of generation projects. The results of the open season will be used to size the projects according to customer demand. The open season process is intended to ensure that the projects have sufficient contracts with credit-worthy shippers to support financing. As of September 30, 2009, we have capitalized approximately $9.6 million of preliminary survey and investigative costs associated with the MSTI project.

(11)   Segment Information
 
Our reportable business segments are primarily engaged in the regulated electric and regulated natural gas business. The remainder of our operations are presented as other. While it is not considered a business unit, other primarily consists of our remaining unregulated natural gas capacity contract, the wind down of our captive insurance subsidiary and

 
 
16
 

our unallocated corporate costs. As discussed in Note 10, the operations of our joint ownership interest in Colstrip Unit 4 were unregulated through December 31, 2008, and are included in regulated operations beginning January 1, 2009, due to an MPSC order. We have not revised the 2008 segment presentation due to the nature of the transfer of the asset from unregulated to the regulated business.

We evaluate the performance of these segments based on gross margin. The accounting policies of the operating segments are the same as the parent except that the parent allocates some of its operating expenses to the operating segments according to a methodology designed by management for internal reporting purposes and involves estimates and assumptions. Financial data for the business segments are as follows (in thousands):


Three Months Ended
 
Regulated
             
September 30, 2009
 
Electric
 
Gas
 
Other
 
Eliminations
 
Total
 
Operating revenues
 
$
198,689
 
$
34,205
 
$
291
 
$
(299
)
$
232,886
 
Cost of sales
 
92,592
 
12,326
 
265
 
—
 
105,183
 
Gross margin
 
106,097
 
21,879
 
26
 
(299
)
127,703
 
Operating, general and administrative
 
40,834
 
17,701
 
(343
)
(299
)
57,893
 
Property and other taxes
 
15,351
 
5,479
 
36
 
—
 
20,866
 
Depreciation
 
17,772
 
4,197
 
8
 
—
 
21,977
 
Operating income (loss)
 
32,140
 
(5,498
)
325
 
—
 
26,967
 
Interest expense
 
(13,056
)
(3,243
)
(968
)
—
 
(17,267
)
Other income
 
310
 
67
 
26
 
—
 
403
 
Income tax benefit
 
789
 
5,694
 
2,314
 
—
 
8,797
 
Net income (loss)
 
$
20,183
 
$
(2,980
)
$
1,697
 
$
—
 
$
18,900
 
 
Total assets
 
$
1,933,877
 
$
804,365
 
$
16,237
 
$
—
 
$
2,754,478
 
Capital expenditures
 
$
61,697
 
$
7,172
 
$
—
 
$
—
 
$
68,869
 


Three Months Ended
 
Regulated
 
Unregulated
             
September 30, 2008
 
Electric
 
Gas
 
Electric
 
Other
 
Eliminations
 
Total
 
Operating revenues
 
$
208,020
 
$
45,651
 
$
20,091
 
$
7,889
   
(9,407
)
$
272,244
 
Cost of sales
 
113,299
 
22,803
 
(4,184
)
7,611
 
(9,026
)
130,503
 
Gross margin
 
94,721
 
22,848
 
24,275
 
278
 
(381
)
141,741
 
Operating, general and administrative
 
45,882
 
20,058
 
3,563
 
(5,711
)
(381
)
63,411
 
Property and other taxes
 
15,380
 
5,543
 
792
 
3
 
—
 
21,718
 
Depreciation
 
15,416
 
4,041
 
1,827
 
8
 
—
 
21,292
 
Operating income (loss)
 
18,043
 
(6,794
)
18,093
 
5,978
 
—
 
35,320
 
Interest expense
 
(9,679
)
(3,389
)
(2,189
)
(372
)
—
 
(15,629
)
Other income
 
306
 
298
 
1
 
613
 
—
 
1,218
 
Income tax (expense) benefit
 
(3,477
)
3,750
 
(6,303
)
(1,500
)
—
 
(7,530
)
Net income (loss)
 
$
5,193
 
$
(6,135
)
$
9,602
 
$
4,719
 
$
—
 
$
13,379
 
 
Total assets
 
$
1,567,950
 
$
761,863
 
$
247,249
 
$
16,752
 
$
—
 
$
2,593,814
 
Capital expenditures
 
$
26,501
 
$
10,989
 
$
439
 
$
—
 
$
—
 
$
37,929
 


 
17
 


Nine Months Ended
 
Regulated
             
September 30, 2009
 
Electric
 
Gas
 
Other
 
Eliminations
 
Total
 
Operating revenues
 
$
580,139
 
$
254,338
 
$
6,248
 
$
(1,223
)
$
839,502
 
Cost of sales
 
258,964
 
154,105
 
6,964
 
—
 
420,033
 
Gross margin
 
321,175
 
100,233
 
(716
)
(1,223
)
419,469
 
Operating, general and administrative
 
128,575
 
58,806
 
(1,948
)
(1,223
)
184,210
 
Property and other taxes
 
46,433
 
16,857
 
111
 
—
 
63,401
 
Depreciation
 
54,113
 
12,821
 
25
 
—
 
66,959
 
Operating income
 
92,054
 
11,749
 
1,096
 
—
 
104,899
 
Interest expense
 
(37,963
)
(9,629
)
(2,811
)
—
 
(50,403
)
Other income
 
783
 
322
 
87
 
—
 
1,192
 
Income tax (expense) benefit
 
(12,066
)
1,571
 
2,618
 
—
 
(7,877
)
Net income
 
$
42,808
 
$
4,013
 
$
990
 
$
—
   
47,811
 
 
Total assets
 
$
1,933,877
 
$
804,365
 
$
16,236
 
$
—
 
$
2,754,478
 
Capital expenditures
 
$
100,117
 
$
15,738
 
$
—
 
$
—
 
$
115,855
 


Nine Months Ended
 
Regulated
 
Unregulated
             
September 30, 2008
 
Electric
 
Gas
 
Electric
 
Other
 
Eliminations
 
Total
 
Operating revenues
 
$
583,606
 
$
297,825
 
$
57,064
 
$
24,464
 
$
(28,234
)
$
934,725
 
Cost of sales
 
303,550
 
193,996
 
14,472
 
23,770
 
(26,847
)
508,941
 
Gross margin
 
280,056
 
103,829
 
42,592
 
694
 
(1,387
)
425,784
 
Operating, general and administrative
 
115,755
 
53,717
 
10,459
 
(1,196
)
(1,387
)
177,348
 
Property and other taxes
 
46,147
 
17,355
 
2,386
 
10
 
—
 
65,898
 
Depreciation
 
46,203
 
11,925
 
5,455
 
25
 
—
 
63,608
 
Operating income
 
71,951
 
20,832
 
24,292
 
1,855
 
—
 
118,930
 
Interest expense
 
(28,138
)
(9,874
)
(8,358
)
(1,108
)
—
 
(47,478
)
Other income (expense)
 
891
 
857
 
133
 
(241
)
—
 
1,640
 
Income tax expense
 
(15,810
)
(4,413
)
(6,457
)
(79
)
—
 
(26,759
)
Net income
 
$
28,894
 
$
7,402
 
$
9,610
 
$
427
 
$
—
 
$
46,333
 
 
Total assets
 
$
1,567,950
 
$
761,863
 
$
247,249
 
$
16,752
 
$
—
 
$
2,593,814
 
Capital expenditures
 
$
55,982
 
$
23,584
 
$
1,450
 
$
—
 
$
—
 
$
81,016
 

 
 (12)   Earnings Per Share
 
Basic earnings per share is computed by dividing earnings applicable to common stock by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of common stock equivalent shares that could occur if all unvested shares were to vest. Common stock equivalent shares are calculated using the treasury stock method. Performance share awards are included in diluted weighted-average number of shares outstanding based upon what would be issued if the end of the reporting period was the end of the performance period of the award.


 
18
 

The dilutive effect is computed by dividing earnings applicable to common stock by the weighted average number of common shares outstanding plus the effect of the outstanding unvested restricted shares and deferred share units. Average shares used in computing the basic and diluted earnings per share are as follows:

   
Nine Months Ended
 
Nine Months Ended
 
   
September 30, 2009
 
September 30, 2008
 
Basic computation
 
35,947,378
 
38,665,241
 
   Dilutive effect of
         
   Nonvested shares, performance share awards and deferred share units
 
322,110
 
322,684
 
           
Diluted computation
 
36,269,488
 
38,987,925
 

   
Three Months Ended
 
Three Months Ended
 
   
September 30, 2009
 
September 30, 2008
 
Basic computation
 
35,967,876
 
38,057,346
 
   Dilutive effect of
         
   Nonvested shares, performance share awards and deferred share units
 
322,110
 
322,684
 
           
Diluted computation
 
36,289,986
 
38,380,030
 

(13)   Employee Benefit Plans
 
Net periodic benefit cost for our pension and other postretirement plans consists of the following (in thousands):

   
Pension Benefits
 
Other Postretirement Benefits
 
   
Three Months Ended September 30,
 
   
2009
 
2008
 
2009
 
2008
 
Components of Net Periodic Benefit Cost
                 
   Service cost
 
$
2,068
 
$
2,101
 
$
248
 
$
140
 
   Interest cost
 
5,926
 
5,718
 
787
 
591
 
   Expected return on plan assets
 
(5,595
)
(6,803
)
(249
)
(329
)
   Amortization of prior service cost
 
62
 
62
 
—
 
—
 
   Recognized actuarial loss (gain)
 
1,019
 
(205
)
69
 
(149
)
Net Periodic Benefit Cost
 
$
3,480
 
$
873
 
$
855
 
$
253
 

   
Pension Benefits
 
Other Postretirement Benefits
 
   
Nine Months Ended September 30,
 
   
2009
 
2008
 
2009
 
2008
 
Components of Net Periodic Benefit Cost
                 
   Service cost
 
$
6,203
 
$
6,304
 
$
745
 
$
422
 
   Interest cost
 
17,779
 
17,156
 
2,362
 
1,775
 
   Expected return on plan assets
 
(16,787
)
(20,410
)
(746
)
(987
)
   Amortization of prior service cost
 
185
 
185
 
—
 
—
 
   Recognized actuarial loss (gain)
 
3,057
 
(614
)
208
 
(449
)
Net Periodic Benefit Cost
 
$
10,437
 
$
2,621
 
$
2,569
 
$
761
 

Due to the significant decline in equity markets, we experienced plan asset market losses in 2008 in excess of 30%. This decline in plan assets, which has significantly increased our pension expense, is reflected in the increase in net periodic benefit cost above as an actuarial loss due to the use of asset smoothing. This smoothing allows the use of asset averaging, including expected returns, for a 24-month period in the determination of funding requirements. Pension costs in Montana are included in expense on a pay as you go (cash funding) basis. The MPSC authorized the recognition of pension costs based on an average of the annual funding to be made over an 8-year period for the calendar years 2005 through

 
 
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2012, therefore our pension expense differs from the net periodic benefit cost for our Montana plan.

During the nine months ended September 30, 2009, we contributed approximately $76.4 million to our pension plans. Our plan funding estimates are based on achieving an 8.0% return on assets. While this is a long-term assumption, our funding requirements are determined annually based on many variables, including actual plan asset returns. Our return on plan assets has been approximately 20.0% for the nine months ended September 30, 2009. The overall market has continued to be volatile during 2009, and if asset returns are significantly above or below our assumption of 8.0% for 2009, we will likely need to revise our future funding estimates.

(14)   Commitments and Contingencies
 
Environmental Liabilities
 
Our liability for environmental remediation obligations is estimated to range between $22.5 million to $43.8 million. As of September 30, 2009, we have a reserve of approximately $31.3 million. Environmental costs are recorded when it is probable we are liable for the remediation and we can reasonably estimate the liability. Over time, as specific laws are implemented and we gain experience in operating under them, a portion of the costs related to such laws will become determinable, and we may seek authorization to recover such costs in rates or seek insurance reimbursement as applicable; therefore, we do not expect these costs to have a material adverse effect on our consolidated financial position or ongoing operations. There can be no assurance, however, of regulatory recovery.

We maintain insurance coverage for environmental related exposure, and are currently seeking insurance recoveries primarily for previously incurred costs. Approximately 90% of these anticipated recoveries relate to previously incurred Montana generation related environmental remediation costs, while approximately 10% of the anticipated recoveries relate to previously incurred costs and estimated future costs for other Montana matters. During 2009, we have executed settlements and received approximately $5.3 million of insurance proceeds. The portion related to previously incurred Montana generation related costs has been recognized as a reduction to operating expenses in the second and third quarters of 2009, while 10% of the proceeds has been recorded as a liability that may be returned to customers pending regulatory review.

Manufactured Gas Plants - Approximately $26.2 million of our environmental reserve accrual is related to manufactured gas plants. A formerly operated manufactured gas plant located in Aberdeen, South Dakota, has been identified on the Federal Comprehensive Environmental Response, Compensation, and Liability Information System (CERCLIS) list as contaminated with coal tar residue. We are currently investigating, characterizing, and initiating remedial actions at the Aberdeen site pursuant to work plans approved by the South Dakota Department of Environment and Natural Resources. Our current reserve for remediation costs at this site is approximately $12.7 million, and we estimate that approximately $10 million of this amount will be incurred during the next five years.

We also own sites in North Platte, Kearney and Grand Island, Nebraska on which former manufactured gas facilities were located. During 2005, the Nebraska Department of Environmental Quality (NDEQ) conducted Phase II investigations of soil and groundwater at our Kearney and Grand Island sites. On March 30, 2006 and May 17, 2006, the NDEQ released to us the Phase II Limited Subsurface Assessment performed by the NDEQ's environmental consulting firm for Kearney and Grand Island, respectively. We have conducted limited additional site investigation, assessment and monitoring work at Kearney and Grand Island. At present, we cannot determine with a reasonable degree of certainty the nature and timing of any risk-based remedial action at our Nebraska locations.

In addition, we own or have responsibility for sites in Butte, Missoula and Helena, Montana on which former manufactured gas plants were located. An investigation conducted at the Missoula site did not require entry into the Montana Department of Environmental Quality (MDEQ) voluntary remediation program, but required preparation of a groundwater monitoring plan. The Butte and Helena sites were placed into the MDEQ's voluntary remediation program for cleanup due to excess regulated pollutants in the groundwater. We have conducted additional groundwater monitoring at the Butte and Missoula sites and, at this time, we believe natural attenuation should address the conditions at these sites; however,

 
 
20
 

additional groundwater monitoring will be necessary. In Helena, we continue limited operation of an oxygen delivery system implemented to enhance natural biodegradation of pollutants in the groundwater and we are currently evaluating limited source area treatment/removal options. Monitoring of groundwater at this site is ongoing and will be necessary for an extended time. At this time, we cannot estimate with a reasonable degree of certainty the nature and timing of risk-based remedial action at the Helena site or if any additional actions beyond monitored natural attenuation will be required.

Milltown Dam Removal - Our subsidiary, Clark Fork and Blackfoot, LLC (CFB), owns the former Milltown Dam site, and previously operated a three megawatt (MW) hydroelectric generation facility located at the confluence of the Clark Fork and Blackfoot Rivers. Dam removal activities were initiated during the first quarter of 2008 and were completed in the third quarter of 2009. Our remaining obligation to the State of Montana related to this site is approximately $0.6 million, which will be solely funded through the transfer of land and water rights associated with the former Milltown Dam operations to the State of Montana.

Coal-Fired Plants   - We have a joint ownership interest in four electric generating plants, all of which are coal fired and operated by other companies. We have an undivided interest in these facilities and are responsible for our proportionate share of the capital and operating costs while being entitled to our proportionate share of the power generated. In addition, a significant portion of the electric supply we procure in the market is generated by coal-fired plants.

Global Climate Change - There is a growing concern nationally and internationally about global climate change and the contribution of emissions of greenhouse gases including, most significantly, carbon dioxide. This concern has led to increased interest in legislation at the federal level, actions at the state level, as well as litigation relating to greenhouse gas emissions. Recently, two federal courts of appeal have reinstated nuisance claims against emitters of carbon dioxide, including several utility companies, alleging that such emissions contribute to global warming. Specifically, coal-fired plants have come under scrutiny due to their emissions of carbon dioxide. There is a gap between proposed emissions reduction levels and the current capabilities of technology, as there is no currently available commercial scale technology that would achieve the proposed reduction levels. Such technology may not be available within a timeframe consistent with the implementation of climate change legislation or at all. To the extent that such technology does become available, we can provide no assurance that it will be suitable or cost-effective for installation at the generation facilities in which we have a joint interest.

Although no federal laws currently limit greenhouse gas emissions, in June 2009, the U.S. House of Representatives passed the American Clean Energy and Security Act of 2009, a bill introduced by Rep. Henry Waxman and Rep. Edward Markey and popularly known as the Waxman-Markey bill. The bill would regulate greenhouse gas emissions by instituting a cap-and-trade-system, in which an economy-wide cap on U.S. greenhouse gas emissions would be established starting in 2012 with a cap 3% below the baseline 2005 level. The cap would steeply decline over time until in 2050 it reaches 83% below the baseline level. Emission allowances, which are rights to emit greenhouse gases, would be both allocated for free and auctioned. In addition, the draft legislation contains a renewable energy standard of 25% by the year 2025 and an energy efficiency mandate for electric and natural gas utilities, as well as other requirements. Pending in the U.S. Senate is the Clean Energy Jobs and American Power Act introduced by Sens. John Kerry and Barbara Boxer, known as the Kerry-Boxer bill. The Kerry-Boxer bill also proposes to regulate greenhouse gas emissions by instituting a cap-and-trade-system, with primarily the same target levels proposed by the Waxman-Markey bill; however, the Kerry-Boxer bill is more aggressive in its 2020 target – a reduction to 20% below 2005 levels by 2020 (versus 17% in Waxman-Markey). Although the Waxman-Markey bill is widely viewed as the most probable climate change bill to be enacted into law, the prospects for passage of a similar bill by the U.S. Senate are uncertain.

In addition, the U.S. Supreme Court issued a decision holding that the Environmental Protection Agency (EPA) relied on improper factors in deciding not to regulate carbon dioxide emissions from motor vehicles under the Clean Air Act. In April 2009, the EPA issued a proposed finding that greenhouse gas emissions endanger the public health and welfare. The EPA’s proposed finding indicated that the current and projected levels of six greenhouse gas emissions – carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride contribute to climate change. In September 2009, the EPA proposed rules to reduce greenhouse gas emissions from light-duty vehicles. Final adoption of the proposed standards for light-duty vehicles is contingent on the EPA first finalizing its proposed endangerment finding for greenhouse gas emissions from motor vehicles. In a related
 
 
21
 

matter, the EPA also proposed rules that would require all new or modified “stationary sources,” such as power plants, that emit 25,000 tons of greenhouse gases per year to obtain operating permits incorporating the “best available control technology” for such emissions.

In addition, in September 2009, the EPA announced the adoption of the first comprehensive national system for reporting emissions of carbon dioxide and other greenhouse gases produced by major sources in the United States. The new reporting requirements will apply to suppliers of fossil fuel and industrial chemicals, manufacturers of motor vehicles and engines, as well as large direct emitters of greenhouse gases with emissions equal to or greater than a threshold of 25,000 metric tons per year, which includes certain of our facilities. The effective date for gathering the data is January 2010 with the first mandatory reporting due in March 2011.

The Montana Governor’s office has joined the Western Regional Climate Initiative (WCI) and is expected to participate in any greenhouse gas emission control regulations that are adopted by the WCI. The WCI, which has a goal of reducing carbon dioxide emissions 15% below the 2005 levels by 2020, currently is developing greenhouse gas emission allocations, offsets, and reporting recommendations. While we cannot predict the impact of any legislation until final, if legislation or regulations are passed at the federal or state levels imposing mandatory reductions of carbon dioxide and other greenhouse gases on generation facilities, the cost to us and / or our customers could be significant. We are proactively involved in analyzing the impacts of current legislative efforts on our customers and shareholders and are participating in public policy forums related to these issues.

Clean Air Act - The Clean Air Act Amendments of 1990 and subsequent amendments stipulate limitations on sulfur dioxide and nitrogen oxide emissions from coal-fired power plants. We comply with these existing emission requirements through purchase of sub-bituminous coal, and we believe that we are in compliance with all presently applicable environmental protection requirements and regulations with respect to these plants.

Clean Air Mercury Rule   - The state of Montana has issued mercury regulation rules that would require every coal-fired generating plant in the state to reduce emissions of mercury by 2010. The joint owners of Colstrip Units 3 & 4 currently plan to install chemical injection technologies to meet these requirements. We estimate our share of the capital cost would be approximately $2 million, with ongoing annual operating costs of approximately $2 million. These ongoing costs will be dependent on the volatility of the cost and amount of chemicals needed to treat the coal before combustion. If these rules are maintained in their current form and enhanced chemical injection technologies are not sufficiently developed to meet the Montana levels of reduction by 2010, then adsorption/absorption technology with fabric filters at the Colstrip Unit 4 generation facility would be required, which could represent a material additional cost.

Other

We continue to manage equipment containing polychlorinated biphenyl (PCB) oil in accordance with the EPA's Toxic Substance Control Act regulations. We will continue to use certain PCB-contaminated equipment for its remaining useful life and will, thereafter, dispose of the equipment according to pertinent regulations that govern the use and disposal of such equipment.

We routinely engage the services of a third-party environmental consulting firm to assist in performing a comprehensive evaluation of our environmental reserve. Based upon information available at this time, we believe that the current environmental reserve properly reflects our remediation exposure for the sites currently and previously owned by us. The portion of our environmental reserve applicable to site remediation may be subject to change as a result of the following uncertainties:
 
·  
We may not know all sites for which we are alleged or will be found to be responsible for remediation; and
 
·  
Absent performance of certain testing at sites where we have been identified as responsible for remediation, we cannot estimate with a reasonable degree of certainty the total costs of remediation.


 
22
 

LEGAL PROCEEDINGS

Bankruptcy Related Litigation

Magten Settlement - In July 2008, the U.S. Bankruptcy Court for the District of Delaware (Bankruptcy Court) approved a global settlement agreement between NorthWestern, Magten Asset Management (Magten), Law Debenture Trust Company of New York (Law Debenture) and the committee concerning NorthWestern’s plan of reorganization (Plan Committee) that resolves the litigation related to claims of holders of quarterly income preferred securities (QUIPS) in our Chapter 11 bankruptcy case. On July 23, 2008 the Ad Hoc Committee filed an appeal to the global settlement agreement; however, we and the other parties involved waived a closing condition and closed on the settlement on July 24, 2008. Under the approved global settlement agreement Magten, Law Debenture, their lawyers and the holders of the QUIPS, collectively received a cash payment of $23 million to be allocated amongst them in accordance with the terms of the global settlement agreement. The cash payment was funded by our repurchase of 782,059 shares held in the disputed claims reserve established under our confirmed plan of reorganization (Plan), as discussed below in the following paragraph. This settlement resolves the last significant claim from the bankruptcy case. During the third quarter of 2009, the United States District Court of Delaware dismissed the appeal on the grounds of “equitable mootness” in that the parties already had consummated the settlement agreement and affirmed the Bankruptcy Court’s decision on the merits that the global settlement agreement did not violate the Plan. The Ad Hoc Committee did not appeal the dismissal and the appeal period has expired.

Disputed Claims Reserve - In July 2008, we obtained Bankruptcy Court approval for the purchase of the remaining shares in the disputed claims reserve established by the Plan. The motion allowed unsecured creditors and debt holders in Class 7 and Class 9 to elect to receive their surplus distribution in stock or cash. We repurchased 1.1 million shares from the disputed claims reserve for those claimants who elected a cash payment. In October 2008, we filed a motion requesting the Bankruptcy Court to determine the disputed claims reserve is taxable as a grantor trust. The IRS filed an objection to the motion; however we reached an agreement with the IRS and the Plan Committee to settle this matter. In September 2009, the Bankruptcy Court approved the settlement agreement and authorized a final distribution from the disputed claims reserve. This settlement did not have a material impact on our financial position, results of operations or cash flows. We expect to distribute the remaining cash and shares in the disputed claims reserve to eligible claimants during the fourth quarter of 2009.

McGreevey Litigation

We are one of several defendants in a class action lawsuit entitled McGreevey, et al. v. The Montana Power Company, et al., now pending in U.S. District Court in Montana. The lawsuit, which was filed by former shareholders of The Montana Power Company (most of whom became shareholders of Touch America Holdings, Inc. (Touch America) as a result of a corporate reorganization of The Montana Power Company), contends that the disposition of various generating and energy-related assets by The Montana Power Company are void because of the failure to obtain shareholder approval for the transactions. Plaintiffs thus seek to reverse those transactions, or receive fair value for their stock as of late 2001, when plaintiffs claim shareholder approval should have been sought. NorthWestern is named as a defendant due to the fact that we purchased The Montana Power Company L.L.C. (now CFB), which plaintiffs claim is a successor to the Montana Power Company.

We were one of the defendants in a second class action lawsuit brought by the McGreevey plaintiffs, also entitled McGreevey, et al. v. The Montana Power Company, et al., pending in U.S. District Court in Montana. We were dismissed from this lawsuit by the U.S. District Court in Montana in February 2009.
 
In June 2006, we and the McGreevey plaintiffs entered into an agreement to settle all claims brought by the McGreevey plaintiffs in all of the actions described above.  This agreement was approved by the Bankruptcy Court in November 2006; however on January 11, 2008, the U.S. District Court in Montana suggested that the settlement agreement was invalid and enjoined the plaintiffs from taking any further action in any of these matters. The plaintiffs appealed the District Court’s injunction to the Ninth Circuit U.S. Court of Appeals, where  a determination is pending. In January 2009, the U.S. District Court in Montana asked all parties to submit memorandum discussing the party’s willingness to enter into a global settlement of the matter.
 

 
23
 
 
In October 2009, the parties to the various lawsuits reached a global settlement involving various agreements, which must be approved by the U.S. District Court in Montana and the Delaware Bankruptcy Court. Documentation concerning the settlement must be submitted by November 13, 2009, to the U.S. District Court in Montana for its approval. If the court approves the settlement, we will receive approximately $2.0 million from the Touch America bankruptcy estate and have no remaining liability in the litigation.

Ammondson

In April 2005, a group of former employees of the Montana Power Company filed a lawsuit in the state court of Montana against us and certain officers styled Ammondson, et al. v. NorthWestern Corporation, et al. The former employees have alleged that by moving to terminate their supplemental retirement contracts in our bankruptcy proceeding without having listed them as claimants or giving them notice of the disclosure statement and plan of reorganization, that we breached those contracts, and breached a covenant of good faith and fair dealing under Montana law and by virtue of filing a complaint in our bankruptcy case against those employees from seeking to prosecute their state court action against NorthWestern, we had engaged in malicious prosecution and should be subject to punitive damages. In May 2005, the Bankruptcy Court found that it did not have jurisdiction over these contracts, dismissed our action against these former employees, and transferred our motion to terminate the contracts to Montana state court, thereby removing any claim from consideration in the resolution of our bankruptcy case. In February 2007, a jury verdict was rendered against us in Montana state court, which ordered us to pay $17.4 million in compensatory and $4.0 million in punitive damages. Due to the verdict, we recognized a loss of $19.0 million in our 2006 results of operations to increase our recorded liability related to this claim. The Montana state court reviewed the amount of the punitive damages under state law and did not alter the amount. We appealed the judgment to the Montana Supreme Court and posted a $25.8 million bond. Interest accrues on the verdict amount during the appeal process. On October 13, 2009 the Montana Supreme Court issued a decision affirming the jury verdict and the various rulings of the Montana state court before, during and after trial, and remanded the judgment to the Montana state court so that it can be reduced to reflect the payments made to the plaintiffs since the judgment was entered. We are considering our alternatives in light of this decision.

Sierra Club

On June 10, 2008, Sierra Club filed a complaint in the U.S. District Court for the District of South Dakota (Northern Division) (South Dakota Federal District Court) against us and two other co-owners (the Defendants) of Big Stone Generating Station (Big Stone). The complaint alleged certain violations of the (i) Prevention of Significant Deterioration and (ii) New Source Performance Standards (NSPS) provisions of the Clean Air Act and certain violations of the South Dakota State Implementation Plan (South Dakota SIP). The action further alleged that the Defendants modified and operated Big Stone without obtaining the appropriate permits, without meeting certain emissions limits and NSPS requirements and without installing appropriate emission control technology, all allegedly in violation of the Clean Air Act and the South Dakota SIP. Sierra Club alleged that Defendants’ actions have contributed to air pollution and visibility impairment and have increased the risk of adverse health effects and environmental damage. Sierra Club sought both declaratory and injunctive relief to bring the Defendants into compliance with the Clean Air Act and the South Dakota SIP and to require Defendants to remedy the alleged violations. Sierra Club also sought unspecified civil penalties, including a beneficial mitigation project. We believe these claims are without merit and that Big Stone was and is being operated in compliance with the Clean Air Act and the South Dakota SIP.

The Defendants filed a Motion to Dismiss the Sierra Club complaint on August 12, 2008, based on certain of the claims being barred by statute of limitations and the remaining claims being an impermissible collateral attack on valid Clean Air Permits issued by the state of South Dakota. On September 22, 2008, the Sierra Club filed its response. Additionally on September 22, 2008, the Sierra Club sent a Notice of Intent to Sue for additional violations of the Clean Air Act at Big Stone, which are similar in nature and seek the same remedies as the June 2008 complaint. On March 31, 2009, the South Dakota Federal District Court entered a Memorandum Opinion and Order granting Defendants’ Motion to Dismiss the Sierra Club Complaint. Sierra Club filed a motion for reconsideration of the dismissal, which was denied in July 2009. On July 30, 2009, Sierra Club appealed the South Dakota Federal District Court’s decision to dismiss the complaint. The briefing schedule adopted by the Eighth Circuit Court of Appeals calls for the appellant to submit its brief by mid-October, for appellees to submit

 
 
24
 

their brief by mid-November and for appellant to submit its reply brief by the end of November. On October 13, 2009, the United States Department of Justice filed a motion seeking a 30-day extension of the time to file an amicus brief in support of the Sierra Club’s position. The Court of Appeals granted this motion, as well as our subsequent joint motion with the Sierra Club, extending the time to file our principal brief and the Sierra Club’s reply brief. We anticipate briefing to be complete by the end of January 2010.

Other Litigation and Contingencies

Colstrip Energy Limited Partnership

In December 2006 and June 2007, the MPSC issued orders relating to certain QF rates for the period July 1, 2003 through June 30, 2006. Colstrip Energy Limited Partnership (CELP) is a QF with which we have a power purchase agreement through June 2024. Under the terms of the power purchase agreement with CELP, energy and capacity rates were fixed through June 30, 2004 (with a small portion to be set by the MPSC's determination of rates in the annual avoided cost filing), and beginning July 1, 2004 through the end of the contract, energy and capacity rates are to be determined each year pursuant to a formula, with the rates to be used in that formula derived from the annual MPSC QF rate review. CELP initially appealed the MPSC’s orders and then, in July 2007, filed a complaint against NorthWestern and the MPSC in Montana district court, which contested the MPSC’s orders. CELP disputed inputs into the underlying rates used in the formula, which initially are calculated by us and reviewed by the MPSC on an annual basis, to calculate energy and capacity payments for the contract years 2004-2005 and 2005-2006. CELP claimed that NorthWestern breached the power purchase agreement causing damages, which CELP asserted to be approximately $23 million for contract years 2004-2005 and 2005-2006. The parties stipulated that NorthWestern would not implement the final derived rates resulting from the MPSC orders, pending an ultimate decision on CELP's complaint. The Montana district court, on June 30, 2008, also granted a motion by the MPSC to bifurcate, having the effect of separating the issues between contract/tort claims against us and the administrative appeal of the MPSC’s orders. The order also stayed the appellate decision pending a decision in the arbitration proceedings. Arbitration was held in June 2009 and the arbitration panel entered its interim award in August 2009, holding that although NorthWestern failed to use certain data inputs required by the power purchase agreement, CELP was entitled to neither damages for contract years 2004-2005 or 2005-2006, nor to recalculation of the underlying MPSC filings for those years, effectively finalizing CELP's contract rates for those years. CELP continues to dispute that result. We requested clarification from the arbitration panel as to its intent regarding the applicable rates. We are evaluating the financial impact of the arbitration panel's interim award while we await the final award, which we expect to be issued by the end of 2009. Following issuance of the final award, the matter will return to the Montana district court for confirmation of that award. If the final award is consistent with the interim award, we believe it would reduce our QF liability by approximately $20 to $30 million due to the estimated reduction of energy and capacity rates for the remainder of the contract period.

Blue Dot Bankruptcy

During the second quarter of 2008, our subsidiary Blue Dot Services, LLC (Blue Dot) lost an arbitration matter with an insurance carrier and the insurance carrier was awarded $3.5 million plus interest related to a dispute that originated in 2007. The award was partially satisfied by $2.5 million in letter of credit draws by the insurance carrier and approximately $300,000 in cash. On September 5, 2008, Blue Dot and its subsidiaries filed a petition for protection under Chapter 7 of the Bankruptcy Code in United States Bankruptcy Court for the District of Delaware. We classified Blue Dot as a discontinued operation in 2003. We do not anticipate Blue Dot’s ultimate liquidation will have a material adverse effect, if any, on our financial position, results of operations or cash flows.

Bozeman Explosion

On March 5, 2009, a natural gas explosion occurred in downtown Bozeman, Montana. The explosion resulted in one fatality, the destruction of three buildings (and the several places of business located within the destroyed buildings), and ancillary damage to nearby buildings and vehicles. Our investigation of this incident is ongoing. Four lawsuits have been commenced in Montana state court and various claims have been filed against NorthWestern with respect to this incident. We have paid our deductible and tendered the defense of any claims which may arise out of this incident to our insurance carrier. Our total available insurance coverage is approximately $150 million for known and potential claims.
 

 
25
 
 
Maryland Street

On March 16, 2009, Monsignor John F. McCarthy, as the duly appointed personal representative for the estate of Father James C. McCarthy, filed a complaint in the Montana Second Judicial District Court, Butte-Silver Bow County against us, one of our employees and other unknown individuals and entities. The complaint arises out of an April 2007 natural gas explosion and alleges negligence and strict liability with respect to the maintenance and operation of the natural gas distribution system that served Fr. McCarthy’s residence. The explosion destroyed a four-plex residence and nearby properties sustained damages. Fr. McCarthy died in November 2007. The plaintiff seeks unspecified compensatory and punitive damages and other equitable relief, costs and attorney’s fees. The investigation of this incident is ongoing, and while we cannot predict an outcome, we intend to vigorously defend against this complaint. We filed a notice of removal to remove the case from Montana state court to the Butte Division of the U.S. District Court for the District of Montana (Montana Federal District Court), but the Montana Federal District Court remanded the case to the Montana state court. Subsequently, we filed a motion in the Montana state court seeking to dismiss the amended complaint as to our employee, which is pending.

Gonzales

We are a defendant – along with our predecessor entities the Montana Power Company (MPC) and pre-bankruptcy NorthWestern Corporation (NOR) – in an action (Gonzales Action) pending in the Montana Second Judicial District Court, Butte-Silver Bow County (Montana State Court), alleging fraud, constructive fraud and violations of the Unfair Claim Settlement Practices Act all arising out of the adjustment of workers’ compensation claims. Putnam and Associates, the third party administrator of such workers’ compensation claims, also is a defendant.

The Gonzales Action was first filed on December 18, 1999, against MPC (NOR acquired MPC in 2002) and was stayed due to the chapter 11 bankruptcy filing of NOR. On August 10, 2005, the Bankruptcy Court approved a “Bankruptcy Settlement Stipulation” which permitted the Gonzales Action to proceed, assigned to plaintiffs NOR’s interest in MPC’s insurance policies (to the extent applicable to the allegations made by plaintiffs), released NOR from any and all obligations to the plaintiffs concerning such claims, and preserved plaintiffs’ right to pursue claims arising after November 1, 2004, relating to the adjustment of workers’ compensation claims. To date, no insurance carrier has indicated that coverage is available for any of the claims.

On September 30, 2009 the Montana State Court granted the plaintiffs’ motions to file a sixth amended complaint and partially granted the plaintiff’s motion for class certification. The Montana State Court excluded the fraud claims from its class certification. The new complaint seeks to hold us jointly and severally liable for the acts of MPC and NOR and alleges that we negligently/intentionally sabotaged plaintiffs’ ability to recover under the MPC insurance policies. Plaintiffs seek compensatory and punitive damages from all defendants. Due to the individual nature of the claims, we believe the class certification was improper under Montana law, and we continue to believe that the new complaint violates the bankruptcy stipulation. We have filed an appeal to the Supreme Court of the State of Montana with respect to these issues and intend to continue to defend the lawsuit vigorously.

REC Silicon

REC Advanced Silicon Materials LLC (REC) is a large transmission customer which manufactures polysilicon and silane gas for the photovoltaic and electronics industries. REC purchases services from us pursuant to our Open Access Transmission Tariff. REC brought an action against us in June 2009, in the Montana Second Judicial District Court, Butte-Silver Bow County, which alleges breach of contract and negligence. REC claims we failed to properly maintain a substation, which resulted in an outage for approximately three hours and disrupted REC’s production operations for several days. REC alleges damage claims of approximately $1.25 million. We are still evaluating our potential liability and the extent and validity of REC’s damage claims. We cannot currently predict the impact or resolution of this litigation.

We are also subject to various other legal proceedings, governmental audits and claims that arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these other actions will not materially affect our financial position, results of operations, or cash flows.


 
26
 

(15)   Subsequent Events
 

Financing Activities

On October 15, 2009 we issued $55 million of Montana First Mortgage Bonds at a fixed interest rate of 5.71% maturing October 15, 2039. The transaction is exempt from the registration requirements of the Securities Act of 1933, as amended. The proceeds will be used to fund a portion of the costs of the Mill Creek generation project and / or future capital expenditures.

Montana Rate Filing

In October 2009, we filed a request with the MPSC for an annual electric transmission and distribution revenue increase of $15.5 million, and an annual natural gas transmission, storage and distribution revenue increase of $2.0 million. The request was based on a return on equity of 10.9%, an equity ratio of 49.45% and rate base of $632.2 million and $256.6 million, respectively. This rate filing does not include electric generation included in rate base. We have requested interim rates and are currently awaiting the establishment of a procedural schedule.
 

 
27
 
 
ITEM 2.                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

NorthWestern Corporation, doing business as NorthWestern Energy, provides electricity and natural gas to approximately 656,000 customers in Montana, South Dakota and Nebraska. For a discussion of NorthWestern’s business strategy, see Management’s Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2008.

SUMMARY

Significant achievements during the three months ended September 30, 2009 include:
 
·  
Increased net income of $18.9 million as compared with $13.4 million in the same period of 2008, due primarily to obtaining Internal Revenue Service (IRS) approval of a tax accounting method change to deduct repairs that would have previously been capitalized, resulting in an income tax benefit of $12.4 million during the third quarter of 2009;
 
·  
Upgrade of our senior secured credit ratings by Moody’s Investors Service (Moody’s); and
 
·  
Entered into a purchase agreement on September 30, 2009, under which we agreed to issue $55 million of 5.71% Montana First Mortgage Bonds due October 15, 2039, to certain purchasers.
 

Repairs Tax Deduction

In December 2008, we filed a request with the IRS to change our accounting method related to costs to repair and maintain utility assets. The IRS approved our request in September 2009, which allows us to take a current tax deduction for a significant amount of repair costs that were previously capitalized for tax purposes. For regulatory purposes, we flow these current tax deductions through to our customers. Due to this regulatory treatment, our effective tax rate was (87.1)% and 14.1% for the three and nine months ended September 30, 2009, respectively, compared to 36.0% and 36.6% for the same periods of 2008. The 2009 rates reflect the impact of the change in tax accounting method for repairs and lower estimated 2009 taxable income. We expect the effective tax rate for the year ended December 31, 2009 to be approximately 20%. See Note 4 – Income Taxes, in the Notes to Condensed Consolidated Financial Statements for further discussion.

Colstrip Unit 4

In January 2009, as approved by the MPSC in 2008, we placed our joint ownership interest in Colstrip Unit 4, which had previously been an unregulated asset, into utility rate base at a value of $407 million. The MPSC order included a capital structure of 50% equity and 50% debt, an authorized return on equity of 10% and cost of debt of 6.5%, which are set for 34 years based on the estimated useful life of the plant. Our interest in Colstrip Unit 4 is expected to supply approximately 13% of our base-load requirements through 2010 and approximately 25% thereafter (upon expiration of an existing power sale agreement) and will help provide rate stability for our customers. The generation related costs and return on rate base related to Colstrip Unit 4 will be included in our annual electric supply tracker filing for inclusion in customer rates. We are currently experiencing an unplanned outage at Colstrip Unit 4 for a rotor repair. We expect the unit to return to service early in the fourth quarter of 2009. We do not expect this to have an impact on our electric margins due to the regulatory treatment of our supply costs; however, we expect operating expenses to increase by approximately $1.3 million for rotor repair costs in the fourth quarter of 2009.

Outlook

The current weak economic conditions have resulted, and we believe likely will continue into 2010 to result in weaker customer demand, among other things. While customer counts increased, retail residential and commercial electric volumes were down 3% and industrial volumes were down 9% for the third quarter of 2009 as compared with the same quarter of 2008. This volume reduction, while due in part to energy efficiency measures and milder weather, is also largely due to weak economic conditions, particularly for commercial and industrial
 
 
 
28
 

customers. Our margins are minimally impacted by changes in industrial demand due to our rate structure. We expect to continue to experience relatively flat residential demand as well as reduced commercial and industrial demand during the remainder of 2009. The weak economy also contributed to a 13% decrease in transmission capacity revenues, which we expect to continue through the end of 2009.

RESULTS OF OPERATIONS

Our consolidated results include the results of our business units constituting each of our business segments. The overall consolidated discussion is followed by a detailed discussion of gross margin by segment.

Non-GAAP Financial Measure

The following discussion includes financial information prepared in accordance with GAAP, as well as another financial measure, Gross Margin, that is considered a “ non-GAAP financial measure.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. Gross Margin (Revenues less Cost of Sales) is a non-GAAP financial measure due to the exclusion of depreciation from the measure. The presentation of Gross Margin is intended to supplement investors’ understanding of our operating performance. Gross Margin is used by us to determine whether we are collecting the appropriate amount of energy costs from customers to allow recovery of operating costs. Our Gross Margin measure may not be comparable to other companies’ Gross Margin measure. Furthermore, this measure is not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance.

OVERALL CONSOLIDATED RESULTS

Three Months Ended September 30, 2009 Compared with the Three Months Ended September 30, 2008
 

   
Three Months Ended September 30,
 
   
2009
 
2008
 
Change
 
% Change
 
   
(in millions)
 
Operating Revenues
                 
Regulated Electric
 
$
198.7
 
$
208.0
 
$
(9.3
)
(4.5
)%
Regulated Natural Gas
 
34.2
 
45.6
 
(11.4
)
(25.0
)
Unregulated Electric
 
—
 
20.1
 
(20.1
)
(100.0
)
Other
 
0.3
 
7.9
 
(7.6
)
(96.2
)
Eliminations
 
(0.3
)
(9.4
)
9.1
 
96.8
 
   
$
232.9
 
$
272.2
 
$
(39.3
)
(14.4
)%

   
Three Months Ended September 30,
 
   
2009
 
2008
 
Change
 
% Change
 
   
(in millions)
 
Cost of Sales
                 
Regulated Electric
 
$
92.6 $ 113.3   $ (20.7 ) (18.3 )%
Regulated Natural Gas
 
12.3
 
22.8
 
(10.5
)
(46.1
)
Unregulated Electric
 
—
 
(4.2
)
4.2
 
100.0
 
Other
 
0.3
 
7.6
 
(7.3
)
(96.1
)
Eliminations
 
—
 
(9.0
)
9.0
 
100.0
 
   
$
105.2
 
$
130.5
 
$
(25.3
)
(19.4
)%


 
29
 

   
Three Months Ended September 30,
 
   
2009
 
2008
 
Change
 
% Change
 
   
(in millions)
 
Gross Margin
                 
Regulated Electric
 
$
106.1
 
$
94.7
 
$
11.4
 
12.0
%
Regulated Natural Gas
 
21.9
 
22.8
 
(0.9
)
(3.9
)
Unregulated Electric
 
—
 
24.3
 
(24.3
)
(100.0
)
Other
 
—
 
0.3
 
(0.3
)
(100.0
)
Eliminations
 
(0.3
)
(0.4
)
0.1
 
25.0
 
   
$
127.7
 
$
141.7
 
$
(14.0
)
(9.9
)%

Consolidated gross margin was $127.7 million for the three months ended September 30, 2009, a decrease of $14.0 million, or 9.9%, from gross margin in the same period of 2008. Primary components of the change include the following:

   
Gross Margins
 
   
2009 vs. 2008
 
   
(in millions)
 
Transfer of Colstrip Unit 4 to regulated electric
 
$
17.8
 
2008 Unregulated electric
   
(14.1
)
2008 Unregulated electric unrealized gain on forward contract
   
(10.2
)
  Colstrip Unit 4 net decrease to gross margin
   
(6.5
)
Regulated electric retail volumes
 
(2.6
)
Regulated electric transmission
 
(1.7
)
Regulated electric wholesale
 
(0.7
)
Montana property tax tracker
 
(0.8
)
Loss on capacity contract
 
(0.3
)
Other                                                                                                       
   
(1.4
)
Decrease in Consolidated Gross Margin                                                                                                       
 
$
(14.0
)

The transfer of our interest in Colstrip Unit 4 to Montana utility rate base contributed approximately $17.8 million to gross margin. Prior to the transfer of Colstrip Unit 4, all of our Montana electric supply costs were based on power purchase agreements, which are passed through to customers at actual cost with no return component. Results of operations of this plant were reflected in our unregulated electric segment through December 31, 2008, which impacts the comparability of our segmented results. The absence of gross margin from our unregulated electric segment reduced gross margin by approximately $24.3 million as compared to the same period of 2008, which included a $10.2 million unrealized gain on forward contracts. The 2008 unrealized gain was due to changes in forward prices of electricity.

Consolidated margin also decreased due to lower regulated electric retail volumes related to milder weather, lower transmission capacity revenues with less demand to transmit energy for others across our lines, a decrease in wholesale margin due to lower sales and prices, a decrease in property taxes recovered in revenues due to lower valuations, as well as a loss on a capacity contract included in our “other” segment. This capacity contract runs through October 2013 and was primarily used to serve one customer. The customer terminated their supply contract with us during the second quarter of 2009 and we have recorded a loss to reflect the change in the estimate of the market value for the capacity during the remaining term. Our remaining exposure related to this capacity contract is approximately $0.9 million as of September 30, 2009.

 
 
30
 

   
Three Months Ended September 30,
 
   
2009
 
2008
 
Change
 
% Change
 
   
(in millions)
 
Operating Expenses (excluding cost of sales)
                 
Operating, general and administrative
 
$
57.9
 
$
63.4
 
$
  (5.5
)
(8.7
)%
Property and other taxes
 
20.8
 
21.7
 
(0.9
)
(4.1
)
Depreciation 
 
22.0
 
21.3
 
0.7
 
3.3
 
   
$
100.7
 
$
106.4
 
$
(5.7
)
(5.4
)%

Consolidated operating, general and administrative expenses were $57.9 million for the three months ended September 30, 2009 as compared with $63.4 million for the same period of 2008. Primary components of the change include the following:
 
   
Operating, General & Administrative Expenses
 
   
2009 vs. 2008
 
   
(in millions)
 
Pension expense
 
$
(8.9
)
Bad debt expense
 
(1.0
)
Legal and professional fees
 
(0.8
)
Stock-based compensation and short-term incentive
 
(0.8
)
Insurance recoveries and settlements
 
6.3
 
Labor
 
1.0
 
Postretirement health care
 
0.7
 
Colstrip Unit 4 operations
 
0.5
 
Other
 
(2.5
)
Decrease in Operating, General & Administrative Expenses
 
$
(5.5
)

The decrease in operating, general and administrative expenses was primarily due to the following:
 
·  
Lower pension expense as described further below; and
 
·  
Lower bad debt expense based on lower average customer receivable balances and less days outstanding;
 
·  
Decreased legal and professional fees associated with ongoing litigation;
 
·  
Lower stock-based compensation due to reduced equity grants and lower short-term incentive; offset by
 
·  
Net decrease in insurance recoveries and settlements, which includes a $1.4 million insurance recovery in the third quarter of 2009 related to previously incurred Montana generation related environmental remediation costs. In the same period of 2008 we received an insurance reimbursement and a litigation settlement totaling approximately $7.7 million.
 
·  
Increased labor costs due primarily to compensation increases;
 
·  
Higher postretirement health care costs due to plan asset market losses and changes in actuarial assumptions; and
 
·  
Increased plant operations costs at Colstrip Unit 4 due to the outage.
 
Our Montana pension costs are included in expense on a pay as you go (cash funding) basis. Due to plan asset market losses during the third quarter of 2008, we increased our pension funding estimates, which resulted in a significant increase to pension expense in the third quarter of 2008. We received a revised pension accounting order from the MPSC in the fourth quarter of 2008. This revised the expense we recognize to the average of our funding requirements for calendar years 2005 through 2012, which resulted in a reduction to pension expense during the fourth quarter of 2008. Pension expense calculated under this order was approximately $30.6 million for the year ended December 31, 2008, and we currently estimate the same annual expense for 2009. Our estimate is based on achieving an 8.0% return on assets. While this is a long-term assumption, our funding requirements are determined annually based on many variables, including actual plan asset returns. Our return on plan assets through the third quarter of 2009 was approximately 20.0%. The overall market has
 

 
31
 

continued to be volatile during 2009, and if asset returns are significantly above or below our assumption of 8.0% for 2009, we will likely need to revise our future funding estimates, which could change our pension expense.

Property and other taxes were $20.8 million for the three months ended September 30, 2009 as compared with $21.7 million in the same period of 2008. The decrease was due to lower assessed property valuations.

Depreciation expense was $22.0 million for the three months ended September 30, 2009 as compared with $21.3 million in the same period of 2008. The increase was primarily due to plant additions.

Consolidated operating income for the three months ended September 30, 2009 was $27.0 million, as compared with $35.3 million in the same period of 2008. The decrease was primarily due to lower gross margin partially offset by lower operating expenses discussed above.

Consolidated interest expense for the three months ended September 30, 2009 was $17.3 million, an increase of $1.7 million, or 10.9%, from the third quarter of 2008. This increase was primarily due to increased debt outstanding.

Consolidated income tax benefit for the three months ended September 30, 2009 was $8.8 million as compared with income tax expense of $7.5 million in the same period of 2008. The effective tax rate for the three months ended September 30, 2009 was (87.1)% as compared with 36.0% for the same period of 2008. These effective tax rates differ from the federal tax rate of 35% primarily due to the effects of tax credits, state income taxes, utility rate-making, and other permanent book-to-tax differences. The third quarter of 2009 effective tax rate was significantly impacted by a change in tax accounting method related to repair costs as discussed above.

Consolidated net income for the three months ended September 30, 2009 was $18.9 million as compared with $13.4 million for the same period of 2008. The increase in net income was primarily due to the income tax benefit, partially offset by lower operating income and higher interest expense as discussed above.

 
 
32
 

Nine Months Ended September 30, 2009 Compared with the Nine Months Ended September 30, 2008

   
Nine Months Ended September 30,
 
   
2009
 
2008
 
Change
 
% Change
 
   
(in millions)
 
Operating Revenues
                 
Regulated Electric
 
$
580.1
 
$
583.6
 
$
(3.5
)
(0.6
)%
Regulated Natural Gas
 
254.3
 
297.8
 
(43.5
)
(14.6
)
Unregulated Electric
 
—
 
57.1
 
(57.1
)
(100.0
)
Other
 
6.3
 
24.4
 
(18.1
)
(74.2
)
Eliminations
 
(1.2
)
(28.2
)
27.0
 
95.7
 
   
$
839.5
 
$
934.7
 
$
(95.2
)
(10.2
)%
 
   
Nine Months Ended September 30,
 
   
2009
 
2008
 
Change
 
% Change
 
   
(in millions)
 
Cost of Sales
                 
Regulated Electric
 
$
258.9
 
$
303.5
 
$
(44.6
)
(14.7
)%
Regulated Natural Gas
 
154.1
 
194.0
 
(39.9
)
(20.6
)
Unregulated Electric
 
—
 
14.5
 
(14.5
)
(100.0
)
Other
 
7.0
 
23.7
 
(16.7
)
(70.5
)
Eliminations
 
—
 
(26.8
)
26.8
 
100.0
 
   
$
420.0
 
$
508.9
 
$
(88.9
)
(17.5
)%
 
   
Nine Months Ended September 30,
 
   
2009
 
2008
 
Change
 
% Change
 
   
(in millions)
 
Gross Margin
                 
Regulated Electric
 
$
321.2
 
$
280.1
 
$
41.1
 
14.7
%
Regulated Natural Gas
 
100.2
 
103.8
 
(3.6
)
(3.5
)
Unregulated Electric
 
—
 
42.6
 
(42.6
)
(100.0
)
Other
 
(0.7
)
0.7
 
(1.4
)
(200.0
)
Eliminations
 
(1.2
)
(1.4
)
0.2
 
(14.3
)
   
$
419.5
 
$
425.8
 
$
(6.3
)
(1.5
)%

Consolidated gross margin was $419.5 million for the nine months ended September 30, 2009, a decrease of $6.3 million, or 1.5%, from gross margin in the same period of 2008. Primary components of the change include the following:

   
Gross Margins
 
   
2009 vs. 2008
 
   
(in millions)
 
Transfer of Colstrip Unit 4 to regulated electric
 
$
52.9
 
2008 Unregulated electric
 
(38.8
)
2008 Unregulated electric unrealized gain on forward contract
 
(3.8
)
  Net Colstrip Unit 4 increase to gross margin
 
10.3
 
Operating costs recovered in supply revenues
 
2.8
 
Regulated electric and gas retail volumes
 
(4.8
)
Regulated electric wholesale
 
(3.5
)
Regulated electric transmission capacity
 
(3.3
)
Montana property tax tracker
 
(2.9
)
Loss on capacity contract
 
(1.5
)
QF supply costs
 
(1.1
)
Other                                                                                                       
   
(2.3
)
Decrease in Consolidated Gross Margin
 
$
(6.3
)
 
 
 
33
 
 
The decrease in gross margin is due to a combination of lower retail revenues as a result of milder weather, lower wholesale pricing and volumes, lower transmission capacity revenues due to decreased demand, a decrease in property taxes recovered in revenues due to lower valuations, a mark-to-market loss on a natural gas capacity contract as discussed above, and higher QF related supply costs based on actual QF pricing and output. These decreases in margin were offset in part by the transfer of our interest in Colstrip Unit 4 to Montana utility rate base as discussed above and higher revenues for operating, general and administrative costs related to our supply function, which are recovered from customers through the supply trackers and therefore have no impact on operating income.
 
   
Nine Months Ended September 30,
 
   
2009
 
2008
 
Change
 
% Change
 
   
(in millions)
 
Operating Expenses (excluding cost of sales)
                 
Operating, general and administrative
 
$
184.2
 
$
177.3
 
$
6.9
 
3.9
%
Property and other taxes
 
63.4
 
66.0
 
(2.6
)
(3.9
)
Depreciation 
 
67.0
 
63.6
 
3.4
 
5.3
 
   
$
314.6
 
$
306.9
 
$
7.7
 
2.5
%

Consolidated operating, general and administrative expenses were $184.2 million for the nine months ended September 30, 2009 as compared with $177.3 million for the nine months ended September 30, 2008. Primary components of the change include the following:
 
   
Operating, General & Administrative Expenses
 
   
2009 vs. 2008
 
   
(in millions)
 
Labor
 
$
4.2
 
Insurance reserves
 
3.7
 
Insurance recoveries and settlements
 
1.7
 
Operating costs recovered in supply tracker
 
2.8
 
Colstrip Unit 4 operations
 
2.4
 
Postretirement health care
 
2.1
 
Pension expense
 
(3.8
)
Legal and professional fees
 
(2.5
)
Stock based compensation and short term incentive
 
(2.2
)
Bad debt expense
 
(0.3
)
Other
 
(1.2
)
Increase in Operating, General & Administrative Expenses
 
$
6.9
 

The increase in operating, general and administrative expenses of $6.9 million was primarily due to the following:
 
·  
Increased labor costs due primarily to compensation increases and severance costs;
 
·  
Increased insurance reserves due primarily to the Bozeman explosion as well as our experience with other general liability and workers compensation matters;
 
·  
Reduced insurance recoveries as compared with the same period of 2008. Insurance recoveries received in 2009 are primarily related to previously incurred Montana generation related environmental remediation costs, which were offset by settlements received in the third quarter of 2008; and
 
·  
Higher operating, general and administrative costs related to our supply function, which are recovered from customers through supply trackers and therefore have no impact on operating income;
 
·  
Increased plant operations costs at Colstrip Unit 4 due to the outage; and
 
·  
Increased postretirement health care costs due to plan asset market losses and changes in actuarial assumptions; partly offset by
 
 
 
34
 
·  
Lower pension expense as discussed above;
 
·  
Decreased legal and professional fees associated with ongoing litigation;
 
·  
Lower stock-based compensation due to reduced equity grants and lower short-term incentive; and
 
·  
Lower bad debt expense based on lower average customer receivable balances and less days outstanding.
 
Property and other taxes were $63.4 million for the nine months ended September 30, 2009 as compared with $66.0 million in the same period of 2008. The decrease was due to lower assessed property valuations.

Depreciation expense was $67.0 million for the nine months ended September 30, 2009 as compared with $63.6 million in the same period of 2008. The increase was primarily due to plant additions.

Consolidated operating income for the nine months ended September 30, 2009 was $104.9 million, as compared with $118.9 million in the same period of 2008. The decrease was primarily due to higher operating expenses and the $6.3 million decrease in gross margin discussed above.

Consolidated interest expense for the nine months ended September 30, 2009 was $50.4 million, an increase of $2.9 million, or 6.1%, from the same period of 2008. This increase was primarily due to increased debt outstanding.

Consolidated income tax expense for the nine months ended September 30, 2009 was $7.9 million as compared with $26.8 million in the same period of 2008. The effective tax rate for the nine months ended September 30, 2009 was 14.1% as compared with 36.6% for the same period of 2008. These effective tax rates differ from the federal tax rate of 35% primarily due to the effects of tax credits, state income taxes, utility rate-making, and other permanent book-to-tax differences. The effective tax rate for the nine months ended September 30, 2009 was significantly impacted by a change in tax accounting method related to repair costs as discussed above. We expect the effective tax rate for the year ended December 31, 2009 to be approximately 20.0%.

Consolidated net income for the nine months ended September 30, 2009 was $47.8 million as compared with $46.3 million for the same period of 2008. The increase was primarily due to lower income tax expense, offset by lower operating income and higher interest expense as discussed above.

 
 
35
 

REGULATED ELECTRIC SEGMENT
 
Three Months Ended September 30, 2009 Compared with the Three Months Ended September 30, 2008

 
   
Results
 
   
2009
 
2008
 
Change
 
% Change
 
   
(in millions)
 
Retail revenue
 
$
163.3
 
$
191.2
 
$
(27.9
)
(14.6
)%
Transmission
 
11.2
 
12.9
 
(1.7
)
(13.2
)
Wholesale
 
11.1
 
2.3
 
8.8
 
382.6
 
Regulatory Amortization and Other
 
13.1
 
1.6
 
11.5
 
718.8
 
Total Revenues
 
198.7
 
208.0
 
(9.3
)
(4.5
)
Total Cost of Sales
 
92.6
 
113.3
 
(20.7
)
(18.3
)
Gross Margin
 
$
106.1
 
$
94.7
 
$
11.4
 
12.0
%

   
Revenues
 
Megawatt Hours (MWH)
 
Avg. Customer Counts
 
   
2009
 
2008
 
2009
 
2008
 
2009
 
2008
 
   
(in thousands)
         
Retail Electric
                         
      Montana
 
$
49,248
 
$
58,008
 
515
 
532
 
267,382
 
265,258
 
      South Dakota
 
10,776
 
11,984
 
122
 
130
 
48,256
 
47,947
 
    Residential  
 
60,024
 
69,992
 
637
 
662
 
315,638
 
313,205
 
      Montana
 
70,030
 
80,770
 
828
 
853
 
60,602
 
59,817
 
      South Dakota
 
16,539
 
18,148
 
230
 
237
 
11,792
 
11,605
 
   Commercial
 
86,569
 
98,918
 
1,058
 
1,090
 
72,394
 
71,422
 
      Industrial
 
8,079
 
11,914
 
717
 
786
 
71
 
71
 
      Other
 
8,592
 
10,411
 
75
 
88
 
7,728
 
7,640
 
Total Retail Electric
 
$
163,264
 
$
191,235
 
2,487
 
2,626
 
395,831
 
392,338
 
Wholesale Electric
                         
      Montana
 
$
9,464
 
$
—
 
126
 
—
 
N/A
 
N/A
 
      South Dakota
 
1,636
 
2,268
 
64
 
71
 
N/A
 
N/A
 
Total Wholesale Electric
 
$
11,100
 
$
2,268
 
190
 
71
 
N/A
 
N/A
 

   
2009 as compared to:
 
Cooling Degree-Days
 
2008
 
Historic Average
 
Montana
 
5% colder
 
10% warmer
 
South Dakota
 
30% colder
 
37% colder
 

The following summarizes the components of the changes in regulated electric margin for the three months ended September 30, 2009 and 2008:

   
Gross Margin
 
 
 
2009 vs. 2008
 
   
(in millions)
 
Transfer of interest in Colstrip Unit 4 to regulated electric
 
$
17.8
 
Retail volumes
 
(2.6
)
Transmission capacity
 
(1.7
)
South Dakota wholesale
 
(0.7
)
QF supply costs
 
(0.7
)
Other
 
(0.7
)
Improvement in Regulated Electric Gross Margin
   
11.4
 
Reduction in Unregulated Electric Gross Margin
   
(24.3
)
Net Decline in Electric Gross Margin
 
$
(12.9
)
 

 
36
 
 
The net decline in gross margin is due to the combination of decreased retail volumes as a result of cooler summer weather and lower usage per customer, lower South Dakota wholesale margin due to lower sales at lower average prices, lower transmission capacity revenues with less demand to transmit energy for others across our lines, and higher QF related supply costs based on actual QF pricing and output. In addition, average electric supply prices decreased resulting in decreased retail revenues and cost of sales in 2009 as compared with 2008, with no impact to gross margin. Regulatory amortization increased due to changes in our electric supply and property tax trackers. These amortizations are reflected as reduced rates in retail revenue; therefore they have no impact on gross margin.

This decline in gross margin was offset in part by the transfer of Colstrip Unit 4 to the regulated utility. Prior to the transfer of Colstrip Unit 4, all of our Montana electric supply costs were based on power purchase agreements, which are passed through to customers at actual cost with no return component. Revenues from the sales of the output of this plant were reflected in our unregulated electric segment through December 31, 2008, which impacts the comparability of the results of our regulated electric segment. The absence of gross margin from our unregulated electric segment reduced gross margin by approximately $24.3 million as compared with the same period in 2008, which included a $10.2 million unrealized gain on forward contracts. The 2008 unrealized gain was due to changes in forward prices of electricity. In addition, we are continuing to fulfill a prior third party power purchase agreement, which is reflected as an increase in Montana wholesale revenues and volumes above.

We are currently experiencing an unplanned outage at Colstrip Unit 4 for a rotor repair. We expect Colstrip Unit 4 to return to service early in the fourth quarter of 2009. We do not expect this to have an impact on our electric margin as replacement power is included in our supply tracking mechanism, and the remaining power purchase agreement for the output of this plant is unit-contingent, therefore we are not required to procure supply to fulfill this obligation.

Regulated wholesale electric volumes increased due to the 2009 transfer of Colstrip Unit 4 to the regulated utility discussed above. The increase in regulated wholesale electric volumes was offset in part by a decrease in South Dakota wholesale volumes from lower plant availability related to scheduled maintenance. We expect wholesale volumes for Montana to be reduced into the fourth quarter of 2009 due to the outage at Colstrip Unit 4.


 
37
 

Nine Months Ended September 30, 2009 Compared with the Nine Months Ended September 30, 2008

 
   
Results
 
   
2009
 
2008
 
Change
 
% Change
 
   
(in millions)
 
Retail revenue
 
$
494.8
 
$
538.6
 
$
(43.8
)
(8.1
)%
Transmission
 
33.5
 
36.8
 
(3.3
)
(9.0
)
Wholesale
 
32.8
 
8.1
 
24.7
 
304.9
 
Regulatory Amortization and Other
 
19.0
 
0.1
 
18.9
 
18900.0
 
Total Revenues
 
580.1
 
583.6
 
(3.5
)
(0.6
)
Total Cost of Sales
 
258.9
 
303.5
 
(44.6
)
(14.7
)
Gross Margin
 
$
321.2
 
$
280.1
 
$
41.1
 
14.7
%

   
Revenues
 
MWHs
 
Avg. Customer Counts
 
   
2009
 
2008
 
2009
 
2008
 
2009
 
2008
 
   
(in thousands)
         
Retail Electric
                         
      Montana
 
$
162,708
 
$
178,571
 
1,682
 
1,699
 
268,337
 
265,727
 
      South Dakota
 
33,818
 
34,417
 
402
 
394
 
48,211
 
47,912
 
    Residential  
 
196,526
 
212,988
 
2,084
 
2,093
 
316,548
 
313,639
 
      Montana
 
203,324
 
220,209
 
2,373
 
2,408
 
60,374
 
59,471
 
      South Dakota
 
47,960
 
49,208
 
660
 
658
 
11,656
 
11,486
 
   Commercial
 
251,284
 
269,417
 
3,033
 
3,066
 
72,030
 
70,957
 
      Industrial
 
27,292
 
35,026
 
2,183
 
2,320
 
72
 
71
 
      Other
 
19,743
 
21,129
 
148
 
151
 
6,070
 
5,951
 
Total Retail Electric
 
$
494,845
 
$
538,560
 
7,448
 
7,630
 
394,720
 
390,618
 
Wholesale Electric
                         
      Montana
 
$
28,355
 
$
—
 
426
 
—
 
N/A
 
N/A
 
      South Dakota
 
4,429
 
8,115
 
161
 
202
 
N/A
 
N/A
 
Wholesale Electric
 
$
32,784
 
$
8,115
 
587
 
202
 
N/A
 
N/A
 

   
2009 as compared to:
 
Cooling Degree-Days
 
2008
 
Historic Average
 
Montana
 
6% colder
 
5% colder
 
South Dakota
 
24% colder
 
37% colder
 

The net decline in electric margin and the change in volumes are primarily due to the same reasons discussed above for the three months ended September 30, 2009 and are summarized for the nine months ended September 30, 2009 as compared with 2008 as follows:

   
Gross Margin
 
 
 
2009 vs. 2008
 
   
(in millions)
 
Transfer of interest in Colstrip Unit 4 to regulated electric
 
$
52.9
 
South Dakota wholesale
 
(3.5
)
Transmission capacity
 
(3.3
)
Retail volumes
 
(2.4
)
QF supply costs
 
(1.1
)
Other
 
(1.5
)
Improvement in Regulated Electric Gross Margin
   
41.1
 
Reduction in Unregulated Electric Gross Margin
   
(42.6
)
Net Decline in Electric Gross Margin
 
$
(1.5
)


 
38
 
 
REGULATED NATURAL GAS SEGMENT

Three Months Ended September 30, 2009 Compared with the Three Months Ended September 30, 2008

   
Results
 
   
2009
 
2008
 
Change
 
% Change
 
   
(in millions)
 
Retail revenue
 
$
23.0
 
$
37.5
 
$
(14.5
)
(38.7
)%
Wholesale and other
 
11.2
 
8.1
 
3.1
 
38.3
 
Total Revenues
 
34.2
 
45.6
 
(11.4
)
(25.0
)
Total Cost of Sales
 
12.3
 
22.8
 
(10.5
)
(46.1
)
Gross Margin
 
$
21.9
 
$
22.8
 
$
(0.9
)
(3.9
)%

   
Revenues
 
Dekatherms (Dkt)
 
Customer Counts
 
   
2009
 
2008
 
2009
 
2008
 
2009
 
2008
 
   
(in thousands)
         
Retail Gas
                         
      Montana
 
$
10,259
 
$
16,189
 
822
 
941
 
155,546
 
154,403
 
      South Dakota
 
1,698
 
2,496
 
124
 
126
 
36,353
 
36,169
 
      Nebraska
 
1,973
 
2,922
 
164
 
160
 
36,008
 
35,960
 
   Residential
 
13,930
 
21,607
 
1,110
 
1,227
 
227,907
 
226,532
 
      Montana
 
5,987
 
9,266
 
527
 
571
 
21,780
 
21,601
 
      South Dakota
 
1,357
 
3,156
 
212
 
246
 
5,749
 
5,684
 
      Nebraska
 
1,560
 
3,127
 
297
 
278
 
4,408
 
4,461
 
   Commercial
 
8,904
 
15,549
 
1,036
 
1,095
 
31,937
 
31,746
 
      Industrial
 
134
 
228
 
12
 
15
 
293
 
301
 
      Other
 
58
 
107
 
5
 
7
 
142
 
140
 
Total Retail Gas
 
$
23,026
 
$
37,491
 
2,163
 
2,344
 
260,279
 
258,719
 

   
2009 as compared with:
 
Heating Degree-Days
 
2008
 
Historic Average
 
Montana
 
34% warmer
 
35% warmer
 
South Dakota
 
10% colder
 
4% colder
 
Nebraska
 
2% colder
 
6% colder
 

Gross margin decreased $0.9 million during the three months ended September 30, 2009 as compared with 2008 due to lower average usage per customer. Due to the seasonality of our business, natural gas volumes during the third quarter are impacted to a lesser extent by changes in weather. Heating degree-days reflect activity during the month of September. Our wholesale and other revenues are largely gross margin neutral as they are offset by changes in cost of sales. In addition, average natural gas supply prices decreased, resulting in decreased retail revenues and cost of sales in 2009 as compared with 2008, with no impact to gross margin.


 
39
 

Nine Months Ended September 30, 2009 Compared with the Nine Months Ended September 30, 2008

   
Results
 
   
2009
 
2008
 
Change
 
% Change
 
   
(in millions)
 
Retail revenue
 
$
217.9
 
$
267.9
 
$
(50.0
)
(18.7
)%
Wholesale and other
 
36.4
 
29.9
 
6.5
 
21.7
 
Total Revenues
 
254.3
 
297.8
 
(43.5
)
(14.6
)
Total Cost of Sales
 
154.1
 
194.0
 
(39.9
)
(20.6
)
Gross Margin
 
$
100.2
 
$
103.8
 
$
(3.6
)
(3.5
)%

   
Revenues
 
Dkt
 
Customer Counts
 
   
2009
 
2008
 
2009
 
2008
 
2009
 
2008
 
   
(in thousands)
         
Retail Gas
                         
      Montana
 
$
86.934
 
$
110,886
 
8,338
 
9,033
 
156,662
 
155,236
 
      South Dakota
 
26,132
 
29,284
 
2,251
 
2,322
 
36,676
 
36,527
 
      Nebraska
 
22,432
 
25,068
 
1,981
 
2,091
 
36,360
 
36,397
 
   Residential
 
135,498
 
165,238
 
12,570
 
13,446
 
229,698
 
228,160
 
      Montana
 
44,401
 
56,202
 
4,311
 
4,563
 
21,945
 
21,685
 
      South Dakota
 
19,984
 
23,333
 
2,282
 
2,166
 
5,810
 
5,761
 
      Nebraska
 
16,152
 
20,384
 
2,094
 
2,157
 
4,496
 
4,524
 
   Commercial
 
80,537
 
99,919
 
8,687
 
8,886
 
32,251
 
31,970
 
      Industrial
 
1,149
 
1,765
 
114
 
150
 
296
 
304
 
      Other
 
727
 
950
 
79
 
89
 
142
 
140
 
Total Retail Gas
 
$
217,911
 
$
267,872
 
21,450
 
22,571
 
262,387
 
260,574
 

   
2009 as compared with:
 
Heating Degree-Days
 
2008
 
Historic Average
 
Montana
 
8% warmer
 
5% warmer
 
South Dakota
 
Remained flat
 
5% colder
 
Nebraska
 
7% warmer
 
2% warmer
 

The following summarizes the components of the changes in regulated natural gas margin for the nine months ended September 30, 2009 and 2008:
 
 
   
Gross Margin
 
   
2009 vs. 2008
 
   
(in millions)
 
Warmer winter weather
 
$
(2.4
)
Other
 
(1.2
)
Reduction in Gross Margin
 
$
(3.6
)

The decline in margin and volumes is primarily due to warmer winter weather in Montana and Nebraska. Our wholesale and other revenues are largely gross margin neutral as they are offset by changes in cost of sales.
 

 
40
 

LIQUIDITY AND CAPITAL RESOURCES

We utilize our revolver availability to manage our cash flows due to the seasonality of our business, and utilize any cash on hand in excess of current operating requirements to invest in our business and reduce borrowings. As of September 30 , 2009 , our total net liquidity was approximately $226.9 million, including $6.0 million of cash and $220.9 million of revolving credit facility availability. Revolver availability was $246.9 million as of October 23, 2009.

Factors Impacting our Liquidity

Financing Transactions - In March 2009, we received net proceeds of approximately $249.8 million from the issuance of Montana First Mortgage Bonds at a fixed interest rate of 6.34% maturing April 1, 2019. We used the proceeds to redeem our $100 million Colstrip Lease Holdings LLC term loan, repay outstanding borrowings on our revolving credit facility, repay other outstanding debt obligations of $31.7 million related to Colstrip Unit 4, fund a portion of the costs of the Mill Creek generation project, and fund future capital expenditures.

On June 30, 2009, we amended and restated our unsecured revolving line of credit scheduled to expire on November 1, 2009. The amended facility extends the term to June 30, 2012, and increases the aggregate principal amount available under the facility by $50 million to $250 million. The amended facility does not amortize and borrowings will bear interest based on a credit ratings grid. The ‘spread’ or ‘margin’ ranges from 2.25% to 4.0% over the London Interbank Offered Rate (LIBOR). On the closing date of the agreement, the applicable spread was 3.0%. A total of nine banks participate in the new facility, with no one bank providing more than 14.0% of the total availability. The amended facility contains covenants substantially similar to the previous facility.

Supply Costs - Our operations are subject to seasonal fluctuations in cash flow. During the heating season, which is primarily from November through March, cash receipts from natural gas sales and transportation services typically exceed cash requirements. During the summer months, cash on hand, together with the seasonal increase in cash flows and utilization of our existing revolver, are used to purchase natural gas to place in storage, perform maintenance and make capital improvements.

The effect of this seasonality on our liquidity is also impacted by changes in the market prices of our electric and natural gas supply, which is recovered through various monthly cost tracking mechanisms. These energy supply tracking mechanisms are designed to provide stable and timely recovery of supply costs on a monthly basis during the July to June annual tracking period, with an adjustment in the following annual tracking period to correct for any under or over collection in our monthly trackers. Due to the lag between our purchases of electric and natural gas commodities and revenue receipt from customers, cyclical over and under collection situations arise consistent with the seasonal fluctuations discussed above; therefore we usually under collect in the fall and winter and over collect in the spring. Fluctuations in recoveries under our cost tracking mechanisms can have a significant effect on cash flow from operations and make year-to-year comparisons difficult.

As of September 30, 2009, we are over collected on our current Montana natural gas and electric trackers by approximately $4.8 million, as compared with an under collection of $10.5 million as of December 31, 2008, and an under collection of $11.3 million as of September 30, 2008. This over collection is primarily due to the volatility of commodity prices.

Pension Plan Contributions – During the nine months ended September 30, 2009, we made contributions of $76.4 million to our qualified pension plans. Based on the expected funded status of our plans and our available liquidity, we anticipate making additional contributions to our qualified pension plans during 2009 of approximately $16.5 million. These contributions are in addition to our minimum funding requirements for 2009, but will improve the funded status of our plans and reduce 2010 contribution requirements.


 
41
 

Credit Ratings

Fitch Investors Service (Fitch), Moody’s and Standard and Poor’s Rating Group (S&P) are independent credit-rating agencies that rate our debt securities. These ratings indicate the agencies’ assessment of our ability to pay interest and principal when due on our debt. As of October 23, 2009, our current ratings with these agencies are as follows:
 
   
Senior Secured Rating
 
Senior Unsecured Rating
 
Outlook
Fitch
 
BBB+
 
BBB
 
Stable
Moody’s (1)
 
A3
 
Baa2
 
Positive
S&P
 
A- (MT)
BBB+ (SD)
 
BBB
 
Stable
             
 
(1)
Moody’s upgraded our senior secured credit rating on August 3, 2009, from Baa1, as reflected above.

In general, less favorable credit ratings make debt financing more costly and more difficult to obtain on terms that are economically favorable to us and impacts our trade credit availability. A security rating is not a recommendation to buy, sell or hold securities. Such rating may be subject to revision or withdrawal at any time by the credit rating agency and each rating should be evaluated independently of any other rating.

Cash Flows

The following table summarizes our consolidated cash flows (in millions):

   
Nine Months Ended September 30,
 
   
2009
 
2008
 
Operating Activities
         
Net income
 
$
47.8
 
$
46.3
 
Non-cash adjustments to net income
 
95.4
 
92.6
 
Changes in working capital
 
39.2
 
60.1
 
Other
 
(53.1
)
(22.3
)
   
129.3
 
176.7
 
           
Investing Activities
         
Property, plant and equipment additions
 
(115.8
)
(81.0
)
Sale of assets
 
0.3
 
0.1
 
   
(115.5
)
(80.9
)
           
Financing Activities
         
Net borrowing of debt
 
28.0
 
18.0
 
Dividends on common stock
 
(36.1
)
(38.0
)
Treasury stock activity
 
(0.6
)
(78.6
)
Other
 
(10.4
)
(1.4
)
   
(19.1
)
(100.0
)
           
Net Decrease in Cash and Cash Equivalents
 
$
(5.3
)
$
(4.2
)
Cash and Cash Equivalents, beginning of period
 
$
11.3
 
$
12.8
 
Cash and Cash Equivalents, end of period
 
$
6.0
 
$
8.6
 


 
42
 

Cash Provided by Operating Activities

As of September 30, 2009, cash and cash equivalents were $6.0 million as compared with $11.3 million at December 31, 2008 and $8.6 million at September 30, 2008. Cash provided by operating activities totaled $129.3 million for the nine months ended September 30, 2009 as compared with $176.7 million during the nine months ended September 30, 2008. This decrease in operating cash flows is primarily related to pension funding of $76.4 million, which was an increase of approximately $54.5 million as compared with the nine months ended September 30, 2008, and a $10.8 million prepayment of a power purchase agreement, offset by lower commodity prices reflected in the change in accounts receivable and accounts payable, as well as decreased cash outflows for natural gas storage injections.

Cash Used in Investing Activities

Cash used in investing activities for the nine months ended September 30, 2009, increased by approximately $34.6 million as compared with the same period in 2008 due to increased property, plant and equipment additions.

Cash Used in Financing Activities

Cash used in financing activities totaled approximately $19.1 million during the nine months ended September 30, 2009 as compared with $100.0 million during the nine months ended September 30, 2008. During the nine months ended September 30, 2009 we received net proceeds from the issuance of debt of $249.8 million, made net debt repayments of $221.8 million, paid deferred financing costs of $10.4 million and paid dividends on common stock of $36.1 million. During the nine months ended September 30, 2008 we had net borrowings of $18.0 million, paid dividends on common stock of $38.0 million and used cash to repurchase shares under a previously approved plan of approximately $77.7 million.

Sources and Uses of Funds

We require liquidity to support and grow our business and use our liquidity for working capital needs, capital expenditures, investments in or acquisitions of assets, to repay debt and, from time to time, to repurchase common stock. We anticipate that our ongoing liquidity requirements will be satisfied through a combination of operating cash flows, borrowings, and as necessary, the issuance of debt or equity securities, consistent with our objective of maintaining a capital structure that will support a strong investment grade credit rating on a long-term basis. The amount of capital expenditures and dividends are subject to certain factors including the use of existing cash, cash equivalents and the receipt of cash from operations. A material adverse change in operations or available financing could impact our ability to fund our current liquidity and capital resource requirements, and we may defer capital expenditures as necessary.

We estimate capital spending for the Mill Creek generating station project under construction will be between $80 and $100 million in 2009. We have capitalized approximately $39.0 million during the nine months ended September 30, 2009. In addition to the financing transactions discussed above, we completed the issuance of $55 million of Montana First Mortgage Bonds in October 2009 to finance a portion of this project and / or other capital expenditures.
 

 
43
 

Contractual Obligations and Other Commitments

We have a variety of contractual obligations and other commitments that require payment of cash at certain specified periods. The following table summarizes our contractual cash obligations and commitments as of September 30, 2009. See our Annual Report on Form 10-K for the year ended December 31, 2008 for additional discussion.

   
Total
 
2009
 
2010
 
2011
 
2012
 
2013
 
Thereafter
   
(in thousands)
Long-term Debt
 
$
890,403
 
$
—
 
$
6,123
 
$
6,578
 
$
27,792
 
$
—
 
$
849,910
Capital Leases
 
37,069
 
293
 
1,203
 
1,284
 
1,372
 
1,468
 
31,449
Future minimum operating lease payments
 
3,887
 
458
 
1,439
 
996
 
614
 
74
 
306
Estimated Pension and Other Postretirement Obligations (1)
 
104,225
 
17,425
 
21,700
 
21,700
 
21,700
 
21,700
 
N/A
Qualifying Facilities (2)
 
1,413,246
 
15,650
 
63,589
 
65,323
 
67,111
 
69,816
 
1,131,757
Supply and Capacity Contracts (3)
 
1,529,007
 
116,452
 
337,037
 
175,917
 
162,302
 
150,244
 
587,055
Contractual interest payments on debt (4)
 
437,645
 
14,929
 
51,076
 
50,689
 
49,882
 
49,371
 
221,698
Total Commitments (5)
 
$
4,415,482
 
$
165,207
 
$
482,167
 
$
322,487
 
$
330,773
 
$
292,673
 
$
2,822,175

(1)           We have only estimated cash obligations related to our pension and other postretirement benefit programs for five years, as it is not practicable to estimate thereafter.
(2)           The QFs require us to purchase minimum amounts of energy at prices ranging from $65 to $138 per megawatt hour through 2032. Our estimated gross contractual obligation related to the QFs is approximately $1.4 billion. A portion of the costs incurred to purchase this energy is recoverable through rates authorized by the MPSC, totaling approximately $1.1 billion.
(3)           We have entered into various purchase commitments, largely purchased power, coal and natural gas supply and natural gas transportation contracts. These commitments range from one to 19 years.
(4)           Contractual interest payments include an assumed average interest rate of 3.25% on an estimated revolving line of credit balance of $24.0 million through maturity in June 2012.
(5)           Potential tax payments related to uncertain tax positions are not practicable to estimate and have been excluded from this table.

 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
Management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that are believed to be proper and reasonable under the circumstances.

As of September 30, 2009, there have been no significant changes with regard to the critical accounting policies disclosed in Management’s Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2008. The policies disclosed included the accounting for the following: goodwill and long-lived assets, QF liability, revenue recognition, regulatory assets and liabilities, pension and postretirement benefit plans, and income taxes. We continually evaluate the appropriateness of our estimates and assumptions. Actual results could differ from those estimates.


 
44
 

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
We are exposed to market risks, including, but not limited to, interest rates, energy commodity price volatility, and credit exposure. Management has established comprehensive risk management policies and procedures to manage these market risks.
 
Interest Rate Risk

We utilize various risk management instruments to reduce our exposure to market interest rate changes. These risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financings. All of our debt has fixed interest rates, with the exception of our revolving credit facility. The revolving credit facility bears interest at the lower of prime or available rates tied to the London Interbank Offered Rate (LIBOR) plus a credit spread, ranging from 2.25% to 4.0% over LIBOR. As of September 30, 2009, the applicable spread was 3.0%, resulting in a borrowing rate of 3.25%. Based upon amounts outstanding as of September 30, 2009, a 1% increase in the LIBOR would increase our annual interest expense by approximately $0.2 million.

Commodity Price Risk

Commodity price risk is a significant risk due to our lack of ownership of natural gas reserves and minimal ownership of regulated electric generation assets within the Montana market. Several factors influence price levels and volatility. These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation availability and reliability within and between regions, fuel availability, market liquidity, and the nature and extent of current and potential federal and state regulations.

As part of our overall strategy for fulfilling our regulated electric supply requirements, we employ the use of market purchases, including forward purchase and sales contracts. These types of contracts are included in our electric and natural gas supply portfolios and are used to manage price volatility risk by taking advantage of seasonal fluctuations in market prices. While we may incur gains or losses on individual contracts, the overall portfolio approach is intended to provide price stability for consumers; therefore, these commodity costs are included in our cost tracking mechanisms.

Our “other” segment includes a pipeline capacity contract through October 2013 that was primarily used to serve natural gas supply to one customer. During the second quarter of 2009, this customer terminated their natural gas supply contract with us during their bankruptcy proceedings. As a result of the supply contract termination, we have excess capacity. We recognized a $1.5 million loss during the nine months ended September 30, 2009 based on our release of the excess capacity through October 2010 and our estimate of the market value for the excess capacity during the remaining term. Our remaining maximum exposure is approximately $0.9 million related to this contract. We have no other remaining capacity contracts outside of our regulated utility operations.

Counterparty Credit Risk

We are exposed to counterparty credit risk related to the ability of our counterparties to meet their contractual payment obligations, and the potential non-performance of counterparties to deliver contracted commodities or services at the contracted price. We have risk management policies in place to limit our transactions to high quality counterparties, and continue to monitor closely the status of our counterparties, and will take action, as appropriate, to further manage this risk. This includes, but is not limited to, requiring letters of credit or prepayment terms. There can be no assurance, however, that the management tools we employ will eliminate the risk of loss.

 
 
45
 

ITEM 4.   CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and accumulated and reported to management, including the principal executive officer and principal financial officer to allow timely decisions regarding required disclosure.

We conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the three months ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 

 
 
46
 

PART II.   OTHER INFORMATION
 
ITEM 1.                      LEGAL PROCEEDINGS
 
See Note 14, Commitments and Contingencies, to the Condensed Consolidated Financial Statements for information about legal proceedings.
 
 
 
ITEM 1A.                      RISK FACTORS
 
You should carefully consider the risk factors described below, as well as all other information available to you, before making an investment in our common stock or other securities.

Economic conditions and instability in the financial markets could negatively impact our business.

Our operations are impacted by local, national and worldwide economic conditions. The consequences of a prolonged recession may include a lower level of economic activity and uncertainty regarding energy prices and the capital and commodity markets. A lower level of economic activity may result in a decline in energy consumption and a decrease in customers’ ability to pay their accounts, which may adversely affect our liquidity, results of operations and future growth. While our territories have been less impacted than other parts of the country, during 2009 we have experienced declines in electric and natural gas usage per customer and lower electric transmission sales, due in part to the recession.

Access to the capital and credit markets, at a reasonable cost, is necessary for us to fund our operations, including capital requirements. We rely on a revolving credit facility for short-term liquidity needs due to the seasonality of our business, and on capital markets to raise capital for growth projects that are not otherwise provided by operating cash flows. Continued instability in the financial markets may increase the cost of capital, limit our ability to draw on our revolving credit facility and/or raise capital. If we are unable to obtain the liquidity needed to meet our business requirements on favorable terms, we may defer growth projects and/or capital expenditures.

We are subject to extensive governmental laws and regulations that affect our industry and our operations, which could have a material adverse effect on our liquidity and results of operations.

We are subject to regulation by federal and state governmental entities, including the Federal Energy Regulatory Commission, MPSC, South Dakota Public Utilities Commission and Nebraska Public Service Commission. Regulations can affect allowed rates of return, recovery of costs and operating requirements. For example, in our 2008 proceeding related to Colstrip Unit 4, the MPSC approved a 10% return on equity and 6.5% cost of debt for the expected 34-year life of the plant. In addition, existing regulations may be revised or reinterpreted, new laws, regulations, and interpretations thereof may be adopted or become applicable to us and future changes in laws and regulations may have a detrimental effect on our business.

Our rates are approved by our respective commissions and are effective until new rates are approved. The outcome of our Montana electric and natural gas rate case filed in 2009 could have a significant impact on our liquidity and results of operations. In addition, supply costs are recovered through adjustment charges that are periodically reset to reflect current and projected costs. Inability to recover costs in rates or adjustment clauses could have a material adverse effect on our liquidity and results of operations.

We are also subject to the jurisdiction of FERC with regard to electric system reliability standards. We must comply with the standards and requirements established, which apply to the NERC functions for which we have registered in both the Midwest Reliability Organization for our South Dakota operations and the WECC for our Montana operations. To the extent we are deemed to not be compliant with these standards, we could be subject to fines or penalties.


 
47
 

We are subject to extensive environmental laws and regulations and potential environmental liabilities, which could result in significant costs and liabilities.

We are subject to extensive laws and regulations imposed by federal, state, and local government authorities in the ordinary course of operations with regard to the environment, including environmental laws and regulations relating to air and water quality, solid waste disposal, and other environmental considerations. We believe that we are in substantial compliance with environmental regulatory requirements and that maintaining compliance with current requirements will not materially affect our financial position or results of operations; however, possible future developments, including the promulgation of more stringent environmental laws and regulations, such as the new mercury emissions rules in Montana, and the timing of future enforcement proceedings that may be taken by environmental authorities could affect the costs and the manner in which we conduct our business and could require us to make substantial additional capital expenditures.

In addition to the requirements related to the mercury emissions rules noted above, there is a growing concern nationally and internationally about global climate change and the contribution of emissions of greenhouse gases including, most significantly, carbon dioxide. This concern has led to increased interest in legislation at the federal level, actions at the state level, as well as litigation relating to greenhouse emissions, including a U.S. Supreme Court decision holding that the EPA relied on improper factors in deciding not to regulate carbon dioxide emissions from motor vehicles under the Clean Air Act and two federal courts of appeal have reinstated nuisance claims against emitters of carbon dioxide, including several utility companies, alleging that such emissions contribute to global warming. Increased pressure for carbon dioxide emissions reduction also is coming from investor organizations. If legislation or regulations are passed at the federal or state levels imposing mandatory reductions of carbon dioxide and other greenhouse gases on generation facilities, the cost to us of such reductions could be significant.

Many of these environmental laws and regulations create permit and license requirements and provide for substantial civil and criminal fines which, if imposed, could result in material costs or liabilities. We cannot predict with certainty the occurrence of private tort allegations or government claims for damages associated with specific environmental conditions. We may be required to make significant expenditures in connection with the investigation and remediation of alleged or actual spills, personal injury or property damage claims, and the repair, upgrade or expansion of our facilities to meet future requirements and obligations under environmental laws.

To the extent that our environmental liabilities are greater than our reserves or we are unsuccessful in recovering anticipated insurance proceeds under the relevant policies or recovering a material portion of remediation costs in our rates, our results of operations and financial position could be adversely affected.

To the extent our incurred supply costs are deemed imprudent by the applicable state regulatory commissions, we would under recover our costs, which could adversely impact our results of operations and liquidity.

Our wholesale costs for electricity and natural gas are recovered through various pass-through cost tracking mechanisms in each of the states we serve. The rates are established based upon projected market prices or contract obligations. As these variables change, we adjust our rates through our monthly trackers. To the extent our energy supply costs are deemed imprudent by the applicable state regulatory commissions, we would under recover our costs, which could adversely impact our results of operations.

We are required to procure our entire natural gas supply and a large portion of our Montana electric supply pursuant to contracts with third-party suppliers. In light of this reliance on third-party suppliers, we are exposed to certain risks in the event a third-party supplier is unable to satisfy its contractual obligation. If this occurred, then we might be required to purchase gas and/or electricity supply requirements in the energy markets, which may not be on commercially reasonable terms, if at all. If prices were higher in the energy markets, it could result in a temporary material under recovery that would reduce our liquidity.

Poor investment performance of plan assets of our defined benefit pension and post-retirement benefit plans, in addition to other factors impacting these costs, could unfavorably impact our results of operations and liquidity.
 

 
48
 
 
We have two defined benefit pension plans that cover substantially all of our employees, and a post-retirement medical plan for our Montana employees. The costs of providing these plans are dependent upon a number of factors, including rate of return on plan assets, discount rates, other actuarial assumptions, and government regulation. While we have complied with the minimum funding requirements, our obligations for these plans exceed the value of plan assets. In addition, the Pension Protection Act of 2006 changed the minimum funding requirements for defined benefit pension plans beginning in 2008. During 2008, we experienced plan asset losses in excess of 30%. Without sustained growth in the plan assets over time and depending upon the other factors noted above, we could be required to fund our plans with significant amounts of cash. Such cash funding obligations may change significantly from projections, and could have a material impact on our liquidity and results of operations.

Our plans for future expansion through transmission grid expansion, the construction of power generation facilities and capital improvements to current assets involve substantial risks. Failure to adequately execute and manage significant construction plans, as well as the risk of recovering such costs, could materially impact our results of operations and liquidity.

We have proposed capital investment projects in excess of $1 billion. The completion of these projects, which are primarily investments in electric transmission projects and electric generation projects, is subject to many construction and development risks, including, but not limited to, risks related to financing, regulatory recovery, obtaining and complying with terms of permits, escalating costs of materials and labor, meeting construction budgets and schedules, and environmental compliance. In addition, there are projects proposed by other parties that may result in direct competition to our proposed transmission expansion. Should our efforts be unsuccessful, we could be subject to additional costs, termination payments under committed contracts, and/or the write-off of investments in these projects. We have capitalized approximately $9.7 million of costs associated with these projects as of September 30, 2009.

Our obligation to include a minimum annual quantity of power in our Montana electric supply portfolio at an agreed upon price per MWh could expose us to material commodity price risk if certain QFs under contract with us do not perform during a time of high commodity prices, as we are required to supply any quantity deficiency. In addition, we are subject to price escalation risk with one of our largest QF contracts.

As part of the Stipulation and Settlement with the MPSC and other parties in the Tier II Docket, we agreed to include a minimum annual quantity of power in our Montana electric supply portfolio at an agreed upon price per MWh. The annual minimum energy requirement is achievable under normal QF operations, including normal periods of planned and forced outages. Furthermore, we will not realize commodity price risk unless any required replacement energy cost is in excess of the total amount recovered under the QF contracts.

However, to the extent the supplied QF power for any year does not reach the minimum quantity set forth in the settlement, we are obligated to secure the quantity deficiency from other sources. The anticipated source for any quantity deficiency is the wholesale market which, in turn, would subject us to commodity price volatility.

In addition, we are subject to price escalation risk with one of our largest QF contracts due to variable contract terms. In estimating our QF liability, we have estimated an annual escalation rate of 1.9% over the term of the contract (through June 2024). To the extent the annual escalation rate exceeds 1.9%, our results of operations and financial position could be adversely affected.

Our jointly owned electric generating facilities are subject to operational risks that could result in unscheduled plant outages, unanticipated operation and maintenance expenses and increased power purchase costs.

Operation of electric generating facilities involves risks, which can adversely affect energy output and efficiency levels. Most of our generating capacity is coal-fired. We rely on a limited number of suppliers of coal for our regulated generation, making us vulnerable to increased prices for fuel as existing contracts expire or in the event of unanticipated interruptions in fuel supply. We are a captive rail shipper of the Burlington Northern Santa Fe Railway for shipments of coal to the Big Stone Plant (our largest source of generation in South Dakota), making us vulnerable to railroad capacity and operational issues and/or increased prices for coal transportation from a sole supplier. Operational risks also include
 
 
49
 

facility shutdowns due to breakdown or failure of equipment or processes, labor disputes, operator error and catastrophic events such as fires, explosions, floods, and intentional acts of destruction or other similar occurrences affecting the electric generating facilities. The loss of a major regulated generating facility would require us to find other sources of supply, if available, and expose us to higher purchased power costs.

Seasonal and quarterly fluctuations of our business could adversely affect our results of operations and liquidity.

Our electric and natural gas utility business is seasonal, and weather patterns can have a material impact on our financial performance. Demand for electricity and natural gas is often greater in the summer and winter months associated with cooling and heating. Because natural gas is heavily used for residential and commercial heating, the demand for this product depends heavily upon weather patterns throughout our market areas, and a significant amount of natural gas revenues are recognized in the first and fourth quarters related to the heating season. Accordingly, our operations have historically generated less revenues and income when weather conditions are milder in the winter and cooler in the summer. In the event that we experience unusually mild winters or cool summers in the future, our results of operations and financial position could be adversely affected. In addition, exceptionally hot summer weather or unusually cold winter weather could add significantly to working capital needs to fund higher than normal supply purchases to meet customer demand for electricity and natural gas.

We must meet certain credit quality standards. If we are unable to maintain investment grade credit ratings, our liquidity, access to capital and operations could be materially adversely affected.

A downgrade of our credit ratings to less than investment grade could adversely affect our liquidity. Certain of our credit agreements and other credit arrangements with counterparties require us to provide collateral in the form of letters of credit or cash to support our obligations if we fall below investment grade. Also, a downgrade below investment grade could hinder our ability to raise capital on favorable terms and increase our borrowing costs.

Our secured credit ratings are also tied to our ability to invest in unregulated ventures due to an existing stipulation with the MPSC and Montana Consumer Counsel, which establishes diminishing limits for such investment at certain credit rating levels. The stipulation does not limit investment in unregulated ventures so long as we maintain credit ratings on a secured basis of at least BBB+ (S&P) and Baa1 (Moody’s). For a further discussion of how a lack of liquidity and access to adequate capital could affect our operations, please see the Risk Factor above, “Economic conditions and instability in the financial markets could negatively impact our business.”


 
50
 

ITEM 6.                 EXHIBITS
(a)   Exhibits
 
Exhibit 4.1— Twenty-eighth Supplemental Indenture, dated as of October 1, 2009, by and between NorthWestern Corporation and The Bank of New York Mellon, as trustee.
 
Exhibit 10.1— Purchase Agreement, dated September 30, 2009, among NorthWestern Corporation and the initial purchasers named therein (incorporated by reference to Exhibit 10.1 of NorthWestern Corporation’s Current Report on Form 8-K, dated September 30, 2009, Commission File No. 1-10499).
 
Exhibit 10.2— Engineering, Procurement and Construction Agreement, dated July 27, 2009, between NorthWestern Corporation and NewMech Companies, Inc.
 
Exhibit 31.1—Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Exhibit 31.2—Certification of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Exhibit 32.1—Certification of chief executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Exhibit 32.2—Certification of chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 

 
51
 

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 thereunto duly authorized.

   
N orthwestern C orporation
Date: October 29, 2009
By:
/s/ BRIAN B. BIRD
   
Brian B. Bird
   
Chief Financial Officer
   
Duly Authorized Officer and Principal Financial Officer


 
52
 

EXHIBIT INDEX

Exhibit
Number
 
Description
*4.1
 
Twenty-eighth Supplemental Indenture, dated as of October 1, 2009, by and between NorthWestern Corporation and The Bank of New York Mellon, as trustee.
10.1
 
Purchase Agreement, dated September 30, 2009, among NorthWestern Corporation and the initial purchasers named therein (incorporated by reference to Exhibit 10.1 of NorthWestern Corporation’s Current Report on Form 8-K, dated September 30, 2009, Commission File No. 1-10499).
*10.2
 
Engineering, Procurement and Construction Agreement, dated July 27, 2009, between NorthWestern Corporation and NewMech Companies, Inc.
*31.1
 
Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2
 
Certification of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1
 
Certification of chief executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2
 
Certification of chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*
Filed herewith
 

 
53
 

 
 
 

 


 

 

NORTHWESTERN CORPORATION
 
TO
 
THE BANK OF NEW YORK MELLON
(formerly The Bank of New York)
 
AND
 
MING RYAN
 
As Trustees under Mortgage and
 
Deed of Trust, dated as of
 
October 1, 1945, with NorthWestern Corporation
 
TWENTY-EIGHTH SUPPLEMENTAL INDENTURE
 
Providing, among other things, for First Mortgage Bonds, 5.71% Series due 2039
 

 
Dated as of October 1, 2009
 

 

 


 
 
 
 

TWENTY-EIGHTH SUPPLEMENTAL INDENTURE
 
THIS TWENTY-EIGHTH SUPPLEMENTAL INDENTURE, dated as of October 1, 2009, between NORTHWESTERN CORPORATION, a corporation duly incorporated and existing under the laws of the State of Delaware (hereinafter called the “ Company ”), having its principal office at 3010 West 69th Street, Sioux Falls, South Dakota, 57108, and THE BANK OF NEW YORK MELLON (formerly The Bank of New York) (hereinafter called the “ Corporate Trustee ”), a corporation of the State of New York, whose principal corporate trust office is located at 101 Barclay Street, New York, New York, 10286 (successor to MORGAN GUARANTY TRUST COMPANY OF NEW YORK (formerly Guaranty Trust Company of New York)), and MING RYAN, whose post office address is c/o The Bank of New York Mellon, 101 Barclay Street, New York, New York, 10286 (successor to Arthur E. Burke, Karl R. Henrich, H.H. Gould, R. Amundsen, P.J. Crowley, W.T. Cunningham, Douglas J. MacInnes and MaryBeth Lewicki) (said Ming Ryan being hereinafter sometimes called the “ Co-Trustee ”, and the Corporate Trustee and the Co-Trustee being hereinafter together sometimes called the “ Trustees ”), as Trustees under the Mortgage and Deed of Trust, dated as of October 1, 1945 (hereinafter called the “ Mortgage ” and, together with any indentures supplemental thereto, the “ Indenture ”), which Mortgage was executed and delivered by The Montana Power Company, a corporation of the State of New Jersey (hereinafter called the “ Company-New Jersey ”), as indirect predecessor under the Mortgage to the Company (the Company being successor under the Mortgage to NorthWestern Energy, L.L.C. (hereinafter called “ NorthWestern Energy ”), formerly known as The Montana Power, L.L.C., a limited liability company of the State of Montana, and NorthWestern Energy being the successor under the Mortgage to The Montana Power Company, a corporation of the State of Montana (hereinafter called the “ Company-Montana ”)), to Guaranty Trust Company of New York and Arthur E. Burke, as Trustees, to secure the payment of bonds issued or to be issued under and in accordance with the provisions of the Mortgage, reference to which Mortgage is hereby made, this instrument (hereinafter called the “ Twenty-eighth Supplemental Indenture ”) being supplemental thereto;
 
WHEREAS, by the Mortgage, the Company-New Jersey covenanted that it would execute and deliver such supplemental indenture or indentures and such further instruments and do such further acts as might be necessary or proper to carry out more effectually the purposes of the Indenture and to make subject to the lien of the Indenture any property thereafter acquired, made or constructed and intended to be subject to the lien thereof; and
 
WHEREAS, the Company-New Jersey executed and delivered to the Trustees its First Supplemental Indenture, dated as of May 1, 1954 (hereinafter called the “ First Supplemental Indenture ”), and its Second Supplemental Indenture, dated as of April 1, 1959 (hereinafter called the “ Second Supplemental Indenture ”); and
 
WHEREAS, the Company-New Jersey was merged into the Company-Montana on November 30, 1961, and to evidence the succession of the Company-Montana to the Company-New Jersey for purposes of the bonds and the Indenture and the assumption by the Company-Montana of the covenants and conditions of the Company-New Jersey in the bonds and in the Indenture contained and to enable the Company-Montana to have and exercise the powers and rights of the Company-New Jersey under the Indenture in accordance with the terms thereof, the Company-Montana executed and delivered to the Trustees its Third Supplemental Indenture, dated as of November 30, 1961 (hereinafter called the “ Third Supplemental Indenture ”); and
 
 
 
WHEREAS, the Company-Montana executed and delivered to the Trustees its Fourth Supplemental Indenture, dated as of April 1, 1970 (hereinafter called the “ Fourth Supplemental Indenture ”); its Fifth Supplemental Indenture, dated as of April 1, 1971 (hereinafter called the “ Fifth Supplemental Indenture ”); its Sixth Supplemental Indenture, dated as of March 1, 1974 (hereinafter called the “ Sixth Supplemental Indenture ”); its Seventh Supplemental Indenture, dated as of December 1, 1974 (hereinafter called the “ Seventh Supplemental Indenture ”); its Eighth Supplemental Indenture, dated as of July 1, 1975 (hereinafter called the “ Eighth Supplemental Indenture ”); its Ninth Supplemental Indenture, dated as of December 1, 1975 (hereinafter called the “ Ninth Supplemental Indenture ”); its Tenth Supplemental Indenture, dated as of January 1, 1979 (hereinafter called the “ Tenth Supplemental Indenture ”); its Eleventh Supplemental Indenture, dated as of October 1, 1983 (hereinafter called the “ Eleventh Supplemental Indenture ”); its Twelfth Supplemental Indenture, dated as of January 1, 1984 (hereinafter called the “ Twelfth Supplemental Indenture ”); its Thirteenth Supplemental Indenture, dated as of December 1, 1991 (hereinafter called the “ Thirteenth Supplemental Indenture ”); its Fourteenth Supplemental Indenture, dated as of January 1, 1993 (hereinafter called the “ Fourteenth Supplemental Indenture ”); its Fifteenth Supplemental Indenture, dated as of March 1, 1993 (hereinafter called the “ Fifteenth Supplemental Indenture ”); its Sixteenth Supplemental Indenture, dated as of May 1, 1993 (hereinafter called the “ Sixteenth Supplemental Indenture ”); its Seventeenth Supplemental Indenture, dated as of December 1, 1993 (hereinafter called the “ Seventeenth Supplemental Indenture ”); its Eighteenth Supplemental Indenture, dated as of August 5, 1994 (hereinafter called the “ Eighteenth Supplemental Indenture ”); its Nineteenth Supplemental Indenture, dated as of December 16, 1999 (hereinafter called the “ Nineteenth Supplemental Indenture ”); and its Twentieth Supplemental Indenture, dated as of November 1, 2001 (hereinafter called the “ Twentieth Supplemental Indenture ”); and
 
WHEREAS, the Company-Montana was merged into NorthWestern Energy (under its then name, The Montana Power, L.L.C.) on February 13, 2002; and to evidence the succession of NorthWestern Energy (under its then name, The Montana Power, L.L.C.) to the Company-Montana for purposes of the bonds and the Indenture and the assumption by NorthWestern Energy (under its then name, The Montana Power, L.L.C.) of the covenants and conditions of the Company-Montana in the bonds and in the Indenture contained and to enable NorthWestern Energy (under its then name, The Montana Power, L.L.C.) to have and exercise the powers and rights of the Company-Montana under the Indenture in accordance with the terms thereof, NorthWestern Energy (under its then name, The Montana Power, L.L.C.) executed and delivered to the Trustees its Twenty-first Supplemental Indenture, dated as of February 13, 2002 (hereinafter called the “ Twenty-first Supplemental Indenture ”); and
 
WHEREAS, NorthWestern Energy changed its name from The Montana Power, L.L.C. to NorthWestern Energy, L.L.C. on March 19, 2002; and
 
WHEREAS, NorthWestern Energy transferred, subject to the Lien of the Indenture, substantially all of the Mortgaged and Pledged Property as an entirety to the Company on November 20, 2002 (the “ Transfer Date ”), and to evidence the succession of the Company to NorthWestern Energy for purposes of the bonds and the Indenture and the assumption by the Company of the covenants and conditions of NorthWestern Energy in the bonds and in the Indenture contained and to enable the Company to have and exercise the powers and rights of NorthWestern Energy under the Indenture in accordance with the terms thereof, the Company executed and delivered to the Trustees its Twenty-second Supplemental Indenture, dated as of November 15, 2002 (hereinafter called the “ Twenty-second Supplemental Indenture ”); and
 
 
2
 
WHEREAS, the Company executed and delivered to the Trustees its Twenty-third Supplemental Indenture, dated as of February 1, 2003 (hereinafter called the “ Twenty-third Supplemental Indenture ”); its Twenty-fourth Supplemental Indenture, dated as of November 1, 2004 (hereinafter called the “ Twenty-fourth Supplemental Indenture ”); its Twenty-fifth Supplemental Indenture, dated as of April 1, 2006 (hereinafter called the “Twenty-fifth Supplemental Indenture” ); its Twenty-sixth Supplemental Indenture, dated as of September 1, 2006 (hereinafter called the “ Twenty-sixth Supplemental Indenture ”) and its Twenty-seventh Supplemental Indenture, dated as of March 1, 2009 (hereinafter called the “ Twenty-seventh Supplemental Indenture ”); and
 
WHEREAS, the Mortgage and the First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth, Eighteenth, Nineteenth, Twentieth, Twenty-first, Twenty-second, Twenty-third, Twenty-fourth, Twenty-fifth, Twenty-sixth and Twenty-seventh Supplemental Indentures were recorded in the official records of various counties and states as required by the Indenture; and
 
WHEREAS, the Company expects to record this Twenty-eighth Supplemental Indenture in the official records of various counties and states as required by the Indenture;
 
WHEREAS, an instrument dated March 15, 1955 was executed by the Company-New Jersey appointing Karl R. Henrich as Co-Trustee in succession to said Arthur E. Burke, resigned, under the Mortgage and by Karl R. Henrich accepting the appointment as Co-Trustee under the Mortgage in succession to said Arthur E. Burke, which instrument was recorded in various counties in the states of Montana, Idaho and Wyoming; and
 
WHEREAS, an instrument dated June 29, 1962 was executed by the Company-Montana appointing H.H. Gould as Co-Trustee in succession to said Karl R. Henrich, resigned, under the Mortgage and by H.H. Gould accepting the appointment as Co-Trustee under the Mortgage in succession to said Karl R. Henrich, which instrument was recorded in various counties in the states of Montana, Idaho and Wyoming; and
 
WHEREAS, an instrument dated June 22, 1973 was executed by the Company-Montana appointing R. Amundsen as Co-Trustee in succession to said H.H. Gould, resigned, under the Mortgage and by R. Amundsen accepting the appointment as Co-Trustee under the Mortgage in succession to said H.H. Gould, which instrument was recorded in various counties in the states of Montana, Idaho and Wyoming; and
 
WHEREAS, an instrument dated July 1, 1986 was executed by the Company-Montana appointing P.J. Crowley as Co-Trustee in succession to said R. Amundsen, resigned, under the Mortgage and by P.J Crowley accepting the appointment as Co-Trustee under the Mortgage in succession to said R. Amundsen, which instrument was recorded in various counties in the states of Montana, Idaho and Wyoming; and
 
 
3
 
WHEREAS, by the Eighteenth Supplemental Indenture, the Company-Montana appointed (i) W.T. Cunningham as Co-Trustee in succession to said P.J. Crowley, resigned, under the Mortgage and W.T. Cunningham accepted the appointment as Co-Trustee under the Mortgage in succession to said P.J. Crowley, and (ii) The Bank of New York Mellon as Corporate Trustee in succession to Morgan Guaranty Trust Company of New York, resigned, under the Mortgage and The Bank of New York Mellon accepted the appointment as Corporate Trustee under the Mortgage in succession to said Morgan Guaranty Trust Company of New York, which supplemental indenture was recorded in various counties in the states of Montana, Idaho and Wyoming; and
 
WHEREAS, an instrument dated March 29, 1999 was executed by the Company-Montana appointing Douglas J. MacInnes as Co-Trustee in succession to said W.T. Cunningham, resigned, under the Mortgage and by Douglas J. MacInnes accepting the appointment as Co-Trustee under the Mortgage in succession to said W.T. Cunningham, which instrument was recorded in various counties in the states of Montana, Idaho and Wyoming; and
 
WHEREAS, by the Twenty-third Supplemental Indenture, the Company appointed MaryBeth Lewicki as Co-Trustee in succession to said Douglas J. MacInnes, removed, under the Mortgage and MaryBeth Lewicki accepted the appointment as Co-Trustee under the Mortgage in succession to said Douglas J. MacInnes; and
 
WHEREAS, by the Twenty-fifth Supplemental Indenture, the Company appointed Ming Ryan as Co-Trustee in succession to said MaryBeth Lewicki, removed, under the Mortgage and Ming Ryan accepted the appointment as Co-Trustee under the Mortgage in succession to said Mary Beth Lewicki; and
 
WHEREAS, the Company-New Jersey, the Company-Montana or the Company has heretofore issued, in accordance with the provisions of the Mortgage, the following series of First Mortgage Bonds:
 
Series
Principal
Amount
Issued
Principal Amount
Outstanding
2-7/8% Series due 1975                                                                       
$40,000,000
NONE
3-1/8% Series due 1984                                                                       
    6,000,000
NONE
4-1/2% Series due 1989                                                                       
  15,000,000
NONE
8-1/4% Series due 1974                                                                       
  30,000,000
NONE
7-1/2% Series due 2001                                                                       
  25,000,000
NONE
8-5/8% Series due 2004                                                                       
  60,000,000
NONE
8-3/4% Series due 1981                                                                       
  30,000,000
NONE
9.60% Series due 2005                                                                       
  35,000,000
NONE
9.70% Series due 2005                                                                       
  65,000,000
NONE
9-7/8% Series due 2009                                                                       
  50,000,000
NONE
 
 
4
 
11-3/4% Series due 1993                                                                       
  75,000,000
NONE
10/10-1/8% Series due 2004/2014                                                                       
  80,000,000
NONE
8-1/8% Series due 2014                                                                       
  41,200,000
NONE
7.70% Series due 1999                                                                       
  55,000,000
NONE
8-1/4% Series due 2007                                                                       
  55,000,000
NONE
8.95% Series 2022                                                                       
  50,000,000
NONE
Secured Medium-Term Notes                                                                       
  68,000,000
NONE
7% Series due 2005                                                                       
  50,000,000
NONE
6-1/8% Series due 2023                                                                       
  90,205,000
NONE
5.90% Series due 2023                                                                       
  80,000,000
NONE
0% Series due 1999                                                                       
210,321,007
NONE
7.30% Series due 2006                                                                       
150,000,000
NONE
Collateral (2002) Series due 2006                                                                       
280,000,000
NONE
Collateral (2004) Series A due 2009                                                                       
  90,000,000
NONE
Collateral (2004) Series B due 2011                                                                       
  72,000,000
NONE
Collateral (2004) Series C due 2014 (Twenty-sixth)
161,000,000
161,000,000
4.65% Series due 2023 (Twenty-seventh)……….
170,205,000
170,205,000
6.04% Series due 2016 (Twenty-eighth)…………
150,000,000
150,000,000
6.34% Series due 2019 (Twenty-ninth) ………….
250,000,000
250,000,000
 
which bonds are also hereinafter sometimes called “ Bonds of the First through Twenty-ninth Series ”, respectively; and
 
WHEREAS, Section 8 of the Mortgage provides that the form of each series of bonds (other than the First Series) issued thereunder and of the coupons to be attached to coupon bonds of such series shall be established by Resolution of the Board of Directors of the Company and that the form of such series, as established by said Board of Directors, shall specify the descriptive title of the bonds and various other terms thereof, and may also contain such provisions not inconsistent with the provisions of the Indenture as the Board of Directors may, in its discretion, cause to be inserted therein expressing or referring to the terms and conditions upon which such bonds are to be issued and/or secured under the Indenture; and
 
WHEREAS, Section 120 of the Mortgage provides, among other things, that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Indenture, whether such power, privilege or right is in any way restricted or is unrestricted, may be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and the Company may enter into any further covenants, limitations or restrictions for the benefit of any one or more series of bonds issued thereunder, or the Company may cure any ambiguity contained therein or in any supplemental indenture or may (in lieu of establishment by Resolution as provided in Section 8 of the Mortgage) establish the terms and provisions of any series of bonds other than the First Series, by an instrument in writing executed and acknowledged by the Company in such manner as would be necessary to entitle a conveyance of real estate to record in all of the states in which any property at the time subject to the lien of the Indenture shall be situated; and
 
 
5
 
WHEREAS, the Company now desires to create a new series of bonds (the “Bonds of the Thirtieth Series”) and (pursuant to the provisions of Section 120 of the Mortgage) to add to its covenants and agreements contained in the Mortgage certain other covenants and agreements to be observed by it and to alter and amend in certain respects the covenants and provisions contained in the Indenture; and
 
WHEREAS, the execution and delivery by the Company of this Twenty-eighth Supplemental Indenture, and the terms of the Bonds of the Thirtieth Series, hereinafter referred to, have been duly authorized by the Board of Directors of the Company by appropriate Resolutions of said Board of Directors.
 
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
 
That the Company, in consideration of the premises and of $1.00 to it duly paid by the Trustees at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in further evidence of assurance of the estate, title and rights of the Trustees and in order further to secure the payment of both the principal of and interest and premium, if any, on the bonds from time to time issued under the Indenture, according to their tenor and effect and the performance of all the provisions of the Indenture (including any modification made as in the Mortgage provided) and of said bonds, and to confirm the lien of the Mortgage, as heretofore supplemented, on certain after-acquired property, hereby grants, bargains, sells, releases, conveys, assigns, transfers, mortgages, pledges, sets over and confirms (subject, however, to Excepted Encumbrances as defined in Section 6 of the Mortgage, as heretofore supplemented) unto Ming Ryan, Co-Trustee, and (to the extent of its legal capacity to hold the same for the purposes hereof) to The Bank of New York Mellon, the Corporate Trustee, as Trustees under the Indenture, and to their successor or successors in said trust, and to said Trustees and their successors and assigns forever, all property, real, personal and mixed, of the kind or nature specifically mentioned in the Mortgage, as heretofore supplemented, or of any other kind or nature (whether or not located in the State of Montana), acquired by the Company after the date of the execution and delivery of the Mortgage, as heretofore supplemented (except any herein or in the Mortgage, as heretofore supplemented, expressly excepted), now owned or, subject to the provisions of subsection (I) of Section 87 of the Mortgage, as heretofore supplemented, hereafter acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) and wheresoever situated, including (without in anywise limiting or impairing by the enumeration of the same the scope and intent of the foregoing, or of any general description contained in the Indenture) all lands, power sites, flowage rights, water rights, water locations, water appropriations, ditches, flumes, reservoirs, reservoir sites, canals, raceways, dams, dam sites, aqueducts and all other rights or means for appropriating, conveying, storing and supplying water; all rights of way and roads; all plants for the generation of electricity by steam, water and/or other power; all powerhouses, gas plants, street lighting systems, standards and other equipment incidental thereto, telephone, radio and television systems, air-conditioning systems and equipment incidental thereto, water works, water systems, steam heat and hot water plants, substations, lines, service and supply systems, bridges, culverts, tracks, ice or refrigeration plants and equipment, offices, buildings and other structures and the equipment thereof, all machinery, engines, boilers, dynamos, electric, gas and other machines, regulators, meters, transformers, generators, motors, electrical, gas and mechanical appliances, conduits, cables, water, steam heat, gas or other pipes, gas mains and pipes, service pipes, fittings, valves and connections, pole and transmission lines, wires, cables, tools, implements, apparatus, furniture and chattels; all franchises, consents or permits, all lines for the transmission and distribution of electric current, gas, steam heat or water for any purpose including towers, poles, wires, cables, pipes, conduits, ducts and all apparatus for use in connection therewith; all real estate, lands, easements, servitudes, licenses, permits, franchises, privileges, rights of way and other rights in or relating to real estate or the occupancy of the same and (except as herein or in the Mortgage, as heretofore supplemented, expressly excepted) all the right, title and interest of the Company in and to all other property of any kind or nature appertaining to and/or used and/or occupied and/or enjoyed in connection with any property hereinbefore or in the Mortgage, as heretofore supplemented, described.
 
 
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TOGETHER with all and singular the tenements, hereditaments, prescriptions, servitudes and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 57 of the Mortgage) the tolls, rents, revenues, issues, earnings, income, product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof.
 
IT IS HEREBY AGREED by the Company that, subject to the provisions of subsection (I) of Section 87 of the Mortgage, as heretofore supplemented, all the property, rights and franchises acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) after the date hereof, except any herein or in the Mortgage, as heretofore supplemented, expressly excepted, shall be and are as fully granted and conveyed hereby and as fully embraced within the lien hereof and the lien of the Mortgage, as heretofore supplemented, as if such property, rights and franchises were now owned by the Company and were specifically described herein and conveyed hereby.
 
PROVIDED that the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, hypothecated, affected, pledged, set over or confirmed hereunder and are hereby expressly excepted from the lien and operation of the Mortgage, as supplemented, viz:  (1) cash, shares of stock, bonds, notes and other obligations and other securities not specifically pledged, paid, deposited, delivered or held under the Mortgage, as supplemented, or covenanted so to be; (2) merchandise, equipment, apparatus, materials or supplies held for the purpose of sale or other disposition in the usual course of business; fuel, oil and similar materials and supplies consumable in the operation of any of the properties of the Company; all aircraft, tractors, rolling stock, trolley coaches, buses, motor coaches, automobiles, motor trucks, and other vehicles and materials and supplies held for the purpose of repairing or replacing (in whole or part) any of the same; (3) bills, notes and accounts receivable, judgments, demands and choses in action, and all contracts, leases and operating agreements not specifically pledged under the Mortgage, as supplemented, or covenanted so to be; the Company’s contractual rights or other interest in or with respect to tires not owned by the Company; (4) the last day of the term of any lease or leasehold which may be or become subject to the lien of the Mortgage, as supplemented; (5) electric energy, gas, steam, water, ice, and other materials or products generated, manufactured, produced, purchased or acquired by the Company for sale, distribution or use in the ordinary course of its business; all timber, minerals, mineral rights and royalties and all Gas and Oil Production Property, as defined in Section 4 of the Mortgage, as supplemented; (6) the Company’s franchise to be a corporation; and (7) any property heretofore released pursuant to any provisions of the Indenture and not heretofore disposed of by the Company-New Jersey, the Company-Montana, NorthWestern Energy or the Company; provided, however, that the property and rights expressly excepted from the lien and operation of the Mortgage, as supplemented, in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted in the event and as of the date that either or both of the Trustees or a receiver or trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XIII of the Mortgage by reason of the occurrence of a Default as defined in Section 65 thereof.
 
 
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TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed by the Company as aforesaid, or intended so to be, unto the Co-Trustee and (to the extent of its legal capacity to hold the same for the purposes hereto) unto the Corporate Trustee, as Trustees, and their successors and assigns forever.
 
IN TRUST NEVERTHELESS, for the same purposes and upon the same terms, trusts and conditions and subject to and with the same provisos and covenants as are set forth in the Mortgage, as supplemented, this Twenty-eighth Supplemental Indenture being supplemental thereto.
 
AND IT IS HEREBY COVENANTED by the Company that all the terms, conditions, provisos, covenants and provisions contained in   the Mortgage, as supplemented, shall affect and apply to the property hereinbefore described and conveyed and to the estate, rights, obligations and duties of the Company and the Trustees and the beneficiaries of the trust with respect to said property, and to the Trustees and their successors as Trustees of said property in the same manner and with the same effect as if the said property had been owned by the Company-New Jersey at the time of the execution of the Mortgage, and had been specifically and at length described in and conveyed to the Trustees, by the Mortgage as a part of the property therein stated to be conveyed.
 
SUBJECT NEVERTHELESS, to the limitation permitted by subsection (I) of Section 87 of the Mortgage, as supplemented, namely, that notwithstanding the foregoing, the Mortgage, as supplemented, shall not become or be or be required to become or be a lien upon any of the properties or franchises owned by the Company on the Transfer Date or thereafter acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) except (a) those acquired by it from NorthWestern Energy, and improvements, extensions and additions thereto and renewals and replacements thereof, (b) the property made and used by the Company as the basis under any of the provisions of the Indenture for the authentication and delivery of additional bonds or the withdrawal of cash or the release of property or a credit under Section 39 or Section 40 of the Indenture, and (c) such franchises, repairs and additional property as may be acquired, made or constructed by the Company (1) to maintain, renew and preserve the franchises covered by the Indenture, or (2) to maintain the property mortgaged and intended to be mortgaged under the Indenture as an operating system or systems in good repair, working order and condition, or (3) in rebuilding or renewal of property, subject to the Lien under the Indenture, damaged or destroyed, or (4) in replacement of or substitution for machinery, apparatus, equipment, frames, towers, poles, wire, pipe, tools, implements and furniture, subject to the Lien thereunder, which shall have become old, inadequate, obsolete, worn out, unfit, unadapted, unserviceable, undesirable or unnecessary for use in the operation of the property mortgaged and intended to be mortgaged thereunder.
 
 
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The Company further covenants and agrees to and with the Trustees and their successors in said trust under the Indenture, as follows:
 
ARTICLE I
Thirtieth Series of Bonds
 
Section 1.01.                       General Terms of Bonds to be Issued .
 
(a)           There is hereby created a series of bonds designated: “5.71% Series due 2039” (herein sometimes referred to as the Thirtieth Series; and the bonds of such Thirtieth Series are sometimes hereinafter referred to as the “Bonds”), each of which shall bear the descriptive title “First Mortgage Bond.” Bonds of the Thirtieth Series shall mature on October 15, 2039 and shall be issued as fully registered bonds in denominations of $1,000 and in integral multiples of $1,000; they shall bear interest at the rate of 5.71% per annum, payable in arrears, the first interest payment to be made on April 15, 2010 and shall be for the period from the date of first authentication of the Bonds through April 14, 2010, with subsequent interest payments payable semiannually on April 15 and October 15 of each year (each such payment date, an “Interest Payment Date”) until the principal of the Bonds is paid or made available for payment; subject to Article V hereof, the principal of and interest on each Bond to be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts.  The Bonds shall be dated as in Section 10 of the Mortgage provided.
 
The Bonds shall be issued substantially in the form of Exhibit A hereto.
 
At the option of the registered owner, any Bonds, upon surrender thereof for cancellation at the office or agency of the Company in the Borough of Manhattan, The City of New York, shall be exchangeable for a like aggregate principal amount of bonds of the same series of other authorized denominations.
 
The Bonds shall be transferable upon the surrender thereof for cancellation, together with a written instrument of transfer in form approved by the Registrar, duly executed by the registered owner or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York.
 
Upon any exchange or transfer of Bonds, the Company may make a charge therefor sufficient to reimburse it for any tax or taxes or other governmental charge, as provided in Section 12 of the Mortgage, but the Company hereby waives any right to make a charge in addition thereto for any exchange or transfer of Bonds.
 
 
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(b)           Upon the delivery of this Twenty-eighth Supplemental Indenture, Bonds of the Thirtieth Series in the aggregate principal amount of $55,000,000 are to be issued and delivered, pursuant to Article V of the Mortgage, forthwith and will be Outstanding in addition to $161,000,000 aggregate principal amount of Bonds of the Twenty-sixth Series Outstanding, $170,205,000 aggregate principal amount of Bonds of the Twenty-seventh Series Outstanding, $150,000,000 aggregate principal amount of Bonds of the Twenty-eighth Series Outstanding and $250,000,000 aggregate principal amount of Bonds of the Twenty-ninth Series Outstanding at the date of delivery of this Twenty-eighth Supplemental Indenture.
 
Section 1.02.                       Redemption .
 
(a)           Except upon the occurrence of a Default as in the Indenture provided, the Bonds will not be subject to any mandatory redemption, sinking fund or other obligation of the Company to amortize, redeem or retire the Bonds prior to maturity and, in any case, the Bonds shall not be redeemable prior to maturity at the option of any holder of Bonds.
 
(b)(i)           Bonds of the Thirtieth Series shall be redeemable, however, at the option of the Company subject to the requirements of the Indenture in whole or in part at any time and from time to time, prior to maturity, upon notice to the Holders of such Bonds at his, her or its address last appearing in the Bond Register by first class mail, mailed not less than 30 days but not more than 60 days prior to the date on which such Bonds are fixed to be redeemed (such date fixed for redemption, the “Redemption Date”), in cash at a redemption price (the “Redemption Price”) equal to (i) the greater of: (A) one hundred per centum (100%) of the principal amount of Bonds to be redeemed then Outstanding, and (B) the Make-Whole Amount, if any, plus (ii) accrued and unpaid interest to the Redemption Date.  In the case of each partial redemption of the Bonds pursuant to this Section 1.02(b)(i), the principal amount of the Bonds to be redeemed shall be allocated by the Company among all of the Bonds at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for redemption.  Any notice of intention to redeem need not specify the Redemption Price but shall be sufficient if it sets forth in brief terms the manner in which the Redemption Price is to be calculated.  Each such notice shall specify the Redemption Date (which shall be a Business Day), the aggregate principal amount of the Bonds to be redeemed on such date, the principal amount of each Bond held by such Holder to be redeemed, and the interest to be paid on the Redemption Date with respect to such principal amount being redeemed, and shall be accompanied by a certificate of an officer of the Company as to the estimated Make-Whole Amount due in connection with such redemption (calculated as if the date of such notice were the Redemption Date), setting forth the details of such computation.  Two Business Days prior to the Redemption Date, the Company shall deliver to each Holder of such Bonds a certificate of an officer specifying the calculation of such Make-Whole Amount as of the specified Redemption Date.
 
(ii)           The Company shall not be required to make transfers or exchanges of Bonds for a period of ten (10) days next preceding any Interest Payment Date, or next preceding any designation of Bonds to be redeemed.  The Company shall not be required to make transfers or exchanges of any Bonds designated in whole or in part for redemption.  Unless the Company defaults in payment of the Redemption Price, on and after the Redemption Date interest will cease to accrue on the Bonds or portions thereof called for redemption.
 
 
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(c)           For purposes of this Section 1.02:
 
 
The term “Make-Whole Amount” means, with respect to any Bond, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Bond over the amount of such Called Principal; provided that the Make-Whole Amount may in no event be less than zero.  For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:
 
“Called Principal” means, with respect to any Bond, the principal of such Bond that is to be prepaid pursuant to Section 1.02(b)(i).
 
“Discounted Value” means, with respect to the Called Principal of any Bond, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Bonds is payable) equal to the Reinvestment Yield with respect to such Called Principal.
 
“Reinvestment Yield” means, with respect to the Called Principal of any Bond, .50% (50 basis points) over the yield to maturity implied by (i) the yields reported as of 10:00 a.m. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as “Page PX1” (or such other display as may replace Page PX1) on Bloomberg Financial Markets for the most recently issued actively traded on the run U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable (including by way of interpolation), the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (or any comparable successor publication) for U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date.  In the case of each determination under clause (i) or clause (ii), as the case may be, of the preceding paragraph, such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the applicable U.S. Treasury security with the maturity closest to and greater than such Remaining Average Life and (2) the applicable U.S. Treasury security with the maturity closest to and less than such Remaining Average Life.  The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable Bond.
 
“Remaining Average Life” means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (i) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (ii) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.
 
 
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“Remaining Scheduled Payments” means, with respect to the Called Principal of any Bond, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date; provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Bonds, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 1.02(b)(i).
 
“Settlement Date” means, with respect to the Called Principal of any Bond, the date on which such Called Principal is to be prepaid pursuant to Section 1.02(b)(i).

The Corporate Trustee shall be under no duty to inquire into, may conclusively presume the correctness of, and shall be fully protected in acting upon the calculation by the Company of any Redemption Price of the Bonds.
 
Section 1.03.                       Interest .
 
The Bonds shall bear interest for each Interest Period (as hereinafter defined) at a rate per annum of 5.71%.
 
The period commencing on an Interest Payment Date and ending on the day preceding the next succeeding Interest Payment Date shall be an “Interest Period”; provided that the first Interest Period shall begin on the date of the first authentication of the Bonds and extend through April 14, 2010, the day preceding the first Interest Payment Date.
 
Interest payments for the Bonds will be computed on the basis of a 360-day year consisting of twelve 30-day months.  If an Interest Payment Date or Redemption Date falls on a day that is not a Business Day, such Interest Payment Date or Redemption Date, as the case may be, will be the immediately succeeding Business Day with the same force and effect as if made on the original Interest Payment Date or Redemption Date, as the case may be, and no interest shall accrue for the period from and after such original Interest Payment Date or Redemption Date, as the case may be. All dollar amounts resulting from such calculation will be rounded, if necessary, to the nearest cent with one-half cent rounded upward.
 
Interest on any Bond which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Bond (or one or more Predecessor Bonds) is registered at the close of business on the Record Date for such interest; provided, however, that interest payable at maturity (whether the stated maturity or maturity resulting from declaration of acceleration, call for redemption or otherwise) shall be payable to the Person to whom the principal of such Bond shall be payable.
 
 
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ARTICLE II
Definitions
Section 2.01.                       Definitions .
 
The following terms shall have the meanings provided herein for all purposes of this Supplemental Indenture, unless the context clearly requires otherwise (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
 
“Bond Purchase Agreement” means that certain Bond Purchase Agreement dated September 30, 2009 between the Company and the Purchasers listed in Schedule A thereto.
 
“ Business Day ” means any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law or executive order to close in The City of New York.
 
“ Holder ” means a Person in whose name a Bond is registered.
 
“ Person ” means an individual, partnership, corporation, limited liability company, unincorporated organization, association, joint-stock company, trust, joint venture, government, or any agency or political subdivision thereof or any other entity.
 
“ Predecessor Bond ” of any particular Bond means every previous Bond evidencing all or a portion of the same debt as that evidenced by such particular Bond; and, for the purposes of this definition, any Bond authenticated and delivered under Section 16 of the Indenture in exchange for or in lieu of a mutilated, destroyed, lost or stolen Bond shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Bond.
 
“ Record Date ” means, with respect to any Interest Payment Date, the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date.
 
“ Registrar ” means the Person appointed by the Company to maintain the Bond register, in which register, subject to such reasonable regulations as the Company may prescribe, the Company shall provide for the registration of Bonds and for the exchange and transfer of Bonds.
 
ARTICLE III
Reservation of Right to Make Amendments
 
Section 3.01.                      The Company reserves the right, without any consent or other action by holders of Bonds of the Thirtieth Series, or bonds of any subsequent series, to make such amendments to the Mortgage (as supplemented) as shall be necessary in order to cause there to be excluded from the Mortgaged and Pledged Property and the Lien of the Mortgage (as supplemented) at all times, including, without limitation, in the event and following the date that either or both of the Trustees or a receiver of trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XIII of the Mortgage (as supplemented) by reason of the occurrence of a Default as defined in Section 65 thereof, all of the Company’s right, title and interest, whenever arising or acquired, in, to and under all accounts (as defined in the Uniform Commercial Code as in effect from time to time in the State of New York), all accounts receivable, all payments for goods sold or leased or for services rendered (whether or not they have been earned by performance), all rights in any merchandise or goods which any of the foregoing may represent, all rights, title, security and guaranties with respect to any or all of the foregoing, and all proceeds (as defined in the Uniform Commercial Code as in effect from time to time in the State of New York) of, and all collections from or with respect to, any or all of the foregoing.
 
 
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Section 3.02                      The Company reserves the right, without any consent or other action by holders of Bonds of the Thirtieth Series, or holders of bonds of any subsequent series, to make the following amendments to Section 120 of the Mortgage (as supplemented): (i) to substitute for the words “adversely affecting any bonds then Outstanding hereunder”, which appear at the end of the last sentence of such Section, the words “which adversely affects the interests of the Holders of any of the bonds then Outstanding in any material respect”; and (ii) to add at the end of the first sentence of such Section the following:
 
; or the Company may correct or supplement any provision herein or in any supplemental indenture which may be defective or inconsistent with any other provision herein or in any supplemental indenture; or the Company may make other changes to the provisions hereof or of any supplemental indenture or add new provisions hereto or to any supplemental indenture or eliminate provisions here from or from any supplemental indenture, provided that the same does not adversely affect the interests of the Holders of any of the bonds then Outstanding in any material respect.
 
ARTICLE IV
 
Amendments to Mortgage
 
Section 4.01.                      So long as any of the Bonds of the Thirtieth Series remain Outstanding, Section 7 of the Mortgage is amended by adding at the end thereof the following additional paragraphs:
 
If any bonds Outstanding at the date of a Net Earning Certificate (except any for the refunding of which the bonds applied for are to be issued) or any bonds then applied for in pending applications (including the application in connection with which such Net Earning Certificate is made) bear or are to bear interest at a variable rate or variable rates such that the interest requirements with respect to such bonds for any twelve (12) month period prior to the stated maturity date of such bonds are not determinable at the date of such Net Earning Certificate (any such bonds being referred to as “ Variable Rate Bonds ”), then (in lieu of setting forth the Annual Interest Requirements (as otherwise prescribed by this Section 7), such Net Earning Certificate shall (A) set forth (i) the sum of the amounts required by clauses (i) through (iv) of paragraph (B) of this Section 7 (in the case of such clauses (i) and (ii), excluding the interest requirements in respect of the Variable Rate
 
 
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Bonds) (the sum of such amounts being referred to herein and to be referred to in such Net Earning Certificate as the “ Fixed Rate Interest Amount ”), and (ii) the amount (referred to herein and to be referred to in such Net Earning Certificate as the “ Maximum Permitted Variable Rate Interest Amount ”) by which (x) one-half of the Adjusted Net Earnings of the Company set forth in such Net Earning Certificate, exceeds (y) the Fixed Rate Interest Amount set forth in such Net Earning Certificate, and (ii) if such Net Earning Certificate is accompanied by a certificate of an independent (as hereinafter defined) investment banking firm, signed by a managing director or officer thereof, to the effect that, based upon historical fluctuations in the indices upon which the variable rate or variable rates home by the Variable Rate Bonds are based, and taking into account the margins to be added to or subtracted from such indices and/or any other adjustments to be made in determining such variable rate or variable rates and prevailing and projected conditions in the markets influencing such indices, such independent (as hereinafter defined) investment banking firm believes (or is of the view), as of the date of such certificate, that the aggregate amount of interest to be payable on all of the Variable Rate Bonds during any period of twelve (12) months prior to the stated maturity date last to occur of any of the Variable Rate Bonds will not exceed the Maximum Permitted Variable Rate Interest Amount (as calculated by the Company in such Net Earning Certificate without any responsibility on the part of such independent (as hereinafter defined) investment banking firm for the calculation thereof), such Net Earning Certificate shall be deemed for all purposes of the Mortgage (including, without limitation, Sections 26, 28 and 29 of the Mortgage) to show Adjusted Net Earnings of the Company to be as required by Section 27 of the Mortgage. As used in this Section 7, “independent” means, with respect to an investment banking firm that provides a certificate pursuant to this Section 7, that: (i) such investment banking firm is competent to provide such certificate (and such investment banking firm shall be conclusively presumed to be competent to provide such certificate if such investment banking firm is an investment banking firm of nationally recognized standing and engages in interest rate swap transactions in the ordinary course of its business); (ii) such investment banking firm does not have any direct or indirect investment in the Company or in any bonds that, as of the date of such certificate, are Outstanding or the subject of a pending application for authentication and delivery under the Mortgage (including, without limitation, any bonds that are subject of the Net Earning Certificate to which such certificate relates) or in any affiliate of the Company (other than de minimus amounts of loans or securities of the Company or affiliates of the Company held in its or its affiliates’ accounts and any investment in, or ownership of, additional securities or loans of the Company or affiliates of the Company resulting from its market making activities in the ordinary course of its business); (iii) such investment banking firm is not, and none of its officers or directors is, an affiliate of the Company; and (iv) such investment banking firm is not acting as an underwriter with respect to any bonds that are the subject of the Net Earning Certificate to which such certificate relates or as an arranger or provider of the loans, extensions of credit or other securities (if any) for which such bonds are collateral security.
 
 
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If the Company is a successor corporation (within the meaning of Section 86 of this Indenture), the “Adjusted Net Earnings of the Company” as set forth in each Net Earning Certificate shall be calculated as described in the last two sentences of Section 86 of this Indenture.
 
Section 4.02.      So long as any of the Bonds of the Thirtieth Series remain Outstanding, Section 27 of the Mortgage is amended by adding at the end thereof the following additional sentence:
 
As described in the penultimate paragraph of Section 7 hereof, and subject to the conditions therein specified, a Net Earning Certificate shall be deemed to show Adjusted Net Earnings of the Company to be as required by this Section 27 (without any necessity for such Net Earning Certificate to specify Annual Interest Requirements).
 
Section 4.03.      So long as any of the Bonds of the Thirtieth Series are Outstanding, Section 86 of the Mortgage is amended by adding at the end thereof the following additional sentences:
 
For the avoidance of any doubt, it is expressly stated that in the event that a successor corporation (having succeeded to and having been substituted for the Company in accordance with this Section 86) shall exercise any right under this Indenture (whether as to the issuance of additional bonds (including, without limitation, the Bonds of the Thirtieth Series), the withdrawal of cash, the release of property, the taking of credit under Section 39 or Section 40 hereof, or otherwise) and a Net Earning Certificate shall be required by the terms of this Indenture in connection therewith, the “Adjusted Net Earnings of the Company” shall be, and shall be stated in such Net Earning Certificate to be, the lesser of (A) the amount (for the applicable period selected in accordance with paragraph (A) of Section 7 of this Indenture) determined in accordance with paragraph (A) of Section 7 of this Indenture (and the other provisions of such Section 7 that are relevant to such paragraph) on the basis of (i) the items set forth in clauses (1), (2), (4) and (6) of paragraph (A) of such Section 7 being such portions of such items of such successor corporation as are reasonably allocated by such successor corporation to or from the Mortgaged and Pledged Property as a plant or plants and an operating system or operating systems (and if, on the date of a Net Earning Certificate, such successor corporation shall be a party to any other general or first mortgage indenture and deed of trust relating to property other than the Mortgaged and Pledged Property and the lien of such other mortgage indenture and deed of trust shall not have been discharged, such reasonable allocation shall be in a manner consistent with the manner of allocation utilized and/or to be utilized by such successor corporation in making calculations of the “Adjusted Net Earnings of the Company” (or other comparable term) under and as defined in such other mortgage indenture and deed of trust), (ii) the item set forth in clause (8) of paragraph (A) of such Section 7 being calculated without regard to income (net) derived from any electric and/or gas utility business of the successor corporation in which the Mortgaged and Pledged Property is not utilized (but otherwise in accordance with such Section 7), and (iii) the item set forth in clause (10) of paragraph (A) of such Section 7 being calculated without regard to sub-clause (b) of such clause and without regard to the proviso to such clause (but otherwise in accordance with such clause), and (B) the amount (for the applicable period selected in accordance with paragraph (A) of Section 7 of this Indenture) determined in accordance with paragraph (A) of Section 7 of this Indenture (and the other provisions of such Section 7 that are relevant to such paragraph) (without any allocation or distinction as to the derivation of the items set forth in any of the clauses of paragraph (A) of such Section 7, other than allocation or distinction between (i) the electric and/or gas utility business or businesses in which such successor corporation is engaged (whether or not the Mortgaged and Pledged Property is utilized in connection therewith), and (ii) the other business or businesses in which such successor corporation is engaged (with such other business or businesses being given effect under the items set forth in clauses (8) and (10) of paragraph (A) of such Section 7)). Each such Net Earning Certificate shall contain a statement of the signers of such Net Earning Certificate that, in the opinion of such signers, the allocations made in the calculations of “Adjusted Net Earnings of the Company” as set forth in such Net Earning Certificate are in accordance with the requirements of the preceding sentence of this Section 86.
 
 
16
 
 
Section 4.04.      For so long as any Bonds of the Thirtieth Series are Outstanding, the Company shall not subject, or permit to be subjected, any Mortgaged and Pledged Property under the Mortgage to the lien of the Company’s General Mortgage Indenture and Deed of Trust dated as of August 1, 1993, as amended and supplemented.
 

ARTICLE V
 
Home Office Payment
 
So long as any Purchaser (as such term is defined in the Bond Purchase Agreement) or its nominee shall be the Holder of any Bond of the Thirtieth Series, and notwithstanding anything contained in the Indenture or in such Bond of the Thirtieth Series to the contrary, the Company will pay all sums becoming due on such Bond of the Thirtieth Series for principal or premium, if any, and interest by the method and at the address specified for such purpose below such Holder’s name in Schedule A to the Bond Purchase Agreement, as certified to the Corporate Trustee by the Company, or by such other method or at such other address as such Holder shall have from time to time specified to the Company and the Trustee in writing for such purpose, without the presentation or surrender of such Bond of the Thirtieth Series unless such Bond is to be paid or redeemed in full, in which case, as a condition to such payment, such Bond shall be presented and surrendered at the place of payment most recently designated by the Company pursuant to Section 13 of the Indenture.  Prior to any sale or other disposition of any Bond of the Thirtieth Series held by any such Holder, such Holder, by its acceptance of a Bond, agrees that it will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Bond of the Thirtieth Series to the Trustee in exchange for a new Bond of the Thirtieth Series or Bonds of the Thirtieth Series  in a principal amount giving effect to such payments of principal and interest pursuant to Section 13 of the Indenture, and in either case shall promptly notify the Company and the Trustee of the name and address of the transferee of any such Bond so sold or disposed of.  The Company will afford the benefits of this Article V to any Institutional Investor (as such term is defined in the Bond Purchase Agreement) that is the direct or indirect transferee of any Bond of the Thirtieth Series purchased by any such Purchaser or its nominee and that has made the same agreement relating to such Bond of the Thirtieth Series as such Purchasers have made in this Article V.
 
 
17
 
 
 
ARTICLE VI
Miscellaneous Provisions
Section 6.01.      Subject to the amendments provided for in this Twenty-eighth Supplemental Indenture, the terms defined in the Mortgage, as heretofore supplemented, shall, for all purposes of this Twenty-eighth Supplemental Indenture, have the meanings specified in the Mortgage, as heretofore supplemented.
 
Section 6.02.      The Trustees hereby accept the trusts herein declared, provided, created or supplemented and agree to perform the same upon the terms and conditions herein and in the Mortgage, as heretofore supplemented, set forth and upon the following terms and conditions:
 
The Trustees shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Twenty-eighth Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XVII of the Mortgage shall apply to and form part of this Twenty-eighth Supplemental Indenture with the same force and effect as if the same were herein set forth in full with such omissions, variations and insertions, if any, as may be appropriate to make the same conform to the provisions of this Twenty-eighth Supplemental Indenture.
 
Section 6.03.      Whenever in this Twenty-eighth Supplemental Indenture any of the parties hereto is named or referred to, this shall, subject to the provisions of Articles XVI and XVII of the Mortgage, be deemed to include the successors and assigns of such party, and all the covenants and agreements in this Twenty-eighth Supplemental Indenture contained by or on behalf of the Company, or by or on behalf of the Trustees shall, subject as aforesaid, bind and inure to the respective benefit of the respective successors and assigns of such parties, whether so expressed or not.
 
Section 6.04.      Nothing in this Twenty-eighth Supplemental Indenture, expressed or implied, is intended, or shall be construed, to confer upon, or to give to, any person, firm or corporation, other than the parties hereto and the holders of the bonds and coupons Outstanding under the Indenture, any right, remedy or claim under or by reason of this Twenty-eighth Supplemental Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Twenty-eighth Supplemental Indenture contained by or on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the bonds and coupons Outstanding under the Indenture.
 
18

 
Section 6.05.      This Twenty-eighth Supplemental Indenture shall be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
 
 
19

 
 
IN WITNESS WHEREOF, NORTHWESTERN CORPORATION has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents, and its seal to be attested by its Corporate Secretary or one of its Assistant Corporate Secretaries for and in its behalf, and THE BANK OF NEW YORK MELLON, in token of its acceptance of the trust hereby created, has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents or one of its Assistant Vice Presidents, and its corporate seal to be attested by one of its Assistant Vice Presidents, Assistant Secretaries or Assistant Treasurers, and Ming Ryan, for all like purposes, has hereunto set her hand and affixed her seal, as of the day and year first above written.
 
                 NORTHWESTERN CORPORATION
 

 
                 By: _________________________________
                 Vice President
[SEAL]
 
Attest:
 
_____________________________
Assistant Corporate Secretary
 
Executed, sealed and delivered by
 
NORTHWESTERN CORPORATION
in the presence of:
 

_______________________________________
 

_______________________________________
 

 

 

 
[Signature Page to the Twenty-eighth Supplemental Indenture]
 
 
20
 

STATE OF                                             )
) ss.
COUNTY OF                                             )
 
This instrument was acknowledged before me on this ___ day of October, 2009, by ___________________________, Vice President, of NORTHWESTERN CORPORATION, a Delaware corporation.
 

                 ________________________________
                 Notary Public
 

[SEAL]
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
[Acknowledgment to the Twenty-eighth Supplemental Indenture]
 
 
21
 

                 THE BANK OF NEW YORK MELLON,
                    as Corporate Trustee


                 By: _________________________________
                 Name:
                 Title:
[SEAL]
 
Attest:
 
_______________________________
Name:
Title:
 

                                                                      ______________________________ L.S.]
                      Ming Ryan, as Co-Trustee
 

Executed, sealed and delivered by
THE BANK OF NEW YORK MELLON and
Ming Ryan in the presence of:
 

_________________________________
 

_________________________________
 

 

 

 

 

 

 

 

 
[Signature Page to the Twenty-eighth Supplemental Indenture]
 
 

STATE OF NEW YORK      )
                   ) ss.
COUNTY OF NEW YORK    )
 
This instrument was acknowledged before me on this ___ day of October, 2009, by ___________________________, ____________________ of THE BANK OF NEW YORK MELLON, a New York corporation.
 

                 ________________________________
                 Notary Public
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
[Acknowledgment to the Twenty-eighth Supplemental Indenture]
 
 
 
2
 
 
STATE OF NEW YORK        )
                ) ss.
COUNTY OF NEW YORK      )
 
This instrument was acknowledged before me on this ___ day of October, 2009, by MING RYAN.
 

                 ________________________________
                 Notary Public
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
[Acknowledgment Page to the Twenty-eighth Supplemental Indenture]
 
 
3
 

EXHIBIT A
 
FORM OF BOND
 
(FACE OF BOND)
 
THIS BOND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED OR PLEDGED UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF SUCH ACT OR AN EXEMPTION THEREFROM IS AVAILABLE, EXCEPT UNDER CIRCUMSTANCES WHERE NEITHER SUCH REGISTRATION NOR SUCH AN EXEMPTION IS REQUIRED BY LAW.
 

 
NORTHWESTERN CORPORATION
FIRST MORTGAGE BOND, 5.71% SERIES DUE 2039

No. TR-[______]
CUSIP: _____________
$______________
   

NORTHWESTERN CORPORATION, a corporation organized and existing under the laws of the State of Delaware (hereinafter called the Company), for value received, hereby promises to pay to ______________________ or its registered assigns, on October 15, 2039, at the office or agency of the Company in the Borough of Manhattan, The City of New York, $______________ dollars in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts, and to pay to the registered owner hereof interest thereon from the date of first authentication of Bonds of the series herein designated, at the rate per annum of 5.71% (computed on the basis of a 360-day year of twelve 30-day months), in like coin or currency at such office or agency on April 15 and October 15 in each year, until the Company’s obligation with respect to the payment of such principal shall have been discharged.
 
This Bond is issued by the Company pursuant to the Twenty-eighth Supplemental Indenture (as hereinafter defined). The terms of this Bond shall be those specified herein and pursuant to the Mortgage (as hereinafter defined), as heretofore amended and supplemented, including by the Twenty-eighth Supplemental Indenture.
 
The provisions of this Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though set fully forth at this place.
 
This Bond shall not become obligatory until The Bank of New York Mellon, the Corporate Trustee under the Mortgage, or its successor thereunder, shall have signed the form of authentication certificate endorsed hereon.
 
 
A - 1

 
IN WITNESS WHEREOF, NORTHWESTERN CORPORATION has caused this instrument to be signed in its corporate name by its Chairman of the Board or its President or one of its Vice-Presidents by his signature or a facsimile thereof, and its corporate seal to be impressed or imprinted hereon and attested by its Secretary or one of its Assistant Secretaries by his/her signature or a facsimile thereof.
 
Dated: _____________________.
 
                   NORTHWESTERN CORPORATION

 

                   By ____________________________
 
 
 

Attest: ____________________________

 

 
 
 
A - 2
 

CORPORATE TRUSTEE’S AUTHENTICATION CERTIFICATE
 
This Bond is one of the Bonds, of the series herein designated, described or provided for in the within-mentioned Mortgage.
 

                   THE BANK OF NEW YORK MELLON,
                       as Corporate Trustee

 

                   By ____________________________
                         Authorized Signatory
 
 
 
A - 3
 
(REVERSE OF BOND)
 

General
 
This Bond is one of an issue of Bonds of the Company issuable in series and is one of a series known as its First Mortgage Bonds, 5.71% Series due 2039, all Bonds of all series issued and to be issued under and equally secured (except in so far as any sinking or other fund, established in accordance with the provisions of the Mortgage hereinafter mentioned, may afford additional security for the Bonds of any particular series) by a Mortgage and Deed of Trust (herein, together with any indenture supplemental thereto, called the Mortgage), dated as of October 1, 1945, executed by the Company to Guaranty Trust Company of New York (The Bank of New York Mellon, successor) and Arthur E. Burke (Ming Ryan, successor), as Trustees. Reference is made to the Mortgage for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the Bonds and of the Trustees in respect thereof, the duties and immunities of the Trustees and the terms and conditions upon which the Bonds are and are to be secured and the circumstances under which additional Bonds may be issued. With the consent of the Company and to the extent permitted by and as provided in the Mortgage, the rights and obligations of the Company and/or the rights of the holders of the Bonds and/or coupons and/or the terms and provisions of the Mortgage may be modified or altered by affirmative vote of the holders of at least 66 2/3% in principal amount of the Bonds then outstanding under the Mortgage and, if the rights of the holders of one or more, but less than all, series of Bonds then outstanding are to be affected, then also by affirmative vote of the holders of at least 66 2/3% in principal amount of the Bonds then outstanding of each series of Bonds so to be affected (excluding in any case Bonds disqualified from voting by reason of the Company’s interest therein as provided in the Mortgage); provided that, without the consent of the holder hereof, no such modification or alteration shall, among other things, impair or affect the right of the holder to receive payment of the principal of (and premium, if any) and interest on this Bond, on or after the respective due dates expressed herein, or permit the creation of any lien equal or prior to the lien of the Mortgage or deprive the holder of the benefit of a lien on the mortgaged and pledged property.
 
The principal hereof may be declared or may become due prior to the maturity date hereinbefore named on the conditions, in the manner and at the time set forth in the Mortgage, upon the occurrence of a Default as in the Mortgage provided.
 
This Bond is transferable as prescribed in the Mortgage by the registered owner hereof in person, or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York, upon surrender and cancellation of this Bond, and upon payment, if the Company shall require it, of the transfer charges provided for in the Twenty-eighth Supplemental Indenture hereinafter referred to, and, thereupon, a new fully registered Bond of the same series for a like principal amount will be issued to the transferee in exchange herefor as provided in the Mortgage; provided that, this Bond shall also be subject to the restrictions on transfer and exchange that appear above. The Company and the Trustees may deem and treat the person in whose name this Bond is registered as the absolute owner hereof for the purpose of receiving payment and for all other purposes and neither the Company nor the Trustees shall be affected by any notice to the contrary.
 
 
A - 4

  In the manner prescribed in the Mortgage, any Bonds of this series, upon surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, are exchangeable for a like aggregate principal amount of registered Bonds of the same series of other authorized denominations.
 
No recourse shall be had for the payment of the principal of or interest on this Bond against any incorporator or any past, present or future subscriber to the capital stock, stockholder, officer or director of the Company or of any predecessor or successor corporation, as such, either directly or through the Company or any predecessor or successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, subscribers, stockholders, officers and directors being released by the holder or owner hereof by the acceptance of this Bond and being likewise waived and released by the terms of the Mortgage.
 
Capitalized terms used in this Bond shall have the meanings ascribed to them in the Twenty-eighth Supplemental Indenture hereinafter referred to.
 
Interest
 
The Bonds shall bear interest for each Interest Period (as hereinafter defined) at a rate per annum of 5.71% (the “Interest Rate”), as set forth in Section 1.01 of the Twenty-eighth Supplemental Indenture, dated as of October 1, 2009, between the Company and the Trustees (such supplemental indenture, the “Twenty-eighth Supplemental Indenture”).
 
The period commencing on an Interest Payment Date and ending on the day preceding the next succeeding Interest Payment Date shall be an “Interest Period,” provided that the first Interest Period shall begin on the date of the first authentication of the Bonds and extend through April 14, 2010, the day preceding the first Interest Payment Date.  Interest on this Bond shall accrue from the date of the first authentication of the Bonds to the first Interest Payment Date and, thereafter, shall accrue from the most recent Interest Payment Date to which interest has been paid or duly provided for.
 
Interest payments for the Bonds will be computed on the basis of a 360-day year consisting of twelve 30-day months. If an Interest Payment Date or Redemption Date falls on a day that is not a Business Day, such Interest Payment Date or Redemption Date, as the case may be, will be the immediately succeeding Business Day with the same force and effect as if made on the original Interest Payment Date or Redemption Date, as the case may be, and no interest shall accrue for the period from and after such original Interest Payment Date or Redemption Date, as the case may be. All dollar amounts resulting from such calculation will be rounded, if necessary, to the nearest cent with one-half cent rounded upward.
 
Interest on any Bond which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Bond (or one or more Predecessor Bonds) is registered at the close of business on the Record Date for such interest; provided, however, that interest payable at maturity (whether the stated maturity or maturity resulting from declaration of acceleration, call for redemption or otherwise) shall be payable to the Person to whom the principal of such Bond shall be payable.
 
 
A - 5

Redemption
 
The Bonds shall be redeemable at the option of the Company in whole or in part at any time and from time to time, prior to maturity, upon notice to the Holders of such Bonds at his, her or its address last appearing in the Bond Register by first class mail, mailed not less than 30 days but not more than 60 days prior to the date on which such Bonds are fixed to be redeemed (such date fixed for redemption, the “Redemption Date”), in cash at a redemption price (the “Redemption Price”) equal to (i) the greater of: (A) one hundred per centum (100%) of the principal amount of Bonds to be redeemed then Outstanding, and (B) the Make-Whole Amount, if any, plus (ii) accrued and unpaid interest to the Redemption Date.  Any notice of intention to redeem need not specify the Redemption Price but shall be sufficient if it sets forth in brief terms the manner in which the Redemption Price is to be calculated.  Each such notice shall specify the Redemption Date (which shall be a Business Day), the aggregate principal amount of the Bonds to be redeemed on such date, the principal amount of each Bond held by such Holder to be redeemed, and the interest to be paid on the Redemption Date with respect to such principal amount being redeemed, and shall be accompanied by a certificate of an officer of the Company as to the estimated Make-Whole Amount due in connection with such redemption (calculated as if the date of such notice were the Redemption Date), setting forth the details of such computation.  Two Business Days prior to the Redemption Date, the Company shall deliver to each Holder of such Bonds a certificate of an officer specifying the calculation of such Make-Whole Amount as of the specified Redemption Date.
 
 
The term “Make-Whole Amount” means, with respect to any Bond, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Bond over the amount of such Called Principal; provided that the Make-Whole Amount may in no event be less than zero.  For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:
 
“Called Principal” means, with respect to any Bond, the principal of such Bond that is to be prepaid pursuant to Section 1.02(b)(i).
 
“Discounted Value” means, with respect to the Called Principal of any Bond, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Bonds is payable) equal to the Reinvestment Yield with respect to such Called Principal.
 
“Reinvestment Yield” means, with respect to the Called Principal of any Bond, .50% (50 basis points) over the yield to maturity implied by (i) the yields reported as of 10:00 a.m. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as “Page PX1” (or such other display as may replace Page PX1) on Bloomberg Financial Markets for the most recently issued actively traded on the run U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable (including by way of interpolation), the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (or any comparable successor publication) for U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date.  In the case of each determination under clause (i) or clause (ii), as the case may be, of the preceding paragraph, such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the applicable U.S. Treasury security with the maturity closest to and greater than such Remaining Average Life and (2) the applicable U.S. Treasury security with the maturity closest to and less than such Remaining Average Life.  The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable Bond.
 
 
A - 6

 
“Remaining Average Life” means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (i) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (ii) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.
 
“Remaining Scheduled Payments” means, with respect to the Called Principal of any Bond, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date; provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Bonds, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 1.02(b)(i).
 
“Settlement Date” means, with respect to the Called Principal of any Bond, the date on which such Called Principal is to be prepaid pursuant to Section 1.02(b)(i).

The Corporate Trustee shall be under no duty to inquire into, may conclusively presume the correctness of, and shall be fully protected in acting upon the calculation by the Company of any Redemption Price of the Bonds.
 
The Company shall not be required to make transfers or exchanges of Bonds for a period of ten (10) days next preceding any Interest Payment Date, or next preceding any designation of Bonds to be redeemed.  The Company shall not be required to make transfers or exchanges of any Bonds designated in whole or in part for redemption.
 
 
 
A - 7

 
INSTRUMENT OF ASSIGNMENT AND TRANSFER
 
FOR VALUE-RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto
 
Identifying Number of Assignee ____________________________________________________________________________
 
_____________________________________________________________________________________________________
 
_____________________________________________________________________________________________________
 
_____________________________________________________________________________________________________
 
(Please print or typewrite name and address,
including zip code of Assignee)
 
the within Bond and all rights thereunder, hereby irrevocably constituting and appointing _____  attorney to transfer said Bond on the books of the Company, with full power of substitution in the premises.
 
Dated:   ____________________________
 
 
 
               ___________________________________
               Name:
 
NOTICE:
The signature to this assignment must correspond with the name as written upon the first page of the within instrument in every particular, without alteration or enlargement or any change whatsoever.
 
 
_______________________________
Signature Guarantee
 
SIGNATURE GUARANTEE
 
Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.
 

 
 
 
A - 8

 
 

 
 
 
 
 
 
 
NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 


 

 
 

 
 

 
 

 
Contract
with
NewMech Companies, Inc.
dated
July 27, 2009
 

 

Contract _7/27/09                                     1 of 63                                  Contractor Initials ____
                                                                           Company Rep Initials ____
 
 
 
 

 

 
NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 

 
 
Table of Contents
 
1
Definitions
3
 
34
Warranty of Title
16
2
General
6
 
35
Warranty against Infringement of Patents,
      Copyrights, Trademarks, and Trade Secrets
16
3
Representations by Contractor
6
   
4
Scope of Work
6
 
36
Intellectual Property
16
5
Price & Payment
7
 
37
Changes
16
6
Schedule
7
 
38
Final Completion and Acceptance
17
7
Independent Contractor
7
 
39
Suspension of the Work
18
8
Supervision and Labor
7
 
40
Termination for Convenience
18
9
Subcontractors and Suppliers
8
 
41
Termination for Default
18
10
Labor Relations
8
 
42
Insurance
19
11
Environmental, Health & Safety
8
 
43
Indemnity
19
12
Hazardous Materials
9
 
44
Waiver of Consequential Damages
19
13
Cleanup
9
 
45
Limitation of Liability
19
14
Stop Work Orders
9
 
46
Force Majeure
20
15
Permits & Licenses
9
 
47
Avoidance of Liens
20
16
Submittals
9
 
48
Proprietary Information
20
17
Issued for Construction Documents
10
 
49
Gratuities
21
18
Ownership and Use of Contractor Deliverables
10
 
50
Assignment
21
19
Substitutions
10
 
51
Notices
21
20
Discrepancies
11
 
52
Severability
21
21
Quality Control/Quality Assurance Program
11
 
53
Modifications and Amendments
21
22
Materials Management Procedure
11
 
54
Remedies
21
232323
Control of Materials and Equipment Furnished by Company
11
 
55
Publicity
22
 
56
Site Records & Audit
22
24
Project Controls Requirements
12
 
57
Interpretation
22
25
Construction Works
13
 
58
English Language
22
26
Expediting, Inspection, and Testing
13
 
59
Non-Waiver
22
27
Contractor's Shipments
14
 
60
Survival
22
28
Country of Origin
14
 
61
Laws and Regulations
22
29
Spare Parts
14
 
62
Disputes, Forum and Applicable Law
22
30
Title & Risk of Loss
15
 
63
Notice of Affirmative Action
23
31
Protection of the Work
15
 
64
Warranty Period
23
32
Possession Prior to Final Completion
15
 
65
Contract Performance Security
23
33
Warranty of the Work
15
 
66
Disclosure
23
 

 

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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
Contract
 
This contract   is made effective this ______ day of July, 2009, by and between NorthWestern Corporation, a Delaware Corporation, d/b/a NorthWestern Energy (“Company”), with offices at 40 E. Broadway, Butte, Montana, 59701 and NewMech Companies, Inc., (“Contractor”), a Minnesota corporation with its principal place of business at 1633 Eustis Street, St. Paul, Minnesota, 55108, hereinafter each a “Party” and collectively, the “Parties.”
 
1     Definitions
 
When used with initial capitals, the following definitions shall apply to this Contract. (Not all of the defined terms are necessarily used in this Contract). Additional definitions may be set forth in the body of the Contract.
 
Accepted as Certified when applied by Company to Contractor's Deliverables, means that if the comments noted by Company are incorporated by Contractor into its Deliverables, such Deliverables as revised appear to interface properly with Company-furnished components of the Project and, except as noted in Company’s comments, Company has not identified any other statement or feature that appears to deviate from the requirements of the Contract.
 
Accepted ,   when applied by Company to Contractor's Deliverables, means that such Deliverables appear to interface properly with Company-furnished components of the Project and Company has not identified any statement or feature that appears to deviate from the requirements of the Contract.
 
Actual Cost   means Contractor’s indirect and direct costs excluding overhead and profit, as it relates to GMP definition.
 
Affiliated Companies means entities that either control or are controlled by Company by means of a majority ownership interest.
 
Authorized Representative means the person designated, in writing pursuant to this Agreement, by either Party to send and receive any Notices and / or Directives that may be required and to bind the Party he or she represents with regard to all matters related to this Contract.
 
Certified Payroll means a payroll ledger with a statement that it is a true and correct representation of the actual payroll paid for a particular period of time signed, under penalties of perjury, by an officer of Contractor (president, CFO, treasurer, or controller) and notarized, listing vertically the names of personnel and their classification (e.g., apprentice 3rd period, journeyman, foreman, etc.) and horizontally the days of the period, and under each day the hours worked for each shift on straight time, time-and one-half, and double time, with a total to the right listing the period's hours worked for
 
each category which shall be multiplied by the rate for each category to calculate the gross and net total paid to the worker, with an additional set of columns for all payroll taxes and withholdings (FICA/FUTA/SUTA and Federal, State and Local Withholding Taxes), and insurances (Workers Compensation/General Liability).
 
Change Order Request shall have the meaning set forth in Section 37.
 
Change shall have the meaning set forth in Section 37.
 
Claim shall have the meaning set forth in Section 37.
 
Commercial Operation Date means the date of the Project when it has commenced generating electricity for sale, excluding the generation of electricity generated during testing and commissioning of the Project prior to Commercial Operation.
 
Company Directive or Directive means formal written instructions i.e. formal letter from Company to Contractor directing Contractor to proceed in the manner described therein.  E-mail will be used only as a courier to transport formal correspondence.
 
Company means the entity identified as such in the Contract and includes Company’s Affiliated Companies and the officers, directors, agents, employees, successors, and assigns of each and where appropriate Authorized Representative to act on behalf of the Company.
 
Competent Person means a person with the skill, knowledge, experience, training, and authority to carry out his assigned responsibilities safely and in accordance with industry practice.
 
Construction Schedule means the detailed critical path network schedule for the Work that is developed by Contractor using the Project Schedule identified by Company.
 
Construction Works means all construction equipment including tools, consumables, utilities, supplies, temporary work, scaffolding, form lumber, templates, buildings, facilities, electronic gear, computers, software, and similar items which are used in the execution, performance, maintenance, completion, or management of the Work by Contractor, but which are not intended to become a permanent part of the Project. 
 

 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Unless specifically stated otherwise in this Agreement, all Construction Works are to be provided by the Contractor.
 
Contract means this agreement and any schedules and exhibits attached hereto or specifically referenced herein, including, without limitation, any RFCPs, FWOs, CORs or Change Orders as such terms are defined in Section 37.
 
Contract Schedule means the schedule described in Section 6.
 
Contract Time means the total amount of calendar time allowed in the Contract Schedule for performance of the Contractor’s Work.
 
Contractor Means the Party identified as such in this Contract. Unless the context clearly requires otherwise, the term shall include all those employed by or in privity with Contractor at any tier including all Subcontractors and Suppliers.
 
Corrective Work shall have the meaning set forth in Section 33.
 
Craft Labor means trade workers. By way of example, Craft Labor includes laborers, carpenters, operators, pipe fitters, boilermakers, electricians, and sheet metal workers. Refer to Attachment B – Price & Payment, Section 3 for definition of supervision
 
Days mean calendar days unless specifically stated otherwise.
 
Dead-Band means an established plus or minus range whereby profit is fixed for the cumulative value of Change Orders provided the cumulative Change Order Value remains within the range. Cumulative value of Change Orders that fall outside the range will be applicable to profit adjustments as defined in Attachment B – Price and Payment, section
 
Deliverables or Drawings mean all of the documentation including cut sheets, reports, drawings, certificates, schedules, plans, invoices, and other submittals that Contractor is required to furnish pursuant to this Contract.
 
Effective Date means the date set forth in the Contract as the date on which the Contract is effective.
 
Engineer means the person or entity designated as such in Attachment A.
 
Engineered Materials and Equipment means Materials and Equipment that will be designed and fabricated by Contractor as part of its Work.
 
Field Non-Manual Labor (“FNM”) all workers other than Craft Labor.
 
Field Work Order shall have the meaning set forth in Section 37.
 
Final Acceptance means Company’s written acknowledgment that Contractor has achieved Final Completion as provided herein.
 
Final Completion means that all obligations of Contractor under this Contract have been completed except for obligations which Company has waived or excused in writing and except for obligations of Contractor that survive termination of this Contract such as warranty and indemnity.
 
Force Majeure means an event beyond the reasonable control and without the fault or negligence of the Party claiming Force Majeure, including acts of God, acts of the government (including failure or delay by the government in issuing, or cancellation or non-renewal of, any applicable permit, in each case without just cause), fire, flood, pandemics, earthquake, explosion, riot or civil insurrection, war, sabotage, nuclear accident, pandemic, acts of terrorism, and any industry or trade wide strike or any other strike not specifically directed at Company, Contractor, a Subcontractor, or Supplier.
 
Goods, Materials and Equipment mean all materials, commodities, supplies, apparatus, equipment, and machinery that Contractor, unless other wise stated, is obligated to provide and which will become a permanent part of the Project when it is completed. The provisions of the Uniform Commercial Code as adopted and set forth in the Montana Code Annotated, shall apply to Goods unless otherwise specified in writing agreed to by the Parties.
 
Guaranteed Maximum Price (GMP) The term “GMP” means the Guaranteed Maximum Price (excluding approved Change Orders) that shall be established by executing this Contract and, is the total maximum amount that the Contractor may be compensated under the GMP scope of work. The GMP shall include Contractor overhead and profit. The GMP will not be adjusted for the value of approved Change Orders. Approved Change Orders shall be managed outside the GMP structured price. Refer to Attachment B – Price & Payment section 9. Contractor shall be solely liable and responsible for and pay any and all costs in excess of the Guaranteed Maximum Price without entitlement to reimbursement from the Company.
 
GMP Contract Cost means Actual Costs plus overhead and profit.
 
Hazardous Materials means any chemical substance, mixture or contaminant, pesticide, source material, regulated nuclear material, residual radioactive material, harmful physical agents, air pollutants, or hazardous waste or by-product material that is regulated or defined by Law. Includes the purchase, possession, transportation, use, and/or disposal of such material.
 
Industry Practice means, with respect to each of engineering, design, construction, operation, and maintenance of the Work, the practices, methods, procedures, equipment, and tools which comply with all applicable Laws and are used by a significant portion of other similar businesses and industries in the United States.
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Labor means all Field Non-Manual Labor and Craft Labor.
 
Laws mean all laws, statutes, regulations, ordinances, executive orders, codes, and similar pronouncements published by any governmental authority.
 
Lender   means the financial institution providing all or a portion of the Project financing and includes Lender’s subsidiaries, affiliates, agents, representatives, successors or assigns, officers, directors, agents, and employees.
 
Lien means any claim, lien, mortgage, encumbrance, pledge, charge, lease, easement, servitude, right of others, or security interest of any kind.
 
Limited Notice to Proceed (“LNTP”) means a Notice specifying the date Contractor is authorized by Company to start the Work to the limited extent specified in the LNTP.
 
Losses mean any claims, demands, suits, proceedings, fines, penalties, liabilities, judgments, awards, damages, interests, costs, or other such expenses including reasonable attorney fees and court costs, but do not include any indirect, special, incidental, consequential, or exemplary damages.
 
Mechanical Completion means the stage in the progress of the Work when all Materials and Equipment which Contractor is responsible to install: (a) have been completely installed, connected mechanically and electrically, aligned, balanced, lubricated, charged with proper lubricants, chemicals, and/or gases; and (b) are otherwise mechanically and electrically sound in all respects; and (c) have successfully completed all pre-operational tests; and (d) are capable of being operated within manufacturers’ recommended limits in compliance with all Laws and without hazard or danger to any property and without danger of injury to persons or property.
 
Notice means a written document prepared and delivered by one Party to another Party.
 
Notice to Proceed (“NTP”) means a Notice specifying the date Contractor is authorized by Company to start the Work.
 
Notify means to provide Notice.
 
Person means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, non-incorporated organization, or government or any agency or political subdivision thereof.
 
Professional Services mean the performance of engineering, design, consulting, testing, or other technical services performed by persons specially licensed, certified, or otherwise acknowledged to have specialized training, experience, and skills in the art. Professional Services require the exercise of skilled judgment and expertise in addressing and completing the Work.
 
Project means the total effort being undertaken by the Company, of which the Work performed under this Contract may be the whole or may be a part, and which may include work by other Contractors to Company or by Company or by Company’s own forces including Persons under separate contracts with Company.
 
Project Safety Plans shall have the meaning set forth in Section 11.
 
Project Schedule means the overall integrated schedule for the Project developed by Company with input from others, including Contractor.
 
Project Site means the land and other places on, under, in, or through which the Work is to be installed, executed or carried out, and any other lands or places provided for the purposes of the Project, together with such other places as may be specifically designated in this Contract as forming part of the Project Site. Where the Work is but a part of the Project, Contractor may be granted access for ingress, egress to the particular part of the Project Site where the Work is to be performed, but not necessarily to the entire Project Site.
 
Revise and Resubmit , when applied by Company to Contractor's Deliverables, means that the Deliverables are unsatisfactory, as determined by the Company in its sole discretion, because they do not interface properly with Company-furnished components of the Project or do not comply with the requirements of the Contract.
 
Services mean those efforts expended, that do not produce a tangible input to the direct construction and installation of the plant facility.
 
Site Manager means Contractor’s senior representative on the Project Site.
 
Specifications mean the documents identified as such or referred to in this Contract and which sets forth the technical requirements for the Work and for the performance of related Services.
 
Stop Work Order means a Company Directive ordering Contractor to cease all Work to the extent described in the order.
 
Subcontractor means any person, at any tier, who has a contract with Contractor or with any other Lower Tier Subcontractor to perform a portion of the Work at the Project Site.
 
Substantial Completion means the stage in the progress of the Work when:
(a) Mechanical Completion has been achieved; and
(b) operational testing, whether by Contractor, Company, or both, has been successfully completed; and
(c) performance guarantees, if any, have been demonstrated; and
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
(d) the Work is ready for uninterrupted operation; and
(e) the Work or designated portion thereof is sufficiently complete in accordance with this Contract so that Company can occupy the Work and utilize it for its intended use; and
(f) remaining items are set forth in the punch list mutually agreed by Contractor and Company, inclusive of anticipated completion dates for items on the punch list, which the Parties shall endeavor to agree upon promptly and in good faith.
Integrated plant operation will not occur until all 3 units are available.  Tie-ins and unit outages will be performed as necessary during the construction effort to complete the plant.
 
Supplier means any Person providing or supplying any Goods, Construction Works, or Materials and Equipment to Contractor or to its Subcontractors.
 
Technical Document List (“TDL”) means the documents, Drawings and Specifications compiled in a list as required.
 
Total Contract Cost means cumulative value of GMP Contract Cost, approved Change Orders, plus half of shared savings.
 
Warranty Period shall have the meaning set forth in Section 64.
 
Work means all the resources including Goods, Labor, Construction Works, Materials and Equipment, Services, supervision, and management required by this Contract, whether provided by Contractor or provided to Contractor by Company, its Authorized Representative or others in order to fulfill Contractor’s obligations under this Contract. Work also includes all duties, responsibilities, and other obligations undertaken by Contractor under this Contract, whether expressed or implied.
 
2     General
 
This Contract constitutes the complete integrated agreement between the Company and Contractor regarding the Work, and it supersedes all prior agreements or undertakings.  Any exceptions or additional terms, whether written or oral, including those terms in the Contractor’s bid or proposal not expressly incorporated herein, are rejected.  No course of prior dealing or performance between Company and Contractor or industry usage shall be construed or interpreted to modify any term, condition, requirement, or instruction set forth in the Contract.
 
3     Representations by Contractor
 
 
3.2     Contractor also represents that it has visited the Project Site and that the GMP includes consideration of all the general and local conditions that might impact the Work including climatic conditions, existing surface conditions, existing structures, availability of qualified labor, availability of utilities, access to the Project Site, transportation facilities, disposal, storage, handling of Materials and Equipment, and any necessary Construction Works.
 
3.3     Contractor agrees and acknowledges that any surface or subsurface reports, topographic maps, geotechnical reports, information regarding the physical condition or character of the Project Site, existing structures at the Project Site, or material equipment or materials at the Project Site, or other information made available to Contractor by Company or its Authorized Representative are solely for Contractor’s convenience and not represented or warranted to be accurate.  Contractor acknowledges that Company and its Authorized Representative assume no responsibility or liability for conclusions or interpretations made by Contractor based on any information Company or its Authorized Representative has made available to Contractor.  Contractor further acknowledges that Company and its Authorized Representative assume no responsibility or liability for any understandings reached or representations made by third parties, including Company, or its employees or agents, and its Authorized Representative concerning conditions that may affect the Work.  Any failure by Contractor to take the actions described in this Section 3 shall not relieve Contractor from its responsibility for properly estimating the difficulty and cost of successfully performing the Work.
 
4     Scope of Work
 
The Contractor’s detailed scope of work is set forth in Attachment A - Scope.  Unless otherwise stated in the Contract, Contractor shall provide all resources including Goods, Labor, Construction Works, Materials and Equipment, Services, supervision, and management, necessary to fulfill Contractor’s obligations under this Contract.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
5     Price & Payment
 
The GMP and payment terms are set forth in Attachment B - Price & Payment. Attachment B – Price and Payment also contains the schedule of liquidated damages that may be imposed by Company for Contractor delay. The GMP includes the cost of all resources necessary to complete the Work in accordance with the requirements of the Contract. Contractor acknowledges and agrees that the Total Contract Cost will be paid to Contractor in trust first for the benefit of Contractor’s employees, Subcontractors, and Suppliers.
 
6     Schedule
 
6.1     The Contract Schedule for the performance of Contractor’s Work is set forth in Attachment A.  Contractor shall begin its Work upon receipt of a LNTP or an NTP.  However, Contractor shall not begin any physical Work on the Project Site until it receives a fully executed “Release to Work” (Exhibit 3) from Company. Contractor agrees and acknowledges that time is of the essence in the performance of this Contract. Provided that the Company is not in breach of this Contract, Contractor shall take whatever measures are necessary to complete its Work according to the Contract Schedule.  Contractor agrees and acknowledges that at times, the Project Site may have very limited areas available for lay down of materials, staging of materials, fabrication facilities, or pre-assembly operations.  In addition, several contractors will be working on the Project Site at the same time, and Contractor will have to coordinate its activities with those of Company, its Authorized Representative and other Subcontractors.  At times, this will require Contractor to focus on activities other than those most critical to the Contract Schedule.
 
6.2     If Contractor cannot timely complete the Work on the Project as a result of third parties, other than those third parties under Contractors control and supervision as defined in the general terms and conditions of this Contract, interfering with Contractor’s Work, then Contractor shall be entitled to an equitable adjustment to the Contract Schedule.
 
6.3     Contractor shall Notify Company and its Authorized Representative of any potential delay to the Work, including delays caused by third parties, other than those third parties under Contractor’s control and supervision as defined in the general terms and conditions of this Contract, within five (5) days after the event giving rise to the potential delay becomes known to Contractor. The Notice shall describe the cause of the potential delay and the plan Contractor proposes to avoid,
 
 
mitigate, or recover from the delay. Such recovery plan shall be subject to Company’s or its Authorized Representative’s review and approval. If Contractor fails to take steps that Company or its Authorized Representative determine are necessary to avoid or recover from the delay, Company or its Authorized Representative may direct Contractor to accelerate its Work by providing additional resources to recover and maintain the Contract Schedule.  Unless the delay is caused by the Company, third parties other than those third parties under Contractor’s control and supervision as defined in the general terms and conditions of this Contract, or Force Majeure, all costs incurred by Contractor to accelerate its Work shall be the responsibility of the Contractor.  In addition to its right to direct Contractor to accelerate its Work, Company or its Authorized Representative may exercise any other remedy specified herein or otherwise available under applicable Laws or in equity. Company or the Company’s Authorized Representative’s approval of Contractor’s proposed action to recover the delay or Company's or its Authorized Representative’s Directive to accelerate the Work shall not constitute a waiver of any right or remedy available to Company under this Contract, at law, or equity.  Further any directive to accelerate work shall not constitute a waiver of any of the provisions of this Contract.
 
7     Independent Contractor
 
7.1     Contractor is and shall operate as an independent contractor in the performance of the Work and not as an agent or employee of Company. Nothing contained in this Contract is intended nor shall be construed as creating any contractual relationship between any Persons other than Company and Contractor. Contractor shall obtain any and all state and/or local licenses, certificates, or permits required to obtain and maintain independent contractor status that may be required by the State of Montana.
 
7.2     At all times, Contractor shall be solely responsible for the means, methods, sequences, and procedures for performing its Work.
 
7.3     Subject to the limits in Section 8, Contractor has sole authority, control and responsibility to employ, discharge, supervise and otherwise manage its employees.
 
8     Supervision and Labor
 
Contractor shall provide an adequate number of Competent Persons to perform the Work. Prior to the start of the Work, Contractor shall submit the resume of a
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Competent Person to act as Contractor’s supervisor.  Once approved by Company, said supervisor shall be present on the Project Site whenever Contractor is performing Work. Contractor’s supervisor shall have complete authority to act on behalf of Contractor in all matters pertaining to execution of the Work. Contractor shall not remove or replace its supervisor or any other of its supervisory staff assigned to the Work without the prior written consent of Company.
 
9     Subcontractors and Suppliers
 
Contractor shall not subcontract performance of any portion of the Work to any Subcontractor or Supplier that does not meet the prequalification criteria applicable to such Subcontractor or Supplier as set forth in Attachment G. If there is an issue with Subcontractor or Supplier prequalification, Contractor may address the matter with Company. Upon request, Contractor shall furnish Company and its Authorized Representative a copy of any subcontract or purchase order for Company’s or its Authorized Representative’s information. Contractor shall also furnish to Company and its Authorized Representative such information pertaining to the proposed Subcontractor or Supplier as Company or its Authorized Representative may reasonably request including financial statements, safety data, and references.  Contractor shall not subcontract any portion of the Work to any Person that has a direct contractual relationship with Company. Failure of Contractor to comply with this Section 9 may, at the sole discretion of Company, be deemed to be a material breach of this Contract.  Notwithstanding anything to the contrary in this Section 9, Contractor shall remain liable to Company for any and all Losses incurred by Company caused by or related to any act of any Subcontractor or Supplier.
 
10     Labor Relations
 
 
10.2     Contractor shall use its best efforts to minimize the risk of labor-related delays including, if applicable, using its best efforts to negotiate a Project agreement that includes a no-strike provision.  Contractor shall promptly take any and all steps that may be available to resolve violations of collective bargaining agreements and jurisdictional disputes including the filing of appropriate processes with any court or administrative agency having jurisdiction to settle, enjoin, or award damages resulting from violations of collective bargaining agreements or jurisdictional disputes.
 
 
10.3     Contractor shall promptly Notify Company and its Authorized Representative of any actual, anticipated, or threatened labor dispute that might affect the performance of the Work of Contractor or any of its Subcontractors or Suppliers.
 
10.4     Contractor acknowledges that Materials and Equipment to be furnished by Company, if any, may be provided by non-union shops, and Contractor expressly agrees that any labor disputes resulting from this circumstance shall not constitute an event for which Contractor may seek relief under Force Majeure or any other provision of this Contract.
 
11     Environmental, Health & Safety
 
11.1     Contractor acknowledges and agrees that its paramount obligation under this Contract is to perform its Work in a safe manner. To that end, Contractor shall, at a minimum, perform its Work in accordance with all applicable State, Federal and Local Laws and regulations.  Further, Contractor hereby represents and warrants that it has a comprehensive safety, health, and environmental program and corresponding policies to insure human as well as environmental health and safety.
 
11.2     Contractor agrees to develop, in advance of project commencement, a written, comprehensive, site-specific project safety plan covering all aspects of the Work required to complete the project.  This plan will be available at the main office of the construction site and available for review at all times Contractor employees are at Work on the project.  A copy of this plan will be submitted to the Company prior to the commencement of work.
 
11.3     As part of the site specific project safety plan, the Contractor will develop and implement an effective training and inspection program to ensure all Contractor employees understand and follow all Contractor required safety rules and requirements.  Details of the training and inspection program shall be included in the site specific project safety plan.
 
11.4     Prior to mobilizing at the Project Site, Contractor shall designate a Competent Person who shall have the overall responsibility for implementing the requirements of the Project Safety Plans. The Competent Person shall (a) be present on the Project Site whenever Contractor is performing Work, (b) be able to identify hazards associated with the Work, and (c) have complete authority to stop the Work if he / she deems it necessary.  The designation of this Competent Person will be identified in the site specific project safety plan described in Attachment E.
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
11.5     The Contractor will develop an effective program to preclude and prevent the potential for any Contractor or Subcontractor employees to be using or under the influence of any alcohol or controlled substance (drugs) while on the project site.
 
11.6     Notwithstanding any of the requirements of this section, including the submission of the site specific project safety plan or any safety related actions by the Company, the Contractor retains sole responsibility for the safe execution of the Work and the overall safety of both Contractor and any Subcontractor employees.  All the requirements of this section shall apply equally to any Subcontractors hired by the Contractor.
 
12     Hazardous Materials
 
12.1     Contractor shall be solely responsible for all Hazardous Materials on the Project Site including reporting, accounting, licensing, care, transportation, storage, use, treatment, and disposal introduced by Contractor. This excludes pre-existing hazardous material. In carrying out its obligations under this Section 12, Contractor shall comply with the site specific project safety plan and all applicable Laws.
 
12.2     A Hazardous Material is any substance or material identified now or in the future as hazardous under any federal, state or local law or regulations, or any other substance or material that may be considered hazardous or otherwise subject to statutory or regulatory requirement governing handling, disposal or clean-up. The Contractor shall not be obligated to commence or continue work until any pre-existing Hazardous Material discovered at the Worksite has been removed, rendered or determined to be harmless by the Contractor as certified by an independent testing laboratory and approved by the appropriated government agency.
 
12.3     If after the commencement of the Work, pre-existing Hazardous Material is discovered at the Worksite, the Contractor shall be entitled to immediately stop Work in the affected area. The Contractor shall report the condition to the Company, and, if required, the government agency with jurisdiction.
 
12.4     The Contractor shall not be required to perform any Work relating to or in the area of pre-existing Hazardous Material without written mutual agreement.
 
12.5     Contractor must obtain Company approval prior to offsite disposal of existing soil.
 
 
13     Cleanup
 
Contractor acknowledges and agrees that cleanliness is an important factor in creating a safe work environment.  Contractor shall at all times keep work areas in a neat, clean, and orderly condition and shall promptly and properly dispose of all debris and rubbish resulting from Contractor’s operations.  If Contractor fails to maintain its work areas in a manner satisfactory to Company or its Authorized Representative or fails to immediately clean up after receipt of Notice from Company or its Authorized Representative to do so, Company or its Authorized Representative shall have the right, without further notice to Contractor, to clean up Contractor’s work areas and backcharge the cost to Contractor.
 
14     Stop Work Orders
 
Contractor is responsible for conducting the Work, however, Contractor shall at all times abide by the reasonable instructions of Company’s Site Manager and its Authorized Representative and any Company Directives.  If Contractor fails to comply with any such instructions, Directives, or the requirements of this Contract, Company or its Authorized Representative shall have the authority (a) to stop any portion of the Work affected by such failure until such failure is remedied or (b) to terminate this Contract for default in accordance with Section 41.  In the event that Company or its Authorized Representative is forced to issue a Stop Work Order, Contractor shall be liable for all resulting cost and Contract Schedule impacts.
 
 
Contractor shall promptly apply for and procure, without additional compensation, all certificates, licenses, permits, and similar permissions required by applicable Laws necessary to perform except for such permits as may be specifically set forth as Company’s responsibility elsewhere within this Contract.
 
16     Submittals
 
16.1     Contractor shall submit to Company or its Authorized Representative all Deliverables required by the Contract. The submission of any such Deliverables shall be certification by Contractor that the information set forth therein is accurate in all material respects and conforms to the Contract requirements and all applicable Laws.
 
16.2     Unless the Contract indicates that any such Deliverable is to be for Company' or its Authorized Representative’s information only, Company or its Authorized Representative, upon receipt of Contractor's Deliverables, shall review and return same to Contractor, marked as "Accepted," "Accepted as Certified," or "Revise and Resubmit".
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
The timing of Contractor's Deliverables and Company’s review shall be in accordance with the Contract Schedule. If the Schedule does not show a time for submission or approval, the submissions shall be made so as not to delay the Work, and Company or its Authorized Representative shall have a reasonable period to review the Deliverables.  Contractor shall be entitled to an equitable adjustment to the Contract Schedule if the Company, in reviewing the Deliverables, directly causes a material delay in the construction progress.
 
16.3     Upon receipt of a Deliverable marked "Accepted," Contractor may proceed with the Work to the extent of and in accordance with the Accepted Deliverable.
 
16.4     Upon receipt of a Deliverable marked "Accepted as Certified" and if Contractor concurs with Company's or its Authorized Representative’s comments, Contractor shall incorporate the comments and may proceed with the Work to the extent of and in accordance with the Accepted as Certified Deliverable. Within fourteen (14) Days, Contractor shall submit a revised Deliverable in which Company's or its Authorized Representative’s comments have been incorporated.  If Contractor determines that it cannot incorporate Company's or its Authorized Representative’s comments without prejudice to Contractor's warranty or other obligations under this Contract, Contractor shall so advise Company and its Authorized Representative in writing within seven (7) days of its receipt of Company's or its Authorized Representative’s comments, stating the reasons therefore. In this case, Contractor may proceed with the Work to the extent of and in accordance with the Accepted as Certified Deliverable only after resolution of Company’s or its Authorized Representative’s comments and Contractor’s objections.
 
16.5     Upon receipt of a Deliverable marked "Revise and Resubmit," Contractor shall immediately take all necessary action to revise its Deliverable in accordance with Company's or its Authorized Representative’s comments and to resubmit the document to Company and its Authorized Representative.  In no event shall Contractor proceed with the affected Work until its revised Deliverable has been returned to Contractor marked as "Accepted" or "Accepted as Certified" by Company.
 
16.6     Use of the term “Accepted” or “Accepted as Certified” shall not excuse or otherwise discharge Contractor from its responsibility to supply
 
 
 
Materials and Equipment that interface with Company-furnished components and comply with the requirements of this Contract, including the Specifications and Drawings as provided in the Contract and the documentation incorporated thereto.  Provided the review does not directly cause a material delay to the Contract Schedule, review and comment by Company or its Authorized Representative of Contractor’s Deliverable shall not relieve Contractor of its obligation to maintain the Contract Schedule and to complete the Work in accordance with this Contract, and any such review and comment by Company or its Authorized Representative shall not constitute a waiver of Company’s rights under this Contract with respect to nonconforming Work.
 
17     Issued for Construction Documents
 
17.1     Contractor shall perform the Work using only Drawings and Specifications marked by Contractor as "Issued for Construction" or equivalent designation.
 
17.2     Contractor shall maintain at the Project Site, a complete and current set of "Issued for Construction" Drawings and Specifications.
 
18     Ownership and Use of Contractor Deliverables
 
18.1     All Deliverables prepared or developed by Contractor and submitted to Company in the performance of the Work shall be the property of Company, and such Deliverables may be used by Company without restriction in the design, construction, operation, maintenance, and use of the Project.
 
18.2     To the extent that the Deliverables contain any intellectual property belonging to Contractor, Company shall have a royalty-free perpetual license, at no additional charge, providing the Company the right to use such property in the design, construction, operation, maintenance, and use of the Project.
 
18.3     Company and its Authorized Representative shall have the right to reproduce all Deliverables received from Contractor that are related to the Project notwithstanding any notice to the contrary appearing on the document.  If requested by Company or its Authorized Representative, Contractor shall provide a certificate to that effect.
 
19     Substitutions
 
Contractor may propose substitutions for the specified Goods or Materials and Equipment.  Contractor’s proposal shall constitute a warranty by Contractor that the proposed substitution is equal or superior to the item for
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
which it is being   substituted and is fit for its intended purpose.  Company's or its Authorized Representative’s decision on the use of any such substitution shall be final.  If the substitution is accepted, the Company will issue a Change Order to that effect in accordance with Section 37.  Company’s or its Authorized Representative’s approval shall not excuse any of Contractor’s obligations including its warranty obligations.  Contractor shall be solely liable for the cost and schedule impacts of using any substitution.
 
20     Discrepancies
 
Whenever, in Contractor's opinion, the Contract documents or any portion of the Work are defective, deficient, or at variance with each other or with any Laws applicable to the Work, Contractor shall immediately discontinue performance on the portion of the Work affected thereby and Notify Company and its Authorized Representative of such opinion.  Thereafter, Contractor shall not proceed with the portion of the Work so affected until it has received a Directive specifying what action, if any, is to be taken.  If Contractor proceeds with any affected portion of the Work prior to receiving such Directive, such Work shall be at Contractor’s risk.
 
21     Quality Control/Quality Assurance Program
 
21.1     Contractor shall submit for review a Project-Specific Quality Control Program.  Contractor shall assign a Competent Person at the Project Site to implement and supervise Contractor’s Quality Control Program.
 
21.2     For Work that includes the installation, placement, storage, or preventative maintenance of Materials and Equipment, Contractor shall use Contractor’s appropriate procedures, systems, and forms to generate and track quality and inspection documentation, turnover punch lists, and preventive maintenance.
 
21.3     Contractor shall, without additional compensation, make or cause to be made all inspections and tests required by this Contract.  If the results or methods of performance of such inspections or tests fail to conform to the requirements of the Contract, Company or its Authorized Representative may, at its sole discretion, require Contractor to perform additional inspections and tests, all costs of which shall be to the account of Contractor.  Contractor shall furnish Company and its Authorized Representative with satisfactory documentation of the results of all inspections and tests. Company and its Authorized Representative shall be given not less than seven (7) days Notice of any inspections or tests to be made by Contractor or by its Subcontractors or Suppliers so that Company or its Authorized Representative
 
 
 
may, at its option, witness any such inspections or tests.
 
21.4     Unless specifically permitted by the Specifications, Contractor shall employ a qualified and approved independent testing agency, acceptable to Company and its Authorized Representative, to perform all required testing.
 
22     Materials Management Procedure
 
22.1     If required by the Scope of Work (Attachment A), Contractor shall, prior to the start of the Work, prepare and submit for approval a Project-Specific Materials Management Procedure (“MMP”). Contractor shall assign a Competent Person at the Project Site to implement and supervise Contractor’s Materials Management Procedure.
 
22.2     The MMP shall be a comprehensive computer-based system capable of tracking Contractor-supplied Materials and Equipment from requisition through order placement, delivery to the Project Site or other storage areas, receipt into inventory, and issuance from inventory for incorporation into the Work.
 
22.3     In addition, the MMP shall be used to track all Materials and Equipment furnished to Contractor by Company, its Authorized Representative, or third parties.  These Materials and Equipment shall be tracked either from purchase order information furnished by Company or other third parties or from the actual receipt and turn-over of Materials and Equipment to Contractor.
 
23     Control of Materials and Equipment Furnished by Company
 
23.1     Materials and Equipment furnished by Company to Contractor for Contractor’s installation, erection, or incorporation into the Work shall be offloaded and received by Contractor in the presence of Company’s or its Authorized Representative’s site representative or his designated representative.  Quantities of such Materials and Equipment shall be checked jointly by Contractor and Company or its Authorized Representative.  Contractor’s receiving and acceptance of such Materials and Equipment shall be recorded in writing and evidenced by Contractor’s signing of forms satisfactory to Company or its Authorized Representative.
 
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
unloading, Contractor shall inspect and inventory such Materials and Equipment as soon after unloading as practicable, but in any event, prior to moving such Materials and Equipment to storage.  Such inspection and inventory may require the opening and resealing of crates or cartons in order to ascertain the existence of any visible damage or of shortages in the quantities indicated in the shipping documents.  Contractor shall Notify Company or its Authorized Representative promptly of any shortages or damage revealed by its inspection.
23.3     Provided that the Company and Contractor were available for a timely inspection under 23.2, any shortage of or damage to such Materials and Equipment that is found after the time required for inspection under Section 23.2, and that would have been revealed in a proper inspection pursuant to Section 23.2, shall be deemed to have been caused by Contractor, and Contractor shall assume full responsibility for any shortages in, loss of, or damage to such Materials and Equipment and for any delay in completion of the Work caused thereby.
 
23.4     Contractor shall Notify Company or its Authorized Representative of any additional requirements for Materials and Equipment being supplied by Company.  Such Notice shall be made as soon as the need for the additional requirement is discovered, but, in any event, in sufficient time for Company or its Authorized Representative to address the requirement.  In the event of a misfit of the Materials and Equipment furnished by Company, Contractor shall immediately Notify Company or its Authorized Representative of such misfit.  Contractor shall take all reasonable steps to avoid standby time due to lack of such Materials and Equipment or misfits and shall continue to perform other portions of the Work pending resolution of such situations by Company and its Authorized Representative.
 
23.5     Contractor shall Notify Company or its Authorized Representative of any Materials and Equipment supplied to Contractor that are surplus and shall cooperate with Company and/or its Authorized Representative in the disposition of such surplus as directed by Company or its Authorized Representative.
 
24     Project Controls Requirements
 
24.1     Contractor shall provide Company and its Authorized Representative with appropriate reports and updates in sufficient detail to enable Company and its Authorized Representative to measure
 
 
Contractor’s progress against the current short term work plan on a weekly basis.  In addition,   Contractor shall schedule and conduct   Contractor shall schedule and conduct weekly progress meetings and weekly coordination meetings unless a need for more frequent meetings are needed or requested by the Contractor, the Company or the Company’s Authorized Representative.
 
24.2     Detailed Contract Schedule
 
a.   Within thirty (30) calendar days of the effective date of this Contract, Contractor shall submit, for Company or its Authorized Representative’s review and approval, a detailed Contract schedule in CPM format using the latest software (currently Primavera 6.0).  Company or its Authorized Representative shall set the Project activity codes dictionary structure, calendars, activity ID and Project ID numbering system etc. in consultation with the Contractor.  The Company’s or Authorized Representative’s Project planner will also arrange a Project calendar to set the data dates for schedule updates, in order to facilitate easy electronic integration of the overall Project Schedule. This Contract Schedule shall include ample allowance for normal delays and difficulties that may be encountered in the work of this nature including weather, holidays, coordination and normal job site congestion.  At a minimum, the detailed Contract Schedule must support the dates given in the Project Schedule and show a logical and orderly array of resource loaded activities (materials, equipment and man hours) required to achieve completion of the work.  Individual activity durations shall not be longer than twenty (20) work days.  In case the submitted Contract Schedule is found deficient by the Company or its Authorized Representative, the Contractor shall correct the deficiencies and resubmit the schedule within five (5) working days for Company or its Authorized Representative’s approval.  The approved Contract Schedule will become the baseline against which schedule performance is measured.  Forecasted deviation of the completion date from this baseline by greater than one week will require a recovery plan addressing the causes of the deviation. The baseline will not be revised except by Change Order.
 
b.   In conjunction with the development of the detailed Contract Schedule, Contractor shall produce production and quantity installation schedules for each major discipline, commodity, and craft activity.  These schedules shall reflect in tabular and graphical form the Deliverables to be produced or quantities to be installed each period.  These schedules shall be updated by Contractor on a weekly basis throughout execution of the Work.
 
24.3     Four Week Schedule (Three Week Look-Ahead)
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
During the execution of the Work, Contractor shall submit to Company or its Authorized Representative a weekly short term schedule showing the previous week's Work and a three week look-ahead schedule including engineering, procurement, and construction activities as appropriate (the "Four Week Schedule").  As a minimum, the Four Week Schedule shall include all activities, Contract Schedule milestones, and payment milestones identified on the detailed Contract Schedule for the four week period.  The Four Week Schedule must identify all activities by area, and must include manpower loading for each activity.
 
24.4     Daily Report
 
Beginning with the first day of activity on the Project Site and continuing until completion of the Work, Contractor shall submit a “Daily Report” in form and substance acceptable to Company ‘s Authorized Representative. At a minimum, the Daily Report shall list any safety incidents, manpower by craft, equipment, FWOs, and a brief description of Contractor’s activities. The report for the previous day shall be submitted to the Company and its Authorized Representative by 9:00 a.m. of each working day.  Daily reporting may be suspended at the discretion of the Company in the event work is slowed or stopped.
 
24.5     Weekly Status Report
 
Beginning with the start of activity on the Project Site and continuing until completion of the Work, Contractor shall submit a “Weekly Status Report” in form and substance acceptable to Company’s Authorized Representative.  At a minimum, the Weekly Status Report shall include safety statistics, completed work activities, schedule updates, manpower utilization, FWOs, and CORs.  The report for the previous week shall be submitted to Company’s Authorized Representative by 9:00 a.m. of each Monday.
 
24.6     Monthly Report
 
 
a.   Following the Effective Date of the Contract, Contractor shall submit a “Monthly Report” in form and substance acceptable to Company or its Authorized Representative.  At a minimum, the Monthly Report shall include the following:
 
24.6.1.1   A brief description of work activities accomplished during the reporting period for all phases of the Work.
24.6.1.2   Milestones Achieved.
24.6.1.3   FWOs and CORs.
24.6.1.4   Status of Documents and Drawings for Approval.
24.6.1.5   Quality Assurance/Quality Control Activities.
24.6.1.6   The updated detailed Contract Schedule including a detailed recovery plan for any schedule milestones that have slipped from the baseline Contract Schedule. The updated
 
 
detailed Contract Schedule and Monthly Report shall be submitted as separate documents.
 
24.6.1.7   A narrative description of all problems affecting progress of the Work, proposed remedies to such problems, and other needs of Contractor.
 
 
b.    The Monthly Report shall be submitted to Company or its Authorized Representative on the fifth day of each month.
 
24.7     All reports required by this Section 24 shall be delivered to Company or its Authorized Representative in hard copy and native electronic format including any reports generated with Primavera 6.0.  The Company or its Authorized Representative will provide an example of weekly and monthly reports expected from the Contractor to insure proper management and success of this project.  Provision of these reports by the Contractor will be in accordance with the Project calendar.
 
24.8     For Progress Measurement, the Contractor shall adhere to Company or its Authorized Representative’s standard rules of credit milestones, in accordance with Company or Authorized Representative approved progress measurement system.  Man-hour budgets will be reasonably spread over discrete elements of identifiable and quantifiable work to provide the budget basis for progress measurement.  Budget hours will be earned as quantities are installed.  Quantity surveillance will be performed by the Contractor and verified by the Company or Authorized Representative to confirm installed quantities and or earned man-hours.  Construction Progress measurement will be updated weekly.
 
25     Construction Works
 
Construction Works shall be in first-class operating condition, safe, and fit for the purposes for which they are used.  Such Construction Works shall be subject to inspection from time to time by Company, its Authorized Representative or by third parties as may be required by applicable Laws.  Any Construction Works that do not conform to the requirements of the Contract or applicable Laws shall be promptly removed by Contractor and replaced without additional cost to Company and without delaying the Contract Schedule.
 
26     Expediting, Inspection, and Testing
 
26.1       In addition to tests that may be specified elsewhere in this Contract, Company and its Authorized Representative shall have the right, but not the obligation, to inspect and test Contractor’s Work at any time, including any Work that may be performed at locations other than the Project Site,
 
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
to ensure compliance with the requirements of the Contract.  Any such inspection or lack of such inspection shall not excuse Contractor’s obligation to perform in accordance with the requirements of the Contract.  Contractor shall provide access and sufficient safe and proper facilities for such inspections and tests.
 
26.2     If Contractor covers any portion of the Work prior to (i) an inspection or test required by this Contract, (ii) an inspection or test specified in the schedule of inspect and test activities, or (iii) an inspection or test previously requested by Company or its Authorized Representative, the cost of uncovering and restoring the Work to allow for such inspection or test shall be to Contractor’s account.
 
26.3     If Industry Practices would require re-examination, then re-examination of any Work may be ordered by Company or Authorized Representative.  If, as a result of such re-examination, any part of the Work is determined by Company or Authorized Representative to be defective or to otherwise fail to conform to this Contract, Contractor shall not be reimbursed for uncovering the Work or for the repair or for the corrective work required to be performed or for any restoration costs.  If, as a result of such re-examination, the Work is found to conform to the Contract requirements, Company shall reimburse Contractor for the allowable direct documented cost incurred by Contractor to uncover and restore the re-examined portion of the Work and the Contractor shall be entitled to an equitable adjustment to the Contract for delay only in the event that re-examination shows conformity with the Contract.
 
26.4     Rejection by Company or Authorized Representative of any non-conforming Work shall be final and binding.  Rejected Work shall be promptly repaired or replaced by Contractor so as to conform to this Contract and all costs thereof shall be to Contractor’s account.  If Contractor fails to promptly commence and diligently continue the repair or replacement of such rejected Work within five (5) days of receipt of written Notice from Company or Authorized Representative to do so, Company or its Authorized Representative may, at its option, cause the rejected Work to be repaired or replaced by others and all costs thereof shall be to Contractor’s account.  The refusal or failure to commence correction of the rejected Work upon Directive within five (5) days shall constitute a basis for Termination for Default of Contractor under Section 41 at the sole discretion of Company.  If Contractor commences correction as required under this section, Contractor reserves its
 
 
right to dispute the required correction for 30 days following the corrective action.
 
27     Contractor's Shipments
 
27.1     Contractor shall be responsible for shipping all Contractor-supplied Materials and Equipment and Construction Works to the Project Site including any required export licenses and customs clearance.  Contractor shall consign such shipments to itself at the shipping address for the Project, freight fully prepaid.  Contractor shall be responsible for making demurrage agreements and for settling any claims by carriers for such shipments.
 
27.2     Contractor shall advise Company or its Authorized Representative, in writing, in advance of major shipments of Materials and Equipment or the delivery of major items of Construction Works and Contractor shall be responsible for all aspects   regarding the arrival, unloading, inspection, and release of the carriers' equipment.  Contractor shall coordinate as necessary with Company or it’s Authorized Representatives. Contractor shall promptly unload its shipments and release the carriers' equipment from the Project Site.
 
28     Country of Origin
 
Materials and Equipment shall have their origin in the country or countries as required by the Contract.  Unless otherwise indicated in the Contract, the country of origin shall be considered the country in which the Materials and Equipment become a commercially recognizable product that is substantially different in basic characteristics, purpose, or utility from its components and that results from fabricating, manufacturing, processing, or a substantial and major assembling of components.
 
29     Spare Parts
 
If the Work includes the furnishing of any Engineered Materials and Equipment and if Contractor intends to terminate or discontinue the production of spare parts related to such Materials and Equipment, Contractor shall give Company or its Authorized Representative Notice of its intention to do so in sufficient time to permit Company or its Authorized Representative to obtain their spare parts requirements from Contractor or from others.  Contractor shall provide to Company’s Authorized Representative, at no cost, the drawings, blueprints, and specifications for the fabrication, manufacture, and assembly of the spare parts if and as requested by Company or its Authorized Representative.  The obligations of this Section 29 shall survive any completion or termination of this Contract.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
30     Title & Risk of Loss
 
Title to all Materials and Equipment supplied by Contractor in the performance of its Work shall pass to Company on the earlier of (i) delivery to the Project Site or (ii) Contractor’s receipt of payment from Company.  Regardless of which Party has title, risk of loss shall remain with Contractor until Company assumes care, custody, and control or until Final Acceptance, whichever is earlier.
 
31     Protection of the Work
 
Regardless of who may hold title, Contractor shall be responsible for protection of the Work, including any Goods or Materials and Equipment furnished to Contractor by others, until Company assumes care, custody, and control or until Final Acceptance, whichever is earlier.  Until that time, Contractor shall take all necessary precautions to protect the Work from damage by the elements or by other construction activities.
 
32     Possession Prior to Final Completion
 
Company shall have the right to take possession of or use any completed or partially completed portion of the Work as Company may deem necessary for their operations.  If Company exercises the foregoing right, Company will provide written Notice to Contractor.  Such possession or use shall not constitute acceptance of Contractor's Work, but Contractor shall not be liable for damage or loss to the Work caused by Company, or third parties acting under the control of Company.
 
33     Warranty of the Work
 
33.1     Contractor warrants that (i) the Materials and Equipment furnished under the Contract will be of good quality and new unless otherwise required or permitted by the Contract, (ii) the Work will be free from defects not inherent in the quality required or permitted, (iii) the Work will be done in a professional and workmanlike manner in accordance with Industry Practice, and (iv) the Work will conform to the requirements of the Contract.
 
33.2     The Warranty Period is set out in Section 65.  Nothing contained in Section 65 is intended nor shall be construed to limit any other obligations which the Contractor may have under the terms of the Contract.  The Warranty Period for correction of Work as described in Section 65 relates only to the specific obligation of the Contractor to correct the Work, and has no relationship to the time within which Company may seek to enforce Contractor’s other obligations under the Contract including Contractor’s liability for latent defects.
 
 
33.3     At any time prior to the end of the Warranty Period, Contractor shall replace, repeat, repair, retest, re-inspect, or otherwise correct any portion of the Work that fails to conform to the warranties in Section 33.1.  Contractor shall perform any such Corrective Work at its sole expense.  In addition, Contractor shall be liable for the cost of correcting any Work of Company, or other contractors or Contractors that is destroyed or damaged by Contractor's Corrective Work or by removal of Contractor’s defective Work.
 
33.4     In addition to the warranties in Section 33.1 above, and to the extent that Contractor is obligated to supply any Goods under this Contract, Contractor warrants that the Goods are new, of merchantable quality, and fit for their particular purpose.  If any Goods are found to be defective or otherwise not in conformance with the Contract, Company or its Authorized Representative shall have the right, upon giving notice and the basis for rejection, to either (a) reject any or all defective or nonconforming Goods or (b) accept and correct the Goods.  Contractor shall pay all costs and expenses arising from such rejection or correction.
 
33.5     Contractor shall perform any required Corrective Work as soon as reasonably possible, but in any event, within five (5) Days after Contractor receives Notice from Company or its Authorized Representative that the Work is nonconforming.  If, despite Contractor’s reasonable efforts, the Corrective Work cannot be performed within said five (5) Day period, Contractor shall commence such Corrective Work immediately upon receipt of Notice from Company or its Authorized Representative and shall diligently and, without interruption, perform such Corrective Work until it is completed.  If Contractor contends that the Corrective Work directed by Company or its Authorized Representative is not covered by the warranty or is outside the Warranty Period, or that Contractor is not obligated to perform the Corrective Work for other reasons, Contractor shall nevertheless promptly proceed with the Corrective Work in accordance with the Company and or Authorized Representative’s Directive, submit a Notice of claim within seven (7) Days, and pursue its remedies under Section 62 hereof.
 
33.6     If, during the Warranty Period, the performance of Corrective Work would disrupt the work of others or the commercial operation of the Project or any portion thereof, such Corrective Work shall be coordinated with Company or its Authorized Representative’s operating personnel in order to minimize such disruption.  In the event of such
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
disruption, Company or its Authorized Representative may require that Corrective Work be performed on an around-the-clock basis, including weekends and holidays.  All costs incidental to such Corrective Work, including, but not limited to, overtime premiums and shift differentials, shall be borne by Contractor.
 
33.7     In the event: (i) Contractor fails to commence Corrective Work promptly within the five (5) Day period prescribed above; or (ii) Contractor commences Corrective Work within the five (5) Day period but, in Company’s or its Authorized Representative’s reasonable opinion, under Industry Practices fails to diligently, and without interruption, prosecute the Corrective Work; or (iii) Company  or its Authorized Representative reasonably determines that a case of emergency exists, where delay in commencing Corrective Work could result in serious loss or damage to persons or property; or (iv) Company or its Authorized Representative, in its sole reasonable discretion, determines that the requirements of its Project Schedule will be adversely affected if the Corrective Work is not performed prior to the expiration of the five (5) Day period; or (v) Company or its Authorized Representative reasonably determine that the Corrective Work must be performed prior to the expiration of the five (5) Day period in order to return the Work or the Project to commercial use, then the Corrective Work may be performed by Company or its Authorized Representative and all costs thereof shall be to Contractor's account, provided that Company or its Authorized Representative, as applicable, has given reasonable Notice thereof to Contractor and afforded Contractor the opportunity to perform Corrective Work within the time determined by Company or its Authorized Representative to be required.  Further, the refusal or failure of Contractor to commence Corrective Work within five (5) Days of Notice from Company or its Authorized Representative shall constitute a basis for Termination for Default under Section 41, at the sole discretion of the Company, regardless of the degree of completion of the Work by the Contractor.
 
33.8     Company shall have the right to assign Contractor’s warranties to other third parties.
 
33.9     Company shall operate and maintain the equipment in a manner consistent with all applicable manufacturer specifications.  Contractor shall not be obligated to warranty any claim by Company arising directly or indirectly from Company’s failure to meet its obligation to operate
 
 
and maintain the Equipment or care for materials in a manner consistent with applicable manufacturer specifications.
 
34     Warranty of Title
 
Contractor warrants that title to the Work, including the Materials and Equipment, shall be clear, marketable, and free of any defects, liens, charges, or encumbrances whatsoever.
 
 
Contractor represents and warrants that no portion of the Work infringes any patent, copyright, trademark, or trade secret.  If the Work or any portion thereof is held to constitute an infringement of any patent, copyright or trademark or an unauthorized disclosure of any trade secret, Contractor shall, at its own expense, and, at Company’s option (i) procure for Company the perpetual right to use such Deliverables (ii) replace the Deliverables with implements that are not infringing or do not disclose any trade secret, or (iii) modify the Work so that it becomes non-infringing or does not disclose any trade secret.  Any such replacement of or modification to the Work shall meet the requirements of and shall be subject to the terms of this Contract.
 
36     Intellectual Property
 
Whenever Contractor is required to use any design, device, material, or process covered by letters, patent, trademark, or copyright, Contractor shall indemnify and save harmless Company from any and all claims for infringement by reason of the use of such protected design, device, material or process in connection with the Agreement and shall indemnify Company for any costs, expenses and damages which it may be obliged to pay by reason of such infringement at any time during the prosecution or after the completion of the Services; provided, however, that Contractor has no such liability for equipment, design, material or processes furnished by Company.
 
37     Changes
 
37.1     Company and its Authorized Representative shall have the right to direct Contractor to make changes in the Work that are within the general scope of the Work including additions, deletions, and revisions in the Goods, the Materials and Equipment, the Construction Works, or the Contract Schedule.  To the extent that any such change impacts Contractor’s cost of or time for performance, the Total Contract Cost and Contract Schedule shall be equitably adjusted to compensate for such impact.  Changes shall be accomplished using Request for Change
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Proposals, Field Work Orders, Change Order Requests, Change Orders, or a combination thereof .
 
37.2     Request for Change Proposal
 
Request for Change Proposal (“RFCP”) is a Company Directive that advises Contractor about a potential change in the Work.  Unless otherwise stated in the RFCP or in some subsequent Company Directive, Contractor shall not implement the change until it receives a fully executed Change Order.
 
37.3     Field Work Orders
 
A Field Work Order (“FWO”) is a Company Directive that instructs Contractor to take some immediate action in connection with the Work.  FWOs are issued when the circumstances are such that there is not time to issue a RFCP or a Change Order.  Upon receipt of a FWO, Contractor shall immediately proceed in accordance with the terms of the FWO.  Any impact of an FWO on the Total Contract Cost or Schedule shall be adjusted by a formal Change Order.
 
37.4     Change Order Requests
 
Within seven (7) Days after the occurrence of any event that Contractor believes entitles Contractor to a Change Order, Contractor shall determine whether it will have any cost or Contract Schedule impact on Contractor’s Work.  If Contractor believes that it will have any such impact, Contractor shall prepare and submit a Change Order Request (“COR”) to Company.  When submitting a COR, Contractor shall include:
 
a.   a detailed narrative describing the factual basis of the request including references to the applicable Contract provisions,
 
b.   a detailed build-up of the price of the proposed change of the GMP scope, if any, including labor (hours and rates), Goods, Materials and Equipment, Subcontractors, Suppliers, Construction Works and  Services, (exclusive of markups for profit), together with supporting documentation such as time sheets and vendor invoices, and
 
c.   a detailed analysis showing the impact, if any, on the Contract Schedule.
 
37.5     Change Orders
 
a.   A Change Order (“CO”) is a formal written instrument stating (i) the change in the Work, (ii) the adjustment, if any, in the Total Contract Cost, and (iii) the adjustment, if any, in the Contract Schedule.
 
b.   Upon receipt of a properly documented COR, the Parties shall negotiate in good faith to determine whether Contractor is entitled to a Change Order and, if so, the appropriate equitable adjustment, if any.  Change Orders are to be managed outside the GMP structure and priced individually.  Contingency under the GMP is not available to fund Change Orders, as defined in Attachment B –
 
 
Price and Payment, Section 3.3 – Contract Contingency. In determining the price of Changes to scope of the Work, the allowance for profit shall be determined on the basis of the cumulative net value of change and how it relates to the Dead-Band referenced in Attachment B – Price & Payment, Section 4 – Change Management. Contractor shall not be entitled to any damages; including loss of anticipated profits, based on a decrease in the Work.
 
c.   If the Parties are unable to agree on the disposition of a COR, including those necessitated by a FWO, Company will either (i) issue a Notice denying Contractor’s request or (ii) issue a unilateral Change Order setting forth Company’s final determination regarding the adjustments.  If Contractor disagrees with Company’s determination, it may pursue the matter under Section 62 (“Disputes”). Pending resolution of the dispute, Contractor shall continue to perform its Work, including the disputed Work, in accordance with the Contract and the Company’s Directives.
 
37.6     Claims
 
A Claim is a written demand by Contractor seeking an adjustment in the Total Contract Cost or Contract Schedule or some other relief under the terms of the Contract Documents for events other than a RFCP or FWO.  Contractor shall provide Notice to Company of any potential Claim within seven (7) Days after the event giving rise to the Claim.  Within fifteen (15) days thereafter, Contractor shall submit a COR for any claimed cost or Contract Schedule impacts.  The Claim will be processed in the same manner as set forth in Section 37.4.
 
37.7     Waiver
 
Contractor hereby expressly waives any right to an equitable adjustment in the Total Contract Cost or the Contract Schedule; (i) for any event that Contractor fails to pursue in accordance with this Section 37, (ii) for work done by Contractor without a Company Directive or Change Order, or (iii) for claims asserted after Contractor submits its final invoice.
 
38     Final Completion and Acceptance
 
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
and/or utility belonging to Company used or state of repair; and (vi) all Contractor’s Subcontractors and Suppliers have been paid in full as shown by properly executed lien releases.
 
38.2     When Contractor believes that it has achieved Final Completion, it shall so Notify Company and its Authorized Representative.  If Company agrees, Company shall endorse Contractor’s Notice.  If Company does not agree, it shall Notify Contractor of its reasons for refusing to endorse the Notice.  Thereafter, Contractor shall work diligently to correct the deficiencies and resubmit its Notice.  This process may be repeated as many times as necessary to obtain Company’s endorsement.
 
38.3     Company endorsement of Contractor’s Notice of Final Completion shall constitute Company’s Final Acceptance of the Work.  Such Final Acceptance shall not relieve Contractor of its continuing obligations under this Contract, including its warranty and indemnity obligations.
 
39     Suspension of the Work
 
39.1     Company shall have the unilateral right to suspend performance of the Work, in whole or in part, by giving Notice to Contractor specifying the extent to which the Work is suspended and the effective date of such suspension.  Contractor shall suspend performance of the Work to the extent that the Notice so specifies, but shall continue to perform any portion of the Work not suspended.  To the extent that any such suspension affects Contractor’s cost of or time for performance, the Total Contract Cost and Contract Schedule shall be equitably adjusted to compensate for such impact.
 
39.2     All requests for adjustment in the time or cost for performance under this Section 39 shall be submitted to Company in accordance with the provisions of Section 37.
 
 
40.1     Company shall have the unilateral right to terminate this Contract, in whole or in part, for its convenience, by giving Notice to Contractor specifying the extent to which the Contract is terminated and the effective date of such termination.  Contractor shall discontinue performance of the Work to the extent that the Notice so specifies, but shall continue to perform any portion of the Work not terminated.  To the extent that any such termination affects Contractor’s cost of or time for performance, the Total Contract Cost and Contract Schedule shall be equitably adjusted to reflect any such impact.
 
 
40.2     Contractor, if and to the extent requested to do so by Company, shall promptly assign to Company, in form and content satisfactory to Company, Contractor’s rights, title and interest to the Materials and Equipment and Construction Works purchased for or committed to the terminated Work (whether completed or in progress), and Work in progress and completed Work (whether at Project Site or at other locations), or shall otherwise dispose of same in accordance with the Company's Directives.
 
40.3     Subject to Contractor’s compliance with the provisions of this Section 40 and other applicable sections of the Contract, Contractor shall recover from Company, as complete, full, and final settlement for such terminated Work, a sum equal to its actual direct cost for the terminated Work satisfactorily performed as of the effective date of termination, plus an allowance for reasonable overhead and profit on such direct cost of the Work performed, provided, however, that such a sum does not exceed a pro rata portion of the Total Contract Cost, commensurate with the ratio that the terminated Work performed by Contractor and accepted by Company as of the effective date of the termination bears to the entire Work specified under this Contract prior to termination.  Any payment to Contractor hereunder shall be less any amounts previously paid to Contractor.  In addition, Contractor shall recover from Company its reasonable and direct costs incurred to terminate its subcontracts, including lease and rental agreements, supply agreements, and other commitments.  In no event, however, shall the total payment to Contractor under this Section 40 exceed the Total Contract Cost prior to termination.  Contractor shall not be entitled to recover indirect, special, incidental, consequential or exemplary damages; including loss of profits or revenue on Work not performed.
 
40.4     All requests for compensation under this Section 40 shall be submitted to Company in accordance with the provisions of Section 37.
 
41     Termination for Default
 
41.1     If Contractor (i) fails to supply adequate Competent Persons to perform the Work, (ii) fails to perform the Work in a safe professional and workmanlike manner; (iii) fails to abide by all applicable Laws, (iv) fails to make prompt payment to its Subcontractors and Suppliers, v) fails to abide by Company or Authorized Representative Directives, (vi) or is otherwise in breach of its obligations under this Contract and Contractor fails to correct any such condition within seven (7) Days after receipt of Notice from Company,
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Company may without any further Notice or prejudice to any other right or remedy, terminate the contract for default.
 
41.2     In the event of termination by Company under this Section 41, Contractor, if and to the extent requested to do so by Company, shall promptly assign to Company, in form and content satisfactory to Company, Contractor’s rights, title and interest to Materials and Equipment purchased for or committed to the terminated Work (whether completed or in progress) and Work in progress and completed Work (whether at the Project Site or at other locations) and to those subcontracts, lease and rental agreements, supply agreements, and other commitments so designated by Company.  Company, at its option and without waiving any other available remedy under this Contract or at Law or in equity, may take possession of the Work at the Project Site and of any or all of the Materials and Equipment (whether delivered to the Project Site or on order by Contractor) and finish the terminated Work by whatever method Company deems necessary; including, obtaining Materials and Equipment similar to those to be provided under this Contract, on terms and conditions that Company deems appropriate.
 
41.3     In the event Company elects to terminate this Contract pursuant to this Section 41, Company shall have the right to use any of Contractor’s Intellectual Property and proprietary information that Company deems necessary to complete the Work.
 
41.4     In the event of a termination for default, Contractor shall be liable to Company for all Losses incurred by Company arising from the default including all costs to complete the terminated Work.  Upon termination under this Section, Company may withhold any further payments to Contractor unless and until all of the Work, including the terminated Work, has been completed and Accepted by Company.  Company shall thereafter determine the Losses incurred by Company as a result of the termination.  If the Losses are less than the unpaid balance of the Total Contract Cost, Company shall pay the difference to Contractor.  If the Losses exceed the unpaid balance of the Total Contract Cost, Contractor shall promptly, after receipt of Company’s invoice, pay to Company the amount of such excess.  Contractor shall continue to be fully liable to Company for all other damages to Company.  If the Contract is terminated under this Section and it is later determined or adjudged that there is no default, such termination shall be considered to be a termination for convenience
 
 
and not a breach of contract, and the provisions of Section 40 (Termination for Convenience) shall apply.
 
42     Insurance
 
Contractor shall maintain the insurance coverage described in Attachment C (Insurance Requirements).
 
43     Indemnity
 
43.1     To the extent of its fault or negligence, Contractor agrees to indemnify, hold harmless, and defend Company, and Lenders (the “Indemnified Parties”) from and against any Losses arising:
 
a.   on account of injury, illness, or death of any persons including the employees of the Indemnified Parties, Contractor, its Subcontractors, Suppliers, and other third parties,
 
b.   injury to or destruction of tangible property,
 
c.   from failure of Contractor to comply with any Laws,
 
d.   from claims by any collective bargaining group or individual employee that Contractor has failed to pay wages, benefits, withholdings, dues, or assessments,
 
e.   from failure to pay Employees, Subcontractors or Suppliers, or
 
43.2     The provisions of this Section shall survive Final Acceptance and the termination of this Contract.
 
44     Waiver of Consequential Damages
 
Except for (i) those damages specifically recoverable by Company or Contractor as set forth elsewhere in the Contract, (ii) specified liquidated damages, if any, or, (iii) those consequential damages resulting from the willful misconduct of Company or Contractor, neither Party shall be liable to the other, whether such liability arises out of contract, warranty, tort (including negligence), strict liability, or any other cause or form of action whatsoever, for consequential, special, indirect, punitive, exemplary, or incidental loss or damage.
 
45     Limitation of Liability
 
Contractor’s liability to Company shall not exceed the GMP. The foregoing limitation upon Contractor’s liability shall apply under any theory of recovery regardless of Loss, including contract, warranty, tort (including negligence whether actual, imputed, or presumed by operation of law), strict liability. However, such limitation shall not apply to Contractor’s indemnity or insurance obligations   or to any claims arising directly or indirectly from Contractor’s willful misconduct or gross negligence.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
46     Force Majeure
 
46.1     Neither Party shall be responsible for or liable for or be deemed in breach of this Contract because of any delay, interference, disruption, or hindrance in the performance of their respective obligations hereunder, if and to the extent that any such impact in performance is due solely to a Force Majeure event.
 
46.2     The following events shall not be considered Force Majeure events within the meaning of this Section:
 
a.   changes in market conditions that affect the demand for the services of Contractor or its Subcontractors or Suppliers;
 
b.   late delivery of Materials and Equipment caused by congestion at the facilities of Contractor or its Subcontractors or Suppliers or elsewhere, an oversold condition of the market, inefficiency, or similar occurrence or condition;
 
c.   late performance by Contractor or its Subcontractors or Suppliers caused by a shortage of labor or supervision, inefficiency in prosecuting their respective portions of the Work, or similar occurrence or condition;
 
d.   Contractor’s failure or the failure of its Subcontractors or Suppliers to secure and maintain permits, licenses, or other governmental approvals necessary for prosecution of the Work or their respective portions of the Work;
 
e.   normal weather conditions, including adverse weather conditions predictable through analysis of 100 year historical weather data, and;
 
f.   any negligent or intentional acts, errors, omissions or acts which are the fault of the affected Party.
 
46.3     If Contractor experiences a delay, interference, disruption, or hindrance or other inability to perform that is due solely to a Force Majeure event described herein, the Contract Schedule shall be adjusted and the scheduled completion date shall be extended by a period of time equal to the amount of time reasonably determined by the Parties to be necessary for Contractor to recover from such impact in performance.  Contractor expressly agrees that adjustment of the Contract Schedule shall be Contractor’s sole and exclusive remedy and Company’s sole and exclusive liability in the event Contractor is delayed, interfered with, disrupted, or hindered in the performance of its Work by a Force Majeure event.
 
46.4     The Party claiming a delay under this Section shall use its best efforts to remedy any inability to perform due to the occurrence of a Force Majeure event.  As and when such affected Party is able to resume performance of its obligations under this
 
 
Contract, such affected Party shall give the other Party Notice to that effect.
 
46.5     If Contractor experiences a delay, interference, disruption, or hindrance or other inability to perform that is due to a Force Majeure event described herein, Contractor shall take all reasonable steps to reduce, mitigate, remove, or overcome the delay, interference, disruption or hindrance or its direct or indirect effects or impacts.  If Contractor fails to take such action as Company may, in its sole discretion and after seven (7) days written Notice to Contractor, and at Contractor’s expense, initiate measures to remove or relieve such delay, interference, disruption, or hindrance or its direct or indirect effects or impacts and thereafter require Contractor to resume full or partial performance of the Work, or may declare Contractor in default under this Contract.
 
46.6     Failure of the affected Party to provide the Notice or to take the prescribed actions hereunder shall be deemed a waiver by the affected Party of its right to seek an extension of time for its performance.
 
47     Avoidance of Liens
 
47.1     Third party Liens - Contractor shall promptly pay for all things including Services, Labor, Construction Works, Materials and Equipment, and Goods used or furnished by Contractor in the performance of the Work and shall, at its sole expense, keep the Project free and clear of any liens.  If Contractor fails to release and discharge any such lien against the Project within seven (7) Days after receipt of Notice from Company to remove such lien, Company may, at its option, pay, discharge, or release the lien or otherwise deal with the lien claimant.  In the event that Company elects to pay any such lien claim, the amount of such payment shall be considered reasonable.  Contractor shall be liable to Company, as applicable, for any Losses incurred by Company in resolving lien claims including reasonable attorney fees and court costs.  Company shall be entitled to deduct such costs from payments otherwise due to Contractor.
 
47.2     Liens by Contractor – Unless otherwise required by statute, the Parties agree that Company may discharge any lien filed by Contractor by posting a surety bond with a penal sum equal to 105% of the lien claim amount.
 
48     Proprietary Information
 
48.1     Unless required by applicable Laws, neither Party shall disclose to third parties, information obtained from the other Party in the performance of this Contract which has been designated by that Party
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
as confidential or proprietary information (“Confidential or Proprietary Information”).
 
48.2     This obligation shall not apply to any information (a) in the public domain, (b) already in the Party’s possession free of any confidentiality agreement and not obtained from the other Party, (c) provided to a Party from a third party free of any confidentiality obligation and not obtained from the other Party, or (d) independently developed. Nothing in this Section shall limit or preclude either Party from use of Confidential or Proprietary Information in its possession prior to the execution of this Contract in accordance with the terms of any agreements governing such use.
 
48.3     Either Party shall have the right, without the other Party’s approval, to disclose Confidential or Proprietary Information to the limited extent required to comply with any request or order of a governmental agency or court.  If a Party intends to disclose Confidential or Proprietary Information to any governmental agency or court, that Party shall, to the extent it does not violate or fail to comply with any such request or order, advise the other Party prior to disclosure as defined in article 67. Each Party is responsible for taking any action it deems necessary, such as seeking a protective order from the appropriate authority, to protect its confidential and proprietary information.
 
48.4     The Contract, and any other information issued to or made available to Contractor by or through Company in connection with the Work are Proprietary Information whether or not so marked by Company.  All such Proprietary Information furnished by Company to Contractor shall remain Company’s property.  Upon completion of the Work, Contractor shall, as requested by Company, either destroy or return such documents including any copies thereof except that Contractor may retain one copy for its records.
 
49     Gratuities
 
49.1     Contractor, its employees, agents, and representatives, shall not give or offer to give to an officer, official, or employee of Company, gifts, entertainment, payments, loans, or other gratuities to influence the award of this Contract or any other contract or to obtain favorable treatment under this Contract or any other contract or purchase order.
 
49.2     Violation of this Section 49 may be deemed by Company to be a material breach of this Contract and any other contract between Contractor and Company, and may subject all contracts with Contractor to termination for default under the provisions of Section 41 (Termination For Default)
 
 
of this Contract, as well as any other remedies at law or in equity available to Company.
 
50     Assignment
 
Contractor shall not sell, assign, or transfer any of its rights or obligations under this Contract, in whole or in part, by operation of Law, or otherwise, without the prior written consent of the Company.  Any assignment of this Contract in violation of the foregoing shall be voidable at the option of the Company.  However, Company shall have the right to assign this Contract to Lenders, or Affiliated Companies including their respective successors or assigns each of whom shall have the right to make subsequent assignments.  Contractor shall include in any subcontracts, lease agreements, and purchase orders a provision giving to Contractor the right to assign any such subcontracts and purchase orders to the Company, its successors, and assigns and giving each the right to make subsequent assignments.
 
51     Notices
 
Any Notice required by this Contract shall be in writing, signed by an Authorized Representative of the Party issuing the Notice, and delivered to the Authorized Representative of the other Party at the address given on the signature page of the Contract.  A Notice shall be effective upon receipt or on the Notice's effective date, whichever is later.  Notice shall not be made by telephone, telegraph, facsimile, or electronic mail.
 
52     Severability
 
Any invalid or unenforceable provision of this Contract shall be deemed severed from the Contract, and the balance of the Contract shall be reformed in such a manner as to effect, to the maximum extent possible, the original intent of the Parties.
 
53     Modifications and Amendments
 
No modification, amendment, rescission, waiver, or other change of or to this Contract shall be of any force or effect unless such modification, amendment, rescission, waiver, or other change is set forth in a fully executed Change Order.
 
54     Remedies
 
Unless otherwise designated as “sole and exclusive,” all remedies allowed by the Contract may be exercised cumulatively and concurrently with each other provided there is no double recovery for the same damages.  Where remedies are not specified in this Contract, then the Parties shall be entitled to their remedies at law or in equity for such occurrence, subject, nevertheless, to the Contractor’s Limitation of Liability in Section 45.
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
55     Publicity
 
Contractor shall not issue news releases or publicize or issue advertising pertaining to the Work or to this Contract without first obtaining the written approval of Company.
 
 
56.1     Contractor shall maintain, at the Project Site, one (1) record copy of this Contract, including all Drawings, Specifications, addenda, Change Orders, Field Work Orders, and other modifications in good order and currently marked to record changes and selections made during construction.  In addition, Contractor shall maintain, at the Project Site, one (1) record copy of approved shop drawings, product data, samples, and other Deliverables required of Contractor.  These record copies shall be available to Company at all times and shall be delivered to Company upon completion of the Work. Delivery of the record copies shall be a condition precedent to Final Acceptance.
 
56.2     Company reserves the right to perform an audit of all Contractor’s and associated Subcontractors and Vendors documentation. Company shall be allowed to perform total of (3) audits, including one (1) audit that can be performed after Final Completion.  Audit locations and/or additional follow-up audits shall be determined based on audit conditions/findings.
 
 
57.1     Any reference to an article, section, paragraph, exhibit, appendix, or attachment refers to an article, section, paragraph, exhibit, appendix, or attachment of or to this Contract unless otherwise specified.  The table of contents and the headings and subheadings are inserted for convenience only and shall not be deemed a part of this Contract nor taken into consideration in the interpretation or construction of this Contract.
 
57.2     As used in this Contract, the singular includes the plural, and the masculine includes the feminine.  The terms "hereof," "herein," "hereunder," and comparable terms refer to the entire Contract with respect to which such terms are used and not to any particular article, section, or subdivision thereof.  The terms “includes” and “including” shall mean “including, but not limited to.”
 
57.3     In the case of any conflict between or among the documents or provisions that make up Attachment A, including the Drawings and Specifications, the Scope of Work in Attachment A shall take precedence over the Drawings and Specifications
 
 
 
and the Drawings shall take precedence over the Specifications and, within Drawings text shall take precedence over graphics, and the specific shall take precedence over the general.
 
57.4     If any provision of this Contract contemplates that Company and Contractor will negotiate any matter after the Effective Date, such provision shall be construed to include an obligation on the part of the Parties to negotiate in good faith in accordance with the intent of this Contract.
 
58     English Language
 
Contractor hereby represents that it has sufficient knowledge of the English language to fully understand this Contract.  All Deliverables provided by Contractor shall be in the English language.  Contractor shall bear all costs of translation and assumes all risk of such translation.
 
59     Non-Waiver
 
Any Party’s waiver of any breach or failure to enforce any of the terms, covenants, conditions, or provisions of this Contract at any time shall in no way affect, limit, modify, waive, or be deemed to affect, limit, modify, or waive that Party’s right thereafter to enforce or compel strict compliance with each term, covenant, condition, or provision of this Contract, any course of dealing or custom of the trade notwithstanding.
 
60     Survival
 
In order that the Parties may fully exercise their rights and perform their obligations hereunder arising from the performance of the Work, any provisions of this Contract that are required to ensure exercise of such rights or performance shall survive the expiration or termination of this Contract regardless of the cause for such termination and regardless of whether or not such termination applies to all or only part of this Contract.
 
61     Laws and Regulations
 
Contractor shall comply strictly with all Laws applicable to Contractor's Work.  Contractor shall not, under any circumstances, apply for any exception or variance from applicable Laws without Company's prior written approval.  This Contract shall be interpreted and applied in accordance with the laws of the State of Montana without regard to Montana’s choice or conflict of law rules or statutes.
 
62     Disputes, Forum and Applicable Law
 
62.1     This Agreement shall be governed in all respects by the laws of the State of Montana.
 
a) When a Dispute has arisen and negotiations between the parties have reached an impasse, either party may give the other party written notice
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
of the Dispute.  In the event such notice is given, the parties shall attempt to resolve the Dispute promptly by negotiations between representatives who have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility for the matter.  Within ten (10) days after delivery of the notice, the receiving party shall submit to the other a written response.  Thereafter, the representatives shall confer in person or by telephone promptly to attempt to resolve the dispute. All reasonable requests for information made by one party to the other will be honored.
b) If the dispute has not been resolved by negotiation between the representatives within thirty (30) days of the notice, or if the parties have failed to confer within twenty (20) days after delivery of the notice, the parties shall endeavor to settle the dispute by non-binding mediation.  The mediation shall consist of both parties agreeing to one neutral mediator, providing the mediator with simultaneous, non-shared written position statements, and daylong mediation at the chosen mediator’s desired location.
c) Should the mediation not lead to settlement of the dispute, then either party may proceed to a court of competent jurisdiction.
d) All negotiations and proceedings pursuant to this process are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence and any additional confidentiality protections provided by applicable law.
 
62.2     Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against either of the parties in the courts of the State of Montana, or, if it has or can acquire jurisdiction, in the United States District Court for the District of Montana and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on either party anywhere in the world.
 
63     Notice of Affirmative Action
 
If the Work or any portion thereof is performed in the United States of America, then, for such Work or portion of the Work, Contractor shall comply with Executive Order 11246 (as amended), the Vocational Rehabilitation Act of 1973 (as amended), the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (as amended), and
 
 
their implementing regulations codified at 41 C.F.R. 60-1.4(a), 41 C.F.R. 60-741.4, and 41 C.F.R. 60-250.4, respectively, all of which are incorporated herein by reference and made part of this Contract.
 
64     Warranty Period
 
The Warranty Period for Contractor to correct its defective Work shall be twenty four (24) months from Final Acceptance unless otherwise stated herein.  Any Corrective Work done during the Warranty Period shall be warranted for an additional twenty-four (24) month period.
 
65     Contract Performance Security
 
65.1     Within seven (7) days after the Effective Date or prior to mobilization to the site, whichever is earlier, Contractor shall furnish an irrevocable Letter of Credit (LOC) in the amount of five million dollars ($5,000,000.00) as a guaranty on behalf of Contractor that the terms of this Contract shall be complied with in every particular.  The LOC shall (a) name Company or its designee as the beneficiary, (b) be issued by a bank with a major presence in the United States, and (c) be substantially in the form of Exhibit 5.  Company shall not be obligated to make any payments to Contractor for any purpose until the LOC is furnished to Company.
 
65.2     The LOC shall remain in full force and effect until the end of the Warranty Period provided, however, that upon Final Acceptance of the last generating unit, Company will accept a substitute LOC for two million, five hundred thousand dollars ($2,500,000.00) plus the amount of any potential or unpaid liquidated damages as determined by Company.
 
65.3     Upon discovery of an event that could result in a draw on LOC, Company will provide informal communication to the Contractor identifying the event in question to allow Contractor an opportunity for remedy.  If Contractor and Company fail to mutually resolve the event to Company satisfaction, Company will exercise its rights under Article 65.4.
 
65.4     Company is required to give Contractor 15 calendar days written Notice of it intent to draw upon and exercise its rights under the LOC.
 
66     Disclosure
 
Contractor acknowledges that Company is a regulated public utility. Further, Contractor acknowledges and accepts that Company may be compelled, obligated, ordered, or otherwise directed to produce this Contract, including all attachments, schedules, exhibits, and other documentation that may be required by federal or state
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
regulators or other governmental authority.   Contractor expressly acknowledges the potential of such disclosures and the potential for the Agreement to become part of the
 
public record and expressly accepts the provisions of Section 48.1 of this Contract.
 

 
 
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 

This Contract consists of the documents listed below and initialed by Contractor together with any other documents included by reference.  The documents shall be read together in a way that gives meaning, effect, and equal weight to all provisions.  In the event of an irreconcilable conflict, discrepancy, error, or omission, the order of precedence shall be in the descending order listed:
 
Contractor Initials
Document
N/A
Change Orders, if any
_____________
Contract Agreement
_____________
Attachment A – Scope of Work
_____________
Attachment B - Price & Payment
_____________
Attachment C – Insurance Requirements
_____________
Attachment D – Not Used
Provided by Contractor
Attachment E – Safety Manual & Plan
Provided by Contractor
Attachment F – QA/QC Manual
Provided by Contractor
Attachment G – Prequalification Forms for Subcontractors
_____________
Attachment H – Invoice Process Flow Chart
_____________
Attachment I – Permits Provided by Company
_____________
Attachment J – Dead Band Profit Adjustment Process for Change Orders
_____________
Attachment K – GMP Examples
_____________
Attachment L – Indemnity Agreement
_____________
Exhibit 1 – Partial Lien Release
_____________
Exhibit 2 – Final Lien Release
_____________
Exhibit 3 – Release to Work Form
_____________
Exhibit 4 – Requisition for Payment
_____________
Exhibit 5 – Form of Letter of Credit
_____________
Exhibit 6 – Change Order Request Form
 

 
 
In witness whereof , the Parties have caused this Contract to be executed with the understanding and intent that it shall be effective as of the date first set forth above.
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
For Contractor:
For Company:
By:_______________________________
By:_____________________________
Title: _____________________________
Title: ___________________________
Date: _____________________________
Date: ___________________________
 
 

 
 
Representatives of the Parties
 
For Contractor:
For Company:
Name:
Name:
Address 1:
Address 1:
Address 2:
Address 2:
Address 3:
Address 3:
Tel:
Tel:
Fax:
Fax:
Email:
Email:
Cell:
Cell:
 

 
 
End of Contract
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Attachment A – Scope of Work
 
1.  
Project Data
 
 
1.1.  
The Project name is Mill Creek Generating Station (MCGS).
 
 
1.2.  
The Project Site is located near Anaconda, in Deer Lodge County, Montana.
 
 
1.3.  
The Company is NorthWestern Energy.
 
 
1.4.  
The Company Engineer is Stone & Webster Inc. A Shaw Group Company.
 
 
1.5.  
The Authorized Representative is Stone & Webster Inc. A Shaw Group Company (Shaw).
 
 
2.  
Scope of Work
 
 
2.1.  
Unless explicitly provided other wise in Section 2.2 below, Contractor shall provide all resources including Goods, Labor, Materials and Equipment, Construction Works, and Services necessary to perform the following Work.
 
 
2.2.  
General Description and Project Scope (Contractor shall refer to Basis of Design Doc. No: 133860-DC-P-001-Rev 1, for complete scope of work).
 
General Description
 
The new Mill Creek Generating Station (MCGS), located near Anaconda, in Deer Lodge County, Montana, will consist of three, nominally rated 50 MW Pratt & Whitney FT8-3 Swift-Pac combustion turbine generators (CTG) operating in simple cycle (150 MW total).  Each unit will have its own, dedicated selective catalytic reduction (SCR) unit to reduce NO x and CO emissions.
 
The project shall be complete, tested, commissioned and ready to operate by Date identified in Attachment A – Scope of Work, Section 3.
 
The facility and power plant shall be laid out to accommodate a fourth CTG, heat recovery steam generators, steam turbine generator and its associated cooling equipment in the future.  All systems shall be designed to accommodate the fourth CTG during this construction phase.
 
Conditions of Service
 
Safety is a critical component of successful plant design and construction and shall be a primary focus.
 
As a facility for electric transmission regulation service, the equipment is expected to be on-line continuously 24/7 with frequent and rapid load changes.  Operations are characterized by 10 to 12 load swings per day through the entire MW regulating range of the total operating units.  Normally, this regulating service will be at or below the base load rating.  It is anticipated that the units will have less than 20 cold starts per year.  The plant will be available for service at all times of the year and will be used for continuous service.
 
Reliable continuous regulation service is the purpose of this plant.
 
The basic aspects of the plant are to provide:
 
·  
130 MW of regulation capability at all time 24/7 (on natural gas over all temperature ranges)
 
·  
Load change (ramping rate) of +/- 30 MW/minute minimum (or better)
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
·  
Design plant utilities for future addition of a fourth gas turbine unit
 
Regulation capability and range shall be continuous within an operational basis wherein emissions are controlled.
 
Each turbine unit shall be capable of operation firing natural gas and No. 2 diesel, and future biodiesel distillate liquid fuels.
 
The combustion turbine generator will be installed outdoors.
 
Service life of not less than 30 years is expected.
 
Site Conditions and Ratings
 
Rated conditions for the combustion turbine generator will be 81.5°F (dry bulb) with a relative humidity of 21.6 percent.  Plant elevation is 5180 ft above mean sea level.
 
Primary fuel for the combustion turbine will be natural gas.  In the event that gas is unavailable, liquid fuel will be utilized.  It is anticipated that about 95 percent of combustion turbine operating time will be with natural gas (winter usages of liquid fuels).
 
The design range of outdoor temperatures at the site is -16/-18 min to 81.5/56.3 max DB/MCWB°F (dry bulb/mean coincident wet bulb temperature each being 2 percent exceedence values).  Average annual temperature is 39.5/36.3°F DB/MCWB.  Extreme temperatures: 100°F high, -52°F low.  Ambient air in the vicinity of the site can be expected to contain fugitive dust.
 
Site design criteria for all systems shall be designed to -40°F.
 
No gas turbine inlet air heating or cooling is required at this site.
 
Contractor Supplied Items
 
The Contractor shall supply:
 
a)  
The complete design, engineering, procurement, installation, construction, start-up, turnover, and commissioning of the balance of plant to readiness for commercial operation, including incorporation of, installation of, and commissioning of all Company furnished equipment and material.
b)  
Installation of power wiring from individual combustion turbine/generator components to skid mounted junction boxes.
c)  
Continuous Emissions Monitoring System (CEMS)
d)  
CEMS power and sensors in exhaust stack.
e)  
CEMS enclosure HVAC and enclosure foundation.
f)  
CEMS instrumentation, sensors and connection wiring.
g)  
Natural gas forwarding system on the plant site from Company furnished connection point at site property line.
h)  
Liquid fuel oil truck unloading, storage and forwarding system.
i)  
19% Aqueous Ammonia Storage System, pumps, and distribution to SCR System, including provisions to connect the future 4th unit.
j)  
Plant switchyard, general grading.
k)  
All demineralized water production equipment, tanks, and building enclosure.
l)  
Raw water and demineralized water storage and forwarding systems.
m)  
Geotechnical Engineering, required select fill soils and all compaction services including testing.  Contractor can utilize existing geotechnical report.
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
n)  
Clearing, grubbing and rough grading of the entire site, including the switchyard area.  Grading shall be balanced cut and fill.  (Site has been cleared of contaminated soils.)
o)  
Plant Control System (PCS) including main control console.
p)  
Balance of plant auxiliary service interfaces to the combustion turbines including fuel gas and fuel oil required to meet Pratt & Whitney requirements, including provision to connect the future 4th unit.
q)  
Balance of Plant infrastructure such as buildings, concrete foundations, access roads (paved and unpaved) and fences.
r)  
Concrete foundations for buildings, enclosures, and equipment, including turbine/generator/SCR equipment.
s)  
Procurement and installation of all components and materials except as described in the “Company Furnished Items” section.
t)  
Procurement and installation of all items necessary to install and operate all items listed in the “Company Furnished Items” section.
u)  
Contractor shall connect to Company supplied raw water flanged connection on site to supply raw, service, fire and demineralized water.
v)  
Necessary infrastructure to supply power to new control room and balance of plant instrumentation and control systems when new generation units are not yet in operation.
w)  
Telephone infrastructure from telephone company connection near the site to the wall outlets in the Control Room and Office building.  (Internal phone extension network to be carried by existing Ethernet line back to NorthWestern Butte offices.)
x)  
Site drainage to Contractor-supplied storm drain infrastructure and retention eco-system infiltration basin.
y)  
Civil works, including surfacing of the final site.  The gas turbine island and diesel fuel pump areas shall be concrete covered with drain catch rim.  Other site areas disturbed by construction shall be surfaced with crushed rock (occupied areas) or planted in native grasses.
z)  
Site technical advisors (mechanical, electrical, and checkout/start up) during construction, startup, testing and commissioning.
aa)  
Performance testing and commissioning support and support to Pratt & Whitney staff during commissioning and testing.
bb)  
Training of the Operations and Maintenance (O&M) staff on the systems and equipment furnished by Contractor.
cc)  
Provide O&M manuals and as-built drawings for the systems and equipment furnished by the Contractor.
dd)  
Offsite property connection to municipal sewer line near Mill Creek Road.
 
Engineering/Procurement
 
Contractor shall design, engineer, and procure all required equipment/systems, including the following:
 
a)  
Site drainage, including storm water retention eco-system.
b)  
Concrete pad, pre-engineered building, piping, pumps and electrical for raw water demineralization equipment.
c)  
Single raw-water/fire-protection-water storage tank sufficient for 500,000 gallons of active storage.  240,000 gallons shall be dedicated to fire protection.
d)  
Single demineralized water storage tank sufficient for 500,000 gallons of active storage.
e)  
Fire protection system as required to meet NFPA (2003) and local government requirements, including motor and diesel-driven main and jockey pumps.
f)  
Low-voltage (480 VAC and below) switchgear.
g)  
Design only of GSU foundations. Supply and construction of GSU foundations shall be by Company.
h)  
Connection to each GSU low side.
i)  
Central Plant Control Systems for systems not provided with the gas turbine package or by Company.
j)  
Uninterruptible Power Supply (UPS) system.
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
k)  
Auxiliary buildings, including the following:
 
·  
Operations and Maintenance Building
·  
Water Treatment Building
·  
Fire Water Pump House
·  
Diesel Fuel Pump House
·  
Storage Building
·  
Electrical Equipment Trailers
·  
Liquid Fuel and Natural Gas Injection Skids (supplied by Pratt & Whitney) enclosures.
 
l)  
Security system for Control Building and Control Room area, electrical trailer/s, front electrical gate, complete with security cameras around yard critical areas and including Company identified provisions for NERC security requirements.
m)  
The following complete systems, including, as a minimum; piping, insulation, heat tracing valves, instrumentation, pumps, and electrical requirements:
 
·  
Fuel gas interconnection
·  
Raw water
·  
Demineralized water
·  
Sanitary sewage system, including on site lift station
·  
Storm water drainage
·  
Waste water treatment through oil water separators
·  
Fire protection
·  
19% aqueous ammonia
·  
Liquid fuel
·  
Compressed air
·  
Design only of connecting potable water line to municipal connection
 
n)  
Plant Weather Station complete with the following sensors:
 
·  
Ambient temperature
·  
Ambient humidity
·  
Barometric pressure
·  
Wind speed
·  
Wind direction
 
 
Construction Services
 
Contractor shall provide construction services for the above, including the following:
 
a)  
Safety and loss control program.
b)  
Construction management.
c)  
Scheduling.
d)  
Construction labor and supervision.
e)  
Construction equipment, including cranes.
f)  
Quality assurance program.
g)  
Procurement and expediting.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
h)  
Manufacturer's field service for balance of plant equipment.
i)  
Equipment and materials receiving, handling and secure indoor storage, including protection and preventative maintenance.
j)  
Pre-operational checkout, testing, and startup support.
k)  
Construction closeout.
l)  
Fire protection (during construction).
m)  
Participation in coordination conferences and other meetings as the Company/Company Engineer may request.
n)  
Construction parking.
o)  
Construction power distribution for the entire site from the local utility.  The local power distribution company will be a separate division of NorthWestern.  The Contractor shall be responsible for all construction power costs.
p)  
Telephone and data service from local companies.
q)  
Construction water, fire protection water, and sanitary facilities.
r)  
Treatment and disposal of waste waters and runoff resulting from construction and startup activities.
s)  
Temporary installations, including three adequately furnished offices for the Company’s staff for the duration of the construction.
t)  
Appropriate transportation for the workers, if required.
u)  
Laydown area preparation.
 
 
Start-Up
 
Contractor shall be responsible for performing start-up and testing activities, with Company and equipment vendor personnel, and providing all necessary consumables (with the exception of raw water, aqueous ammonia, fuel oil and natural gas), and start-up spare parts for systems and equipment within Contractor’s scope.
 
Training
 
Contractor shall provide up to two weeks of on-site training for Company’s personnel on systems and equipment within Contractor’s scope.
 
 
[END OF SECTION 2.2]
 
 
2.3.  
The Work shall be performed in accordance with the following Technical Scope Documents, all of which are hereby incorporated by reference:
 
a)  
Attachment A.1 – Basis of Design (BOD), Doc. No: 133860-DC-P-001, Rev1.
 
b)  
BOD Attachments A through J , which include Drawings and SORVD.
 
2.4.  
Company shall furnish the following at no cost to Contractor:
 
a)  
Site work required for environmental remediation and compliance relating to existing soil contamination.
 
b)  
Fluids for initial fills of all fluids and lubricants related to the combustion turbines and main generator including #2 fuel oil and aqueous ammonia.  The Contractor shall perform actual fills per technical specifications.
 
c)  
The Pratt & Whitney, FT8-3 combustion turbine and generator units complete with all necessary peripheral equipment including but not limited to:
 
1.  
Driver Module assembly
2.  
Pratt & Whitney cold weather package
3.  
Combustion turbine inlet air filtration system
4.  
15kV circuit breaker
5.  
Lube oil supply
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
6.  
Air filtration
7.  
Natural gas and fuel oil filtration and metering skids
8.  
Lubricating oil air cooled heat exchanger skids
9.  
Trouble shooting spare parts
10.  
Strategic spare parts
11.  
SCR exhaust handling components with 90-foot tall stack and FAA lighting.
12.  
19% aqueous ammonia injection skid at SCR’s (not including piping).
13.  
Special tools for installation, adjustment and maintenance.
14.  
Control wiring from individual combustion turbine/generator (CTG) components to skid mounted junction boxes.
15.  
CTG shipment to job site
16.  
CTG control house
17.  
All three SCR systems, to be erected in field
18.  
Extended warranty for all equipment
19.  
Extended warranty for gas generators and power turbines
20.  
Start-up training and assistance
 
 
(Refer to Attachment C of the BOD, Scope of Supply list for more extensive detail on the above).
 
d)  
230kV transformers, and all work associated with 230kV voltage system, including transformer foundations. (Foundation design by Contractor).
 
e)  
The necessary modifications and connection to the existing Anaconda Mill Creek Substation to accommodate the output of the new power plant.
 
f)  
High-voltage tower relocation, if required.
 
g)  
Raw water tie-in consisting of a connection flange and valve at the existing Silver Lake Water Line.
 
h)  
Compressed natural gas from off-site connection to the inside the site property line.
 
i)  
Sewer waste water drain pipe (connection point) off-site near Mill Creek Road.
 
j)  
Construction electrical power (480 VAC, 60~, 3 f ) and meter.  Contractor shall propose maximum amperage requirements to Company.
 
2.5.  
The Contractor’s Work shall be bound by the following interface points:
 
a)  
As shown on Site Layout Drawing #133860-0-P-PP-002 Rev B of Attachment A of BOD.
 
3.  
Schedule
 
3.1.  
Contractor shall perform its Work according to the following schedule:
 
a)  
Limited Notice to Proceed on or about                                                                                  04/15/2009
 
b)  
Full Notice to Proceed on or about                                                                                         07/31/2009
 
c)  
Mobilization to Project Site on or about                                                                                08/04/2009
 
d)  
First Fire Unit 1 on or about                                                                                                     07/19/2010
 
e)  
First Fire Unit 2 on or about                                                                                                     08/12/2010
 
f)  
First Fire Unit 3 on or about                                                                                                     09/02/2010
 
Liquidated Damages are applicable to the Milestones listed below
(see Attachment B – Price & Payment, Section 11 – Liquidated Damages):
 
g)  
Milestone A – Unit #1 Substantial Completion                                                                    09/25/2010
 
h)  
Milestone B – Unit #2 Substantial Completion                                                                     10/21/2010
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
i)  
Milestone C – Unit #3 Substantial Completion                                                                     11/10/2010
 
j)  
Milestone D – Final Completion of Contractor’s Work on or about                                  12/31/2010
 
4.  
Communications
 
4.1.  
All communications regarding the Work, including correspondence, shall be conducted in accordance with the requirements of Section 51– Notices.
 
4.2.  
Communications between Company and Contractor shall be addressed as follows:
 
a)  
If to Company:
 
a.  
Authorized Representative Office Address:
 
Stone & Webster, Inc. A Shaw Group Company.
9201 E. Dry Creek Road
Centennial, Co  80112
 
Attn:           Irina Aylyarova
Subcontracts Administrator
Tel:  303 – 741 – 7557
Fax: 303 – 741 – 7556
 
b.  
Physical/Site Address:
 
Mill Creek Generating Station
241 Unit A Willow Glen Road
Anaconda, MT  59711
 
Attn:           Gene Scott (Company Authorized Representative)
Site Representative
Tel:  303 – 882 – 2991
Fax: TBD
 
b)  
If to Contractor:
 
NewMech Companies, Inc.
1633 Eustis Street
St. Paul, MN 55108 – 1219
 
Attn:           Brian Rodeghier
Project Manager
Tel:  651 – 642 – 5520
Fax: 651 – 642 – 5559
 
4.3.  
All communications from Contractor shall reference the Contract number and shall be numbered sequentially, with the sequential identifier displayed prominently.  The correspondence sequential identifier shall be of the form NMC-NWE-#T, where XXX is a three letter designation for Contractor supplied by Company, # is the number designating which position the letter occupies in the sequence of correspondence sent by Contractor, and T representing the single letter identifier of the correspondence type.  When responding to Company correspondence the Company's correspondence sequential identifier shall be referenced.
 
 
4.4.  
Unless otherwise stated in this Contract or in the case of an emergency, all Company communications regarding Contractor’s Subcontractors and Suppliers or their agents or employees shall be made through Contractor.
 
 
5.  
Project Job Rules
 
5.1.  
Project Security Plan
 
a)  
Work areas at the Project Site will be assigned to Contractor by Company or its Authorized Representative.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
5.2.  
Project Security Plan
 
a)  
Contractor shall provide a site specific security plan for review and approval prior to mobilization.
 
b)  
Entry into the Project Site will be through Contractor - controlled security gates and will require proper identification.
 
c)  
Contractor shall be responsible for implementing all on-site security for the duration of the project.
 
5.3.  
Hours and Days of Work/Overtime
 
a)  
The Project Site shall be open for work by Contractor based on normal working hours of 7:00 A.M. – 5:30 P.M. Monday through Thursday, 7:00 A.M. – 3:30 P.M. on Friday as determined by Contractor.
 
b)  
Scheduled overtime work, shift work and other variations from normal working times proposed by Contractor must be approved in advance and in writing by Company.  All scheduled overtime shall be shown on the Four Week Schedules.  Not later than 1:00 p.m. the day the overtime is to be worked, Contractor shall notify Company of any incidental overtime that Contractor proposes to work.  Should Contractor be required to work overtime due to an emergency situation to protect life or property, Contractor shall so notify Company as soon as reasonably practicable.  All overtime work, whether scheduled or incidental or for emergencies, shall be to Contractor’s account.  All costs incurred by Company in connection with Contractor working different work hours may be to Contractor’s account.
 
5.4.  
Company Facilities
 
a)  
Contractor shall not use Company's supplies or existing facilities except when approved in advance by Company or in case of an emergency.
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
Attachment B – Price & Payment
 
1.  
Guaranteed Maximum Price (GMP)
 
1.1.  
In return for the full and complete performance of its Work and all obligations associated therewith, Contractor shall be paid for all costs up to the GMP US $54,075,384.00, (Fifty four million, seventy five thousand, three hundred eighty four dollars) excluding Change Orders. All payments shall be made in US dollars. Reference Attachment B1 – Pricing Table for pricing associated with GMP:
 
2.  
Reference Schedules/Attachments for   Changes pursuant to Article 37.
 
B2 – Cash Flow Projection Sheet
 
B3 – Schedule One – All inclusive billable labor rates.
 
B4 – Schedule Two – Contractor Owned Equipment.
 
B5 – Contractor Equipment List
 
3.  
Definitions
 
Definition of Fixed Value line items listed in the detailed B1 – Pricing Table is described below.  Pricing shall be in accordance with these definitions.
 
·  
Overhead – means a price component that represents three percent (3%) of the GMP cost estimate and consists of corporate costs such as: corporate salaries, home office supplies, advertising, marketing, corporate travel, entertainment, legal, donations, dues, training, consulting, rent, telephone, postage, insurance, audits, utilities, recruiting and information technologies.
·  
Profit – Fee paid to Contractor for execution of Work. The profit component equals seven percent (7%) of the GMP cost estimate.
·  
Contract Contingency – See Section 3.3 – Contract Contingency below for definition.
 
Definition of Indirect line items listed in the detailed B1 – Pricing Table is described below.  Pricing shall be in accordance with these definitions.
 
·  
Engineering and Design - Includes all cost associated with Engineering and design.
·  
Cost of Insurance above Standard to meet requirements - Additional Cost required meeting the standard insurance requirements in Attachment C.
·  
Security (Letter of Credit) - All costs associated with obtaining and maintaining the appropriate level of securities based on the requirements herein.
·  
Sales & Use Tax – All costs associated with applicable Sales & Use taxes.  Contractor is responsible to review local and national tax regulations as it may pertain to the Mill Creek Generating Station and shall comply with applicable tax laws, rules and regulations).
·  
Permits – All costs associated with obtaining any and all permits that may be applicable to this Contract based on Basis of Design document.  Permits by Company are identified in Attachment I.
·  
Indirect Labor & Supervision - Includes all costs associated with indirect field labor and supervision. (Indirect Labor is defined as non-craftsmen: examples warehouseman, field engineering, and clerical administration. On site Supervision is defined as Classifications above General Foreman).  Note:  All equipment operators’ hours and cost are identified in the columns identified as “direct labor” & “subcontractors” in the B1 – Pricing Table.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
·  
Indirect Consumables & Materials – All costs associated with procurement of indirect Consumables & Materials. (Indirect Consumables & Materials are defined as materials not a part of the permanent plant installation).
·  
Mobilization – Cost for project site mobilization.
·  
Temporary Facilities - All costs associated with temporary facilities shall include, but not necessarily be limited to: temporary offices, temporary warehousing, temporary fencing, supply and installation of temporary utilities for facilities, office equipment, portable toilets, waste management, lay-down yard, etc.
 
Definition of Direct line items listed in the detailed B1 – Pricing Table is described below.  Pricing shall be in accordance with these definitions.
 
1.  
CTG Area – Will include but not limited to all material, labor, & equipment associated with the installation of foundations, buildings, HVAC, Oily Wastewater System, Air Pretreatment, Bus Duct, misc. steel & iron, piping, area electrical, area I & C, etc. This area will also have installation cost for several pieces of equipment supplied  by others, Combustion Turbine/Generator, SCR, Unit Step-Up Transformer, Generator Breaker, & the Diesel Generator.

2.  
Ammonia Area – Will include but not limited to all material, labor, & equipment associated with Ammonia System, foundations, tanks, buildings, misc. steel & iron, piping, area electrical, area I & C, HVAC, etc, to provide ammonia to the gas turbines, & unloading & storage of ammonia from tanker trucks.

3.  
Fuel Oil Area – Will include but not limited to all material, labor, & equipment associated with Fuel Oil System, foundations, buildings, misc. steel, tanks, misc. steel & iron, piping, area electrical, area I & C, HVAC, etc, to provide liquid fuel to the gas turbines, & unloading & storage of fuel oil .

4.  
Fuel Gas Area – Will include but not limited to all material, labor, & equipment associated with Fuel Gas System, misc. steel, misc. steel & iron, piping, area electrical, area I & C, fuel gas heater, etc, to take the natural gas from the metering station to the buildings & gas turbines.

5.  
Site Development - Will include but not limited to all material, labor, & equipment associated with site preparation, geo-technical investigation, roads, landscaping, fencing, drainage, storm water collection, & fire detection, etc.

6.  
Utility Systems - Will include but not limited to all material, labor, & equipment associated with fire protection, instrument air system, etc.

7.  
Water Treatment Area - Will include but not limited to all material, labor, & equipment associated with Raw Water, Service Water, Sewer Water, & Water Treatment System, buildings, misc. steel, foundations, tanks, misc. steel & iron, piping, sewer lift station, area electrical, area I & C, HVAC, etc.

8.  
Plant Electrical - Will include but not limited to all material, labor & equipment associated with PDC building, HVAC, foundations, remainder of plant electrical and I & C, duct banks, MCC’s, UPS system, lighting, conduit, cable tray, power & control cables, communication system, etc, to support balance of plant electrical equipment.

9.  
Yard Electrical & Security - Will include but not limited to all material, labor & equipment associated with yard lighting, security & surveillance, heat trace and insulation, grounding, lightning protection, cathodic protection, etc.

10.  
Plant Controls - Will include but not limited to all material, labor & equipment associated with plant primary I & C, Control Room, PLC’s, primary control valves, tubing, instruments, etc. in all areas of the plant.
 
11.  
Plant Control Room & Maintenance Building - Will include but not limited to all material, labor, & equipment associated with foundations, electrical, furnishings, finishes, buildings, misc. steel, HVAC, etc.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
12.  
Painting - Will include but not limited to all material, labor & equipment associated with plant wide painting.

13.  
Performance testing/start-up/commissioning.

***         Freeze protection of all components needed to provide uninterrupted service with dependable high quality equipment is included all areas above as required by BOD.
 
3.1.  
The Guaranteed Maximum Price (GMP) value of this Contract is separated into three (3) parts as defined below.
 
a)  
Part One: “ FIXED VALUE” – All costs of Contract Contingency, Overhead and Profit
 
b)  
Part Two: "INDIRECT PRICE" - All costs associated with the Indirect Work
 
c)  
Part Three: "DIRECT PRICE" – All costs associated with the Direct Work
 
3.2.  
Allocation of Cost Savings: The Parties acknowledge that the intent of the compensation method established by this Contract is to incentivize the Contractor to complete the Work at a cost below the GMP. As such, in the event that after the date of Final Completion, the GMP Contract Cost (excluding approved Change Orders) is less than the GMP, Contractor shall be paid half of the difference between the GMP Contract Cost and the GMP, and Company shall retain the other half.
 
3.3.  
Contract Contingency: The term “Contract Contingency” means the allocated amount of funds for exclusive Contractor use to cover costs associated with completing the GMP scope of work that exceeds the GMP estimated cost.  The Contract Contingency is included in the   GMP , but is not available, and shall not be used to pay for scope of Work Changes (i.e., Changes not contemplated when the Parties established the GMP). Further, no part of the Contract Contingency is assigned to any specific portion of the Work. Rather, the Contract Contingency is a general fund available for the Contractor’s exclusive use throughout the Work. Contractor’s use of the Contract Contingency is subject to Contractor’s reasonable discretion and contemporaneous written notice to Company prior to allocation. Notice shall include a description and amount of the Cost of the Work to be paid from the Contract Contingency, the entities and/or individuals being paid, and the reasons for the allocation of the contingency funds. In addition Contractor shall provide a monthly accounting of the charges made against the Contract Contingency. Company shall retain 50% of the remaining Contract Contingency at the time Final Payment is made. Reference Section 11.6 below for limitations regarding use of Contract Contingency funds relative to Liquidated Damages.
 
4.  
CHANGE MANAGEMENT
 
4.1.  
Dead Band for Change Order Profit Adjustment:  All approved Change Orders to the GMP scope of work that have cost impact shall be priced excluding profit. Profit adjustments for approved Change Orders shall be managed via the process outlined in Attachment J – Dead Band Profit Adjustment Process for Change Orders.
 
4.2.  
Hourly Labor Rates for Changes Only:   The hourly rate pricing set forth in the Schedule One of the Attachment B shall remain firm for the duration of no less than a period of one year from the date of this agreement or per formal Union Wage Rate changes, whichever should occur first. All burdened rates included in this Agreement shall include all Contractor's out-of-pocket costs, such as:  bare labor rate, small tools, benefits and taxes.  Small tools are defined as tools with a replacement value of less than $1,500.00.  Excluded from burdened rates are: overhead, profit and contingency.  The Contractor can request equitable adjustment if established union rates increase by submitting updated rates for review and approval. Mark-up for overhead and profit shall not be applied to the premium portion of overtime costs.
 
4.3.  
Unit Rates for construction equipment
 
1.  
Full compensation to Contractor for Contractor-owned construction equipment shall be in accordance with the Unit Rates set forth in Pricing Schedule Two hereto.  When Contractor provides equipment not listed in Pricing Schedule Two, the Unit Rate shall be negotiated and agreed upon in writing by Company. In no event shall rental paid exceed the market value of the item of construction equipment. Market value is defined as ‘replacement value’.
 
2.  
The Unit Rates identify all Contractor-owned equipment that may be used by Contractor in performance of the Work which has a replacement cost greater than $1,500.00.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
3.  
The Unit Rates listed are for fully maintained equipment.  All Unit Rates shall include all fuel, lubricants, support equipment, repair parts, service and maintenance labor, applicable taxes, insurance, depreciation, and mobilization to and from the Project Site, except when such mobilization is specifically required to perform the relevant Change.  For equipment specifically mobilized to the Project Site for performance of Changes, Contractor shall separately identify transportation costs (including loading, off-loading, assembly, and disassembly) when submitting proposals to Company for performing changes.  Transportation costs shall not be applicable to equipment already mobilized on the Project Site.
 
4.  
Unit Rates for equipment exclude the services of an operator and overhead, profit and contingency.
 
5.  
Daily, weekly, and monthly Unit Rates are based upon [10 hours per day], [40 hours per week], and [173 hours per month], respectively. Hourly charges for any day shall not exceed the daily rate, daily charges for any calendar week shall not exceed the weekly rate, and weekly charges for any calendar month shall not exceed the monthly rate.
 
6.  
The Unit Rates shall apply whether the equipment is utilized for operations during day, evening, night shifts or overtime.
 
7.  
When the use of equipment is infrequent and, as determined by Company, need not continuously remain at the Project Site, payment shall be limited to actual hours of use.  Equipment not operating, but retained at the Project Site at Company’s direction shall be paid the standby rates specified herein.
 
8.  
No payment shall be made for equipment that is not operating because it is broken down, or undergoing maintenance, repair, or overhaul.
 
5.  
Invoicing & Payment Schedule
 
5.1.  
The Total Contract Cost shall be paid to Contractor in accordance with the payment schedule defined below:
 
 (EXAMPLE)
 
ITEM
DESCRIPTION
MILESTONE PAYMENTS
a.
Insurance Cost shall be paid upon receipt of approved certificate
b.
Letter of Credit Cost shall be paid upon receipt of approved Letter of Credit
c.
Mobilization paid upon actual percent complete of mobilization with initial payment per section 5.12 below.
PROGRESS PAYMENTS
a.
Engineering & Design shall be paid on a pproved progress basis.
b.
Applicable Sales & Use Tax shall be paid with each applicable invoice.
c.
Direct & Indirect Material shall be invoiced and paid as accepted at site.
d.
Direct & Indirect Labor Works shall be paid based on approved progress complete.
e.
Direct Construction Equipment Works shall be paid based on approved Direct Work progress complete.
f.
OH&P shall be paid in percentage proportionate to the progress of approved Direct Work progress complete.
 
5.2.  
Contractor, when requested shall submit an advance draft version of each invoice to Company seven (7) calendar days prior to submission of the certified invoice for Company review and comment.  Contractor shall submit its certified invoice to Company every two weeks for all Work completed through the end of the billing period.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
5.3.  
Contractor shall prepare all invoices in a form satisfactory to Company.  Invoices shall address Work completed by Contractor during each billing period.  Each invoice shall indicate the time period during which the Work was performed.
 
5.4.  
Contractor shall prepare Exhibit 4 “Requisition for Payment” and attach to each invoice.
 
5.5.  
Contractor's invoices may be on a milestone or progressive basis in accordance with the Contract shall include cost code requirements and be clearly marked with the Contract Number.  Change Orders that adjust the Total Contract Cost shall be invoiced as part of the regular monthly payment, but itemized separately.
 
5.6.  
Contractor shall sign each invoice certifying that all Work covered by the invoice is complete and that the invoice is correct, authentic, and the only one issued for the Work described therein.
 
5.7.  
Contractor shall submit one (1) electronic copy of the invoice complete with all supporting documentation to Company's Authorized Representative at irina.aylyarova@shawgrp.com .  When electronic copy is accepted for payment by Authorized Representative and is forwarded to Company for further approval and payment, Contractor shall then send the original invoice to 9201 E. Dry Creek Road, Centennial, Co 80112, marked "Attention: Irina Aylyarova", for record retention.  Authorized Representative shall notify Contractor of acceptance for processing of the invoice, thus to receive the original invoice.  See Attachment H – Invoice Process Flow Chart for additional invoicing information.
 
5.8.  
Each invoice shall include a notarized Partial Release of Lien and Waiver from Contractor in the form of Exhibit 1.  At its sole discretion, Company may also require Contractor to provide similar releases and waivers from Contractor’s Subcontractors who have provided labor, materials, equipment, or services as part of the Work being invoiced.  Company shall have the right to withhold any payments otherwise due and owing until such documentation is received.
 
5.9.   
Contractor shall separate their invoice cost in accordance with FERC accounts, per Company’s directive.
 
5.10.   
Each invoice shall include substantial supporting information relative to invoice amount, progress associated with said invoice and description of Work.  Such supporting information shall be provided in details relative to 3rd party prudency review, due diligence will be apparent to support the invoice in question.
 
5.11.  
Any invoice that fails to comply with the terms of this Contract, including the requirements of form and documentation, may be returned, (in whole or in part), to Contractor unapproved.  All costs associated with the resubmission of a proper invoice shall be to Contractor's account.  Company may withhold payment of invoices until Contractor furnishes all required documentation.  Company reserves the right to make provisional payment on any invoice in dispute pending audit and reconciliation of such invoice.
 
5.12.  
If required by the Laws of any governmental or taxing authority having jurisdiction, Company shall have the right to withhold amounts, at the withholding rate specified by such Laws, from payments due from Company to Contractor hereunder, and any amount so withheld shall be credited against any payment otherwise owing by Company to Contractor by virtue of the terms of this Contract.
 
5.13.  
Mobilization initial invoice may be submitted as soon as (4) business days after EPC Contract Award and will be paid net (10) calendar days.
 
5.14.  
Undisputed amounts shall be payable net thirty (30) calendar days after receipt by Company of an acceptable invoice.  Payment of Contractor's invoices shall not be construed to be an acceptance by Company of any portion of the Work.
 
5.15.  
The final invoice shall be payable after Final Completion and Final Acceptance of the Work.  Contractor’s final invoice shall contain a complete itemized listing of all invoices by number, date, gross amount, and the total amount of sums retained and due.  The final invoice shall also include Contractor’s notarized Final Release of Lien and Waiver in the form of Exhibit 2 (Final Release of Lien & Waiver of Claims), appended hereto and incorporated herein by reference.  Final payment shall be made within thirty (30) calendar days after submittal by Contractor of an approved final invoice.  Final payment shall not relieve Contractor of any obligation under this Contract warranties.
 
 
Company, in its sole discretion, may withhold final payment until Contractor furnishes an affidavit setting forth the extent to which final payment or settlement has been made of all bills
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
and claims of whatever kind or nature in any manner arising out of the Contract, including full details as to any such bills and claims remaining unpaid or unsettled.  Company shall have the right to retain from any payment then due to the Contractor, so long as any of said bills or claims remain unpaid or unsettled and outstanding, a sum sufficient (or if insufficient, then all of any such payment due to the Contractor) in the opinion of the Company to provide for the payment of the same, and the Company may pay any such bills or claims pro tanto in full satisfaction and discharge of any like amount due to the Contractor.  Prior to final payment and as a condition thereto, the Contractor shall furnish a release, in form and substance satisfactory to the Company, of all claims of the Contractor against the Company arising under and by virtue of the Contract..
 
Contractor shall be required to supply, operate and maintain an accurate, computerized man-hour tracking system for all labor expended on site, such as; card reader.  The physical location of tracking system shall be on site.  This system must be capable of reporting daily, weekly and monthly reports to support trending and invoicing.  Actual hours expended must correspond with the man-hour tracking system.
 
6.  
Backcharges.
 
A backcharge is a cost incurred by Company in performing Work that is the responsibility of Contractor.  The backcharge cost shall consist of Company’s actual incurred cost plus a mark-up of ten percent (10%) for Company's overhead and profit. Company may deduct backcharge costs from any amounts due Contractor.  If amounts due Contractor are insufficient to pay the backcharge cost, Contractor shall pay all such amounts to Company within ten (10) days following receipt of Company’s invoice.
 
7.  
Taxes
 
The GMP includes all applicable Federal, State, and local taxes and duties. Contractor hereby assigns to Company all rights to refunds of sales and use taxes paid in connection with this Contract and agrees to co-operate with Company in the processing of any refund claims.
 
8.  
Offset
 
Company shall be entitled to offset any amounts that Contractor owes to Company against any monies due to Contractor under this Contract or any other contract between Company and Contractor.
 
9.  
Interest
 
Company shall pay Contractor Four Percent (4%) simple annual interest on all undisputed amounts not paid within thirty (30) days.  The failure to make timely payment in accordance with this Contract shall not entitle Contractor to stop or slow its Work.  Contractor’s sole and exclusive remedy for the failure to make payment in accordance with this Contract is the recovery of interest under this section of Attachment B.
 
10.  
Contractor Allowable Markups for changes
 
This section applies to work or rates not defined in the original Contract or when adjustments to the GMP for Changes are made.  Pricing for changes will be reimbursed at cost, excluding profit.  The process for profit adjustment relative to Change Orders is further defined in Section 4. The pricing method is at Company's sole option by one or a combination of the following methods:
 
10.1.  
Negotiated Lump Sum. Company and Contractor may negotiate a mutually acceptable lump sum price for such Changes or portions thereof.
 
10.2.  
Established Unit Prices. If the Contract contains unit prices for tangible quantities and if such unit prices are applicable, then such unit prices may be used to calculate the price for the Change.
 
10.3.  
Negotiated Unit Prices. If the Contract does not contain established unit prices for tangible quantities for the Change, then the Parties may agree upon such unit prices to be used to calculate the price for the Change.
 
10.4.  
Reimbursable Basis. Changes may be priced on a reimbursable basis according to the following procedures: Allowance for overheads will be considered on a case-by-case basis for each separate change item.  Contractor shall document their basis to defend their overhead cost.
 
1.  
Hourly Labor Rates for direct and indirect labor.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
a)  
Full compensation to Contractor for labor shall be in accordance with the Labor Rates set forth in Pricing Schedule One hereto, or Notwithstanding the inclusion of such Unit Rates for labor and staff in Pricing Schedule One, Company, at its sole discretion, may elect to compensate Contractor for any or all labor furnished on a Reimbursable basis utilizing Certified Payroll.
 
b)  
Where a direct craft or indirect staff position does not exist in Pricing Schedule One, fixed dollar amounts for small tools and consumables and personal protective equipment for such new position shall be submitted to Company for review and approval.  The fixed dollar amounts for small tools and consumables and personal protective equipment shall not be subject to any further markup and overhead.
 
c)  
Mark-up for overhead shall not be applied to the premium portion of overtime costs.  If appropriate, fixed dollar amounts may be included for per diem, small tools and Consumables and for Personal Protective Equipment.  Such fixed amounts shall be based on the rates in Pricing Schedule One.
 
d)  
On certain occasions, Company may agree to compensate Contractor by Change Order for working additional overtime to accomplish certain specified tasks.  Such agreement by Company shall only be valid if made in writing in advance of such authorized overtime being worked.  In each such instance, Company shall pay Contractor the differential amount for labor and supervision overtime worked, without mark-up for overhead.  The term “Differential Amount” as used herein is defined as the difference between the actual labor related costs of the authorized overtime and the average labor related costs in a normal project work week as specified in the Contract, the average labor related costs being a composite of straight-time and overtime worked in such normal project work week.
 
2.  
Materials and Equipment
 
a)  
Compensation for additional Materials and Equipment and additional indirect construction materials shall be at actual invoiced cost to Contractor, including transportation to site, as substantiated by invoices certified paid or by such documentation as may be required by Company.  Contractor shall provide proof of competitive pricing for all Materials and Equipment furnished under this Article.  There shall be no mark-up applied to taxes.
 
b)  
Company reserves the right to provide, at no cost to Contractor, Materials and Equipment, services, supplies, or incidentals required to perform any additional Work.
 
c)  
All refunds, trade discounts, rebates, and all monies obtained from the disposal of surplus items supplied hereunder shall accrue to Company.
 
3.  
Third Party construction equipment Rental
 
a)  
Rental rates for third-party construction equipment used by Contractor for performance of Changes shall be approved by Company prior to rental and will be reimbursed at actual cost to Contractor, including transportation to site, as substantiated by invoices certified paid or by such documentation as may be required by Company. Prior to any third-party rental, Contractor shall submit a stated value for the equipment being rented and demonstrate the rates to be favorable on a competitive basis.
 
4.  
Subcontracts
 
a)  
All Subcontracts and third-party services employed by Contractor for performance of Changes shall be approved by Company prior to use and will be reimbursed at actual cost to Contractor as substantiated by invoices certified paid or by such documentation as may be required by Company..
 
b)  
Contractor shall obtain competitive market pricing for Changes performed by Subcontractors.  For Changes performed by Subcontractors on an actual cost basis, an allowance may be included for the Subcontractor's overhead.  No mark-up for overhead shall be applied to the premium portion of Subcontractors’ overtime costs.
 
c)  
If Subcontractor/s pricing is obtained to become part of Contractors total price for an individual change to the Contract, the total cumulative markup, including all Subcontractors, shall not exceed 10%
 
10.5.  
Supporting Documentation
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
For Work performed on a Reimbursable basis, Contractor shall submit, for approval by Company, daily time sheets at the end of each day for labor and construction equipment employed on all such Work performed that day.
 
10.6.  
Company shall have the right for a period of three years after Final Acceptance to audit all of Contractor’s records with regard to any Change.
 
11.  
Liquidated Damages
 
11.1.  
If Contractor fails to achieve the milestones set forth below by the specified date, Contractor shall pay to Company the applicable daily amount as liquidated damages for each calendar day by which the actual date of completion of said milestone exceeds the respective date, up to a maximum for all schedule related liquidated damages of   $5,000,000.00 – five million dollars.
 

 
Milestone
Number
 
Description
Daily Liquidated Damages Amount
Milestone A
Unit # 1 Substantial Completion – 9/25/10
see below
Milestone B
Unit # 2 Substantial Completion – 10/21/10
see below
Milestone C
Unit # 3 Substantial Completion – 11/10/10
see below
Milestone D
Final Completion of Contractor’s Work – 12/31/10
$ 5,000.00
 
 
Daily Liquidated Damages per Unit for Milestones A, B & C shall be as follows:
 
Days
Daily Liquidated Damages Amount
1-10
$ 10,000.00
11-20
$ 15,000.00
21-30
$ 25,000.00
31 or more
$ 35,000.00
 
 
11.2.  
The Parties agree that these liquidated damages are a reasonable and fair estimate of the Losses Company would suffer for each calendar day by which Contractor is late in completing the applicable milestones.  The liquidated damages are agreed to be a reasonable estimate of actual damages, and not a penalty.
 
11.3.  
Contractor agrees that all sums payable by Contractor to Company as liquidated damages pursuant to this clause may be deducted by Company from any amounts due Contractor.  If amounts due Contractor are insufficient to pay the liquidated damages due hereunder, Contractor shall pay all such amounts to Company within ten (10) days following receipt of Company’s invoice.
 
11.4.  
It is further agreed that this clause shall not constitute a waiver of any right of Company to damages or of any other remedies of Company under this Contract or otherwise for Contractor's improper performance or default in performance of any other aspect of this Contract.
 
11.5.  
Preconditions to achievement of Substantial Completion are defined in Contract section 1 –Definitions, under Substantial Completion.  Preconditions to achievement of Final Completion are defined in Contract section 38.  To the extent that these preconditions are delayed through no fault of Contractor, the Substantial Completion dates and/or Final Completion date shall be equitably adjusted on a day-for-day basis, as mutually agreed between the Parties.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
11.6.  
Liquidated Damages shall not be included in the calculation of the GMP Contract Cost. If Liquidated Damages are imposed and there are realized savings within the GMP Contract Cost, Contractor shall not use Company’s portion of the savings to fund Liquidated Damages. Payment for Liquidated Damages shall be made and reconciled between Contractor and Company in advance of any distribution of savings within the GMP Contract Cost.
 
12.  
Performance Testing and Performance Guarantees
 
12.1.  
Contractor guarantees that the services, goods, equipment, and systems provided under the EPC scope meet the design and performance required by the Basis of Design and associated project documents and drawings.
 
12.2.  
Contractor shall conduct equipment/systems performance tests to demonstrate and prove required operation and capability.  The results shall be provided to Company.
 
12.3.  
Should required performance fail to be achieved during the performance tests due to the fault of Contractor, Contractor shall take measures to achieve all required performance and retest the equipment.  Contractor shall bear all of its costs thus incurred, except the costs of fuel and electricity which shall be borne by Company.  Contractor shall make-right the following items to achieve required performance.
 
1.  
Pressures and temperatures and flow rates of supply systems to combustion turbines to meet design criteria.
 
2.  
Water treatment quality to meet design criteria.
 
3.  
Plant controls to have a 30-day sustained satisfactory operation after Substantial Completion of all units.  Plant controls satisfactory operation shall be completed prior to December 31, 2010.
 
12.4.  
If Contractor fails to achieve required performance at Final Acceptance, Company will take measures to correct equipment/systems and obtain required performance.  All costs incurred by Company in these efforts shall be to the Contractor’s account.
 
 
end.
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Attachment C – Insurance Requirements
 
 
1.  
Insurance
 
1.1.  
Contractor shall obtain minimum insurance coverages as follows:
 
1.  
Workers' Compensation Insurance as required by statute in the specific State or site where the work is to be performed, including, to the extent applicable, coverage for U.S. Longshoremen’s and Harbor Workers Compensation Act and the Jones Act.
 
2.  
Employer's Liability Insurance with a limit of $1,000,000, including, without limitation, coverage for occupational diseases, to provide for the payment of benefits to its employees employed on or in connection with the Work covered by this Contract and/or to their dependents in accordance with applicable Law; including, without limitation, and to the extent applicable, the U.S. Longshoremen's and Harbor Workers' Compensation Act and the Jones Act.
 
3.  
Commercial General Liability Insurance on an occurrence form, including but not limited to Blanket Contractual Liability; Company's and Contractor's Protective Liability; Products and Completed Operations; coverage for work within 50 feet of a railroad (if applicable) and with minimum combined single limits for bodily injury, including death, and property damage of at least $1,000,000 per occurrence.
 
4.  
Automobile Liability Insurance, including coverage for owned, non-owned and hired vehicles, with minimum combined single limits of at least $1,000,000 per occurrence for bodily injury and death, and property damage.
 
5.  
Contractor’s Pollution Liability Insurance (if applicable), covering Contractor’s on-site operations, and transportation of hazardous materials, with a minimum combined single limit of $1,000,000.  This coverage can be used to meet the requirement for Sudden and Accidental Pollution coverage in the Commercial General Liability policy.
 
6.  
Excess/Umbrella Liability insurance following form of and as broad as that of, but no broader than, the underlying primary General Liability, Automobile Liability and Employer’s Liability coverages provided above with limits of $10,000,000 each occurrence and per project or location aggregate.
 
7.  
If Contractor provides Materials or Equipment that are shipped by ocean transit, Marine Cargo Insurance with the limit per occurrence equal to the greatest single shipment value and (a) written on a “warehouse to warehouse” basis including land, air, and marine transit and temporary storage in route, (b) insuring "all risks" of loss or damage on a replacement cost basis and including coverage for war, charges of general average sacrifice, or contribution, and salvage expenses, and (c) containing no express exclusion for inadequate packing.
 
8.  
If barges, boats or other vessels are used in performing Contractor’s work, Protection and Indemnity Insurance with limits of at least $5,000,000 per occurrence.  Any “as Company” limitation wording in the Insurance policy must be deleted.
 
9.  
If fixed wing, rotary wing or other aircraft are used in performing Contractor’s work, Aircraft Liability Insurance is required.  Use of fixed wing aircraft requires Aircraft Liability limits of at least $10,000,000 per occurrence.  Use of rotary wing (e.g. helicopters) and other aircraft requires Aircraft Liability limits of at least $15,000,000 per occurrence.  If aircraft are used in moving or placing equipment on the project site, limits of at least $100,000,000 per occurrence are required.
 
10.  
If Contractor provides design as part of their scope of work under this contract, Professional Liability Insurance is required with a minimum limit of $5,000,000.
 
11.  
Each and every insurance policy above shall include an insurer’s waiver of subrogation rights, where allowed by law, in favor of Company, each of its subsidiaries and affiliates, Company’s financing parties (if any) and each of their respective directors, officers, and employees, and such rights of subrogation shall be and are hereby waived.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
12.  
Each and every insurance policy, except for Worker’s Compensation, Contractor’s Pollution Liability and Professional Liability insurance policies, shall be endorsed to name Company as additional insureds, shall provide coverage that is primary as to any other valid and collectible insurance which may be available to Company, and shall include a Separation of Insureds/Severability of Interests clause providing cross-liability coverage.
 
13.  
All insurance described in this Attachment “C” shall be written by insurance companies rated “A-“ or better by A.M. Best Company.
 
14.  
Contractor shall notify Company of any Self Insured Retention (“SIR”) in excess of $1M.  Company reserves the right to require additional assurances and/or coverages from Contractor for any SIR in excess of $1M dollars.
 
15.  
Company may elect to purchase Builders Risk insurance to cover property damage risks to the project.  Any requirements with respect to Builders Risk Insurance coverage will be stated elsewhere in this Contract.
 
1.2.  
Such benefits and coverage as required herein, or in any other document to be considered a part hereof, shall not be deemed to limit Contractor's liability hereunder.  The Contractor shall likewise require its Subcontractors, if any, to provide for such benefits and carry and maintain such insurance enumerated herein, at no expense to the Company.
 
1.3.  
Before any of the employees of Contractor or its Subcontractors perform any Work under the Contract, Contractor shall furnish the Company with a certificate or certificates showing that the required coverages have been obtained.  Such certificates shall be issued on insurance industry standard ACORD Forms and shall stipulate that the insurance will not be canceled or materially changed without thirty (30) days prior written notice to the Company, and shall specify the effective dates for such benefits and insurance.  Certificates for renewal or new insurance acquired during the term of the Contract shall be provided prior to the expiration of existing insurance.
 
1.4.  
Capitalized terms in this Attachment C, if not otherwise defined in this Contract shall have the accepted meaning used in the insurance industry.
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Attachment D – Work Rules
 

 
 
 NOT USED
 
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Attachment E – Site Specific Safety Manual & Plan
 
 
 PROVIDED BY CONTRACTOR.  PLEASE SEE ATTACHED.
 
 

 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Attachment F – QA/QC Manual
 
 
 
 PROVIDED BY CONTRACTOR.  PLEASE SEE ATTACHED.
 
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Attachment G – Prequalification Forms for Subcontractors
 
 
Prequalification Criteria for Concern/Rejection of Subcontractor(s)
 
 
Safety Criteria for the past 3 years:
 
·  
TRIR – in excess of 3.6
 
·  
Fatalities
 
·  
EMR – in excess of 1.0 if Subcontractor has been in business for more than 3 years.
 
 
Financial Criteria for the last 3 years:
 
·  
Estimated Subcontract Value = no more than 25% of Bidder’s Annual Revenue.
 
·  
Current Ratio – Current Assets divided by Current Liabilities should exceed 1.25.  This indicates that at the time of the financial report the Bidder was solvent
 
 
Note: “Long” prequalification form addresses both, safety & financial criteria, whereas “short form” only addresses safety.
 
 
 
 
[Prequalification Forms attached (long and short)]
 
 
 
There are two (2) types of pre-qualification forms for use: “long form” and the Lower Tier “short form”.  Below are the “long form” pre-qualification criteria that need to be followed when selecting a Vendor/Supplier/Subcontractor for the MCGS Project.
 
1.  
Any Supplier that will exceed $1 million in value for materials.
2.  
Any Vendor/Subcontractor that will exceed $2 million in labor.
 
Contractor shall use the short “Lower Tier Pre-Qualification” form for ALL other labor related Subcontractors that do not fall into criterion 2 above and submit the completed forms to Company for review.
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Attachment H – Invoice Process Flow Chart
 
       
PRCESS FLOW CHART (H)
                      
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Attachment I – Permits Provided by Company
 
 

 
Issuing Agency
Permit/Approval Name
Nature of Permit
FEDERAL GOVERNMENT
   
1
Federal Aviation Administration
Notice of Proposed Construction or Alteration
Tower location and height relative to air traffic corridors
2
US Environmental Protection Agency
Acid Rain Permit
Permit to comply with Acid Rain Program monitoring, recordkeeping and reporting requirements.
       
STATE GOVERNMENT
   
3
Montana Department of Environmental Quality
Air Quality Pre-Construction Permit
Permit for the construction, installation and operation of equipment or facilities that may directly or indirectly cause or contribute to air pollution.
4
Montana Department of Environmental Quality
Air Quality Operating Permit
Title V Operating Permit
5
Montana Department of Environmental Quality
General Discharge Permit for Stormwater Associated with Construction Activities
Permits industrial activities that would result in the discharge of stormwater to waters of the state.
6
Montana Department of Environmental Quality
Underground Storage Tanks
Permits for installation and operation of underground storage tanks.
7
Montana Department of Natural Resources and Conservation
Water Right Change of Use for Generation Plant water
Would allow use of existing water right from the Silver Lake pipeline.
8
Montana Department of Transportation
Utility Crossing Permits
Grant state highway utility crossing permits for utilities and access roads that may encroach on state highway right-of-ways.
       
LOCAL GOVERNMENT
   
9
County Weed Control Districts
Noxious Weed Management Program
Provides containment, suppression, and eradication of noxious weeds.
10
County Floodplain Administrators
Floodplain Development Permit
Allows construction activities within a designated 100-year floodplain.
11
Boards of County Commissioners
Easement grants and county road crossing permits
Consider issuance of right-of-way easements grants and road crossing permits for county property and roadways.
12
Anaconda-Deer Lodge County
TIFID
Zoning requirements
13
Anaconda-Deer Lodge County
Development Permit
Permit for all land development and building activity in the county.
14
Anaconda-Deer Lodge County
Conditional Use Permit-Plant Site
Zoning permit approving use of the site for generation purposes
15
Anaconda-Deer Lodge County
Conditional Use Permit-Gas Compressor Site
Zoning permit approving use of the site for gas compressor purposes
16
Anaconda-Deer Lodge County
Development Permit-Gas Compressor Site
Permit for all land development and building activity in the county.
17
Butte-Silver Bow
Water Agreement
Water usage from Silver Lake waterline.
18
Anaconda-Deer Lodge County
Sewer Agreement
Connection / use of sewer line.
19
Anaconda-Deer Lodge County
Municipal Water Agreement
Connection to potable water line and use of potable water.
       
OTHER
     
20
Butte, Anaconda & Pacific Railway
Railroad crossing permits
Utilities constructed within railroad right-of-ways (over, under & parallel).
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Attachment J – Dead Band Profit Adjustment Process for Change Orders
 
Definitions:
             
* Actual Cost = Indirects and Directs (excluding change orders)
     
* Dead-Band =    +/-
 $     2,703,769
Value is determined based on 5% of Total GMP Price
 
                 
Example:
             
 
GMP
       
                 
   
GMP Indirect and Direct Price
 $     44,659,440
       
 
~10%
Contingency
 $       4,500,000
       
   
SubTotal GMP Cost
 $ 49,159,440.00
       
 
3%
Overhead
 
 $       1,474,783
       
 
7%
Profit
 
 $       3,441,161
       
                 
                 
   
Total GMP Price
 $     54,075,384
       
                 
 
Profit is 'fixed' for the Project provided the total cumulative Change Order value remains
 
within the Dead-Band  +/-
 $ 2,703,769
         
                 
                 
                 
Aggregate Change Orders result in a overall INCREASE.
     
                 
Senario 1  - Aggregate Changes stay within the Dead-Band
     
                 
 
Aggregate Change Order Value
 $          200,000
       
                 
 
Results:  Contractor would be paid separately for C/O's.
     
 
No Profit Adjustment
         
 
Adjustments to Overhead Cost would be considered as referenced in Attachment B - Price & Payment, Section 10.4.
                 
                 
Senario 2  -  Aggregate Changes move outside the Dead-Band
Formula:
 $   3,000,000
 
             
 $  (2,703,769)
 
 
Aggregate Change Order Value
 $       3,000,000
   
 $     296,231
 
             
7%
  % Profit Markup
 
Results:  Contractor would be paid separately for C/O's.
 
 $       20,736
  $ Profit Markup
 
Profit would be adjusted by formula.
       
 
Adjustments to Overhead Cost would be considered as referenced in
 $   3,020,736
  Total Change Value
 
Attachment B - Price & Payment, Section 10.4.
     
                 
                 
                 
Aggregate Change Orders result in a overall DECREASE.
     
                 
Senario 3  -  Aggregate Changes stay within the Dead-Band
     
                 
 
Aggregate Change Order Value
 $         (200,000 )
       
                 
 
Results:  Company would be owed separately for C/O's.
     
 
No Profit Adjustment
         
 
Adjustments to Overhead Cost would be considered as referenced in Attachment B - Price & Payment, Section 10.4.
                 
                 
Senario 4  -  Aggregate Changes move outside the Dead-Band
Formula
 $  (3,000,000)
 
             
 $   2,703,769
 
 
Aggregate Change Order Value
 $      (3,000,000)
   
  $    (296,231)
 
             
7%
  % Profit Markup
 
Results:  Company would be owed separately for C/O's.
 
 $      (20,736 )
  $ Profit Markup
 
Profit would be adjusted down by formula
       
 
Adjustments to Overhead Cost would be considered as referenced in
  $  (3,020,736 )
  Total Change Value
 
Attachment B - Price & Payment, Section 10.4.
     
                 
 
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Attachment K – GMP Examples
 
 
From March 16, 2009 letter from NMC to Shaw
   
   
Estimated cost
44,659,440
 
   
Contingency
4,500,000
 
   
Project Budget
49,159,440
 
         
   
OH&P
4,915,944
 
         
   
GMP
54,075,384
 
         
         
         
         
Examples
     
1. actual cost less than Project Budget
   
 
Project Budget
 
49,159,440
 
 
Project actual cost (less OH&P)
42,000,000
 
         
 
Difference
 
7,159,440
 
         
 
N.W.E "savings"
 
3,579,720
 
         
 
NMC receives
 
3,579,720
  Split savings
     
4,915,944
  OH&P
     
42,000,000
  Project actual cost (less OH&P)
     
50,495,664
 
         
2. actual cost greater than Project Budget
   
 
Project Budget
 
49,159,440
 
 
Project actual cost (less OH&P)
51,000,000
 
         
 
Difference
 
-1,840,560
 
         
 
N.W.E "savings"
 
0
 
         
 
NMC receives
 
54,075,384
  GMP
         
3. actual cost equals Project Budget
   
 
Project Budget
 
49,159,440
 
 
Project actual cost (less OH&P)
49,159,440
 
         
 
Difference
 
0
 
         
 
N.W.E "savings"
 
0
 
         
 
NMC receives
 
0
  Split savings
     
4,915,944
  OH&P
     
49,159,440
  Project actual cost (less OH&P)
     
54,075,384
  GMP
         

 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Attachment L – Indemnity Agreement
 
 
SERVICE CONTRACTING & INDEMNITY AGREEMENT
 
Contract No. 301263
EPC Contract – LNTP
 
66.1  
For Site Survey Work Indemnification
 
 
THIS SERVICE CONTRACTING & INDEMNITY AGREEMMENT (“Agreement”) is made and entered into as of this______day of _____________, 2009, by and between NewMech Companies, Inc (“New Mech”). and Northwestern Energy (“NWE”NWE").
 
WHEREAS , NewMech Companies, Inc. is negotiating with NWE to manage and build a project known as Mill Creek Generating Station located outside Anaconda, Deer Lodge County, Montana
 
WHEREAS, NewMech and NWE desire to expedite preliminary survey work to accommodate NewMech’s design efforts during the LNTP phase of the Mill Creek Generation Station project.
 
WHEREAS, NWE is willing to assist, and New Mech is willing to accept, assistance to expedite the preliminary site work during the LNTP phase of the Mill Creek Generating Station project by facilitating a contractual agreement with DJ&A an third party site surveyor.  Specifically, NWE is entering into a contract with DJ&A for the performance of professional services, including but not limited to site work at the location of the proposed Mill Creek Generation Station necessary to advance key design and engineering efforts, for the mutual benefit of NWE and New Mech.
 
WHEREAS, NWE and NewMech are entering into this Service Contracting & Indemnity Agreement to: (a) set forth the terms and obligations of each party with respect to hiring DJ&A to perform certain preliminary site work for the proposed Mill Creek Generating Station, and (b) hold each other harmless for any claims arising, directly or indirectly, from the preliminary site work performed by DJ&A for their mutual benefit.
 
WHEREAS, NWE and New Mech intend this Indemnity Agreement to be fully adopted and incorporated into the EPC Contract to be entered into by the Parties.
 
IN CONSIDERATION of their mutual promises herein, other valuable consideration the parties acknowledge and accept, and conditioned on NewMech Companies, Inc. signing the final contract and performing the work, NewMech Companies, Inc. and NWE agree as follows:
 
 
I.  
SERVICE CONTRACTING
 
a.  
NWE shall undertake to enter into an appropriate contract with DJ&A to provide preliminary survey and site work during the LNTP phase of the the proposed Mill Creek Generation Station project (“DJ&A Agreement”) Further, the DJ&A Agreement shall provide for a limited term, the extent of the LNTP phase of the Mill Creek Generation Station Project, and shall immediately terminate upon the end of the LNTP phase.  New Mech expressly acknowledges and agrees that upon the termination of the LNTP, it shall be responsible for obtaining a site survey subcontractor and appropriate survey for the FNTP phase.
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
b.  
NWE agrees to include the following terms, if acceptable to DJ& A, under the DJ & A Agreement for providing access to the Mill Creek job site and to facilitate payment to DJ&A for work undertaken and completed in the LNTP phase of the Mill Creek Project.  However, NMC shall be responsible for all costs associated with work performed by DJ&A during the LNTP phase and shall review and approve all DJ&A invoices prior to payment.  [NOTE: THE FIRST AND SECOND SENTENCE SEEM TO BE A BIT IN CONFLICT.  IS NEW MECH AGREEING TO REIMBURSE OR IS IT INTENDED TO BE A STRAIGHT PASS THROUGH ON COSTS?  I THINK WE CAN MAKE THAT A BIT CLEARER]Further, NMCE shall provide [TO WHOM GOES THE CREDIT LINE?] a credit line on their final LNTP invoice for the total value of the completed work under the DJ&A Agreement.
 
c.  
NMC agrees that it shall be responsible for directing the site survey activities of DJ&A at the Mill Creek job site to ensure the survey data is acceptable to NMC and facilitates the work of NMC within the schedule provided for in the EPC.
 
 
 
II.           INDEMINIFCATION
 
 
a.            NewMech Companies, Inc. Indemnification
 
 
To the fullest extent permitted by law, NewMech Companies, Inc. shall indemnify and defend Northwestern Energy (NWE) from and against all claims, damages, losses and expenses, including but not limited to attorneys’ fees arising out of or resulting from D J & A’s performance of professional services on the Mill Creek Generating Station project under Contract number 301024 between NWE and DJ&A provided that any such claim, damage, loss or expense is caused in whole or in part by any negligent act or omission of DJ&A in the performance of professional services under Contract number 301024 regardless of whether or not it is caused in part by NWE. Such obligation shall not be construed to negate, abridge or otherwise reduce any other right or obligation of indemnity which would otherwise exist as to any party or person described in this paragraph.
 
 
b.           NWE Indemnification
 
 
To the fullest extent permitted by law, Northwestern Energy (NWE) shall indemnify and defend NewMech Companies, Inc. from and against all claims, damages, losses and expenses, including but not limited to attorneys’ fees arising out of DJ&A’s performance of the work under contract number 301024 between NWE and DJ&A provided that any such claim, damage loss or expense is attributable to bodily injury, sickness, disease or death, or to destruction of tangible property including the loss of use resulting therefrom and is caused in whole or in part by any negligent act or omission of DJ&A or NWE, regardless of whether or not it is caused in part by NewMech Companies, Inc.  Such obligation shall not be construed to negate, abridge or otherwise reduce any other right or obligation of indemnity which would otherwise exist as to any party or person described in this paragraph.
 
 
IN WITNESS WHEREOF, NewMech Companies, Inc. and Northwestern Energy have executed this Service Contract & Indemnity Agreement as set forth below.
 
 
NewMech Companies, Inc.                                             Northwestern Energy
 
 
By _______________________                                     By _____________________
 
 
Its _______________________                                      Its _____________________
 
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Exhibit 1 – Partial Release of Lien & Waiver of Claims
 
KNOW ALL MEN BY THESE PRESENTS , that ____________________________ (“Contractor”), having its principal offices at _________________________________________ , and ____________________________ (“Company”) have heretofore entered into a certain Contract, dated ____________ (the “Contract “) relating to the furnishing of materials, labor, and/or equipment in support of a certain contract performed by Company for Company’s Project located at ________________________.
 
NOW THEREFORE , upon actual receipt by Contractor of check from Company in the sum of $_____________, ______________________________________________________________________USD to Contractor, which sum represents the full amount due Contractor as of ________________, ____ (“Release Date”) and except that retention in the amount of $_______________, _______________________________________________________________________USD still being withheld by Company all under and pursuant to the Contract, and when such check has been properly endorsed and has been paid by the bank upon which it is drawn, this document shall become effective to release pro tanto any Mechanic’s Lien, Stop Notice, or bond right that Contractor has on the Project as of the Release Date, and Contractor does hereby:
 
1.  
Affirm under oath that all Persons furnishing Labor, Materials, Equipment, supplies, or services to Contractor with respect to the Contract have been paid in full as of the Release Date, including any and all applicable federal, state, and local sales, use, excise, or similar taxes or import duties, licenses, and royalties, except the following (NONE, unless noted, attach additional page, if necessary, and so note):
 
Insert note or state NONE
 
2.  
Remise, release, and waive any and all manner of Liens, whatsoever that Contractor, its successors, or assigns may have upon any portion of the lands of Company or the buildings thereon standing, or any personal or intangible property of Company, for Labor, Material, Equipment, or services furnished under the Contract as of the Release Date, and
 
3.  
Further remise, release, and forever discharge Company, their successors and assigns of and from any and all manner of claims, demands, and causes of action whatsoever against Company which Contractor, its successors or assigns may have for, upon, or by reason of any matter, cause or thing whatsoever arising under or out of the Contract, as of the Release Date unless otherwise noted below (attach additional page, if necessary):
 
Insert note or state NONE
 
4.  
Agree to indemnify and hold harmless Company, its successors and assigns, against all Losses, cost, damage or expense (including but not limited to attorneys’ fees) by reason of any and all manner of Liens, claims or demands which anyone may have for Labor performed, or for Materials, Equipment or services furnished under the Contract as of the Release Date, except as specifically noted hereon.
 
 
IN WITNESS WHEREOF, Contractor has duly caused these presents to be signed, witnessed or attested by its duly authorized Owner, Partner or Officer (if a Corporation, its Corporate Seal to be hereunto affixed) on the ___ day of ____________, 20__.
 
 
_______________________________                                               Seal if Corporation)               (Notary Public Seal)
                 (Signature)
 
 
By:____________________________
                 (Print Name)
 
 
Title: _____________­_____________
 
 
Witness: (if Individual) _________________________
 
 
Attest 1: (if Corporation) _______________________                Attest 2: (if Corporation) ________________________
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Exhibit 2 – Final Release of Lien & Waiver of Claims
 
KNOW ALL MEN BY THESE PRESENTS, that ____________________________ (“Contractor”), having its principal offices at _________________________________________, and ________________ (“Company”) have heretofore entered into a certain Contract, dated __________________ (the “Contract “) relating to the furnishing of Materials, Labor, and/or Equipment for construction or services for ________________________________ in connection with a certain Contract performed by Company for for Company’s Project located at ________________________.
 
NOW THEREFORE , upon actual receipt by Contractor of a check from Company in the sum of $_________, _______________________________________________________________USD, which sum shall represent full and final payment due to Contractor under and pursuant to the Contract, and when the check has been properly endorsed and has been paid by the bank upon which it is drawn (“Release Date”), this document shall become effective and Contractor does hereby:
 
1.  
Affirm under oath that all Persons, firms, associations, corporations, or other entities furnishing Labor, Materials, Equipment, supplies, or services to Contractor with respect to the Contract, have been paid in full as of the Release Date, including any and all applicable federal, state, and local sales, use, excise, or similar taxes or import duties, licenses, and royalties, except the following (NONE, unless noted, attach additional page, if necessary, and so note):
 
2.  
Remise, release, waive, relinquish and forever quitclaim unto Company and unto its affiliates, successors, and assigns, any and all manner of Liens, claims, or demands whatsoever, which against Company, Contractor ever had, now has, or which it or its successors or assigns hereafter can, shall or may have, or upon any portion of the lands of Company or the buildings thereon standing, for Labor, Material, Equipment or services furnished under or out of the Contract, and
 
3.  
Further remise, release and forever discharge Company, its affiliates, successors, and assigns of and from any and all manner of Liens, claims, demands and causes of action whatsoever against Company which Contractor ever had, now has, or which its successors or assigns hereafter can, shall, or may have for, upon, or reason of any matter, cause or thing whatsoever arising under or out of the Contract, and
 
4.  
Agree to indemnify and hold harmless Company,its successors, or assigns, against all Losses, cost, damage, or expense (including but not limited to attorneys’ fees) by reason of any and all manner of Liens, claims, demands, or cause of action which anyone may have for Labor performed, Material, Equipment, or services furnished under or out of the Contract.
 
IN WITNESS WHEREOF, Contractor has duly caused these presents to be signed, witnessed, or attested by its duly authorized Owner, Partner, or Officer (if a corporation, its Corporate Seal to be hereunto affixed) on the _______ day of _____________, 2____.

 
 
 
_______________________________                                                Seal if Corporation)               (Notary Public Seal)
                 (Signature)
 
 
By:____________________________
                 (Print Name)
 
 
Title: _____________­_____________
 
 
Witness: (if Individual) _________________________
 
 
Attest 1: (if Corporation) _______________________                Attest 2: (if Corporation) ________________________
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Exhibit 3 – Release to Work Form
 
 
Contractor:
NewMech Companies, Inc.
 
 
No.
Description
Ref.
Received
Date
Approved
Date
Approval Initial
1
Executed Contract
       
2
Insurance Certificate with proper coverage, verbiage, and 30 day cancellation notice
Article 42
Attach. C
     
3
Site Specific Safety Plan by Contractor
Article 11
     
4
Safety Supervisor Resumes Reviewed
       
5
Safety Supervisor Interviewed
       
6
Business Licenses
       
7
Emergency Numbers
       
8
Quality Control Plan by Contractor Reviewed
Article 21
     
9
Project Execution Plan and Site Specific Security Plan Reviewed (1week prior to Mobe)
       
10
Contract Performance Security*
Article 65
     
11
Organization Chart
       
12
Permits as required per Basis of Design
Article 15
     
13
Construction Kick-off Meeting (to be scheduled collaboratively, possibly the same day as Ground Breaking)
       
14
Site (Project) Labor Agreement Received
       
* Contract Performance Security must be in hand within 7 days after Contract Execution date or prior to Mobilization, whichever is earlier.   The Contractor is hereby released to begin work on site.

______________________________________                                                                                     Date: _____________
Company

______________________________________                                                                                     Date: _____________
Contract Administrator/Manager
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Exhibit 4 – Requisition for Payment
 
 
From:
Insert from whom here
 
Application Date:
Insert Application Date
To:
Insert who to here
 
Invoice No.:
Insert Invoice Number
Attn:
Insert attention to here
 
Payment No.:
Insert Payment Number
     
Period From:
Insert Date From
     
Period To:
Insert Date To
 
 
 
Table 1
 
 
Table 2
 
$
Current Contract Status
  0.00%  
Progress Invoice Amount
 
$
     
Change Order Invoice Amount
 
$
Original Contract Value
$
 
Invoice Amount
 
$
Approved Change Order Value
$
 
Less Retention
0.0%
$
Current Contract Value
$
 
Subtotal Invoice Amount
 
$
     
Less Previous Invoices
 
$
Approved Contract Changes
0.00%
 
Net Invoice Amount
 
$
Approved Change Order Progress
0.00%
       
 
Double click on tables to edit.  Click anywhere else to exit.
 
Application is made for current payment as shown in Table 2 above.  Required schedule of value/continuation sheets are attached.
 
Contractor certifies that this application for payment and all other information submitted and attached is true, accurate, and in accordance with the provisions of the Contract.
 
Above does not include material furnished, labor performed, or expense incurred for which authorization has not been given, as follows:
 
 
·  
Insert Description of expense item here
·  
Insert Description of expense item here
·  
 
 
 
Contractor certifies that the above is a true statement of account of the Contract to date and releases Company, its agents, heirs, successors, or assigns, from any claim or claims of whatever nature for materials furnished, labor performed, or expense incurred to date which is not included in the above amounts, or for which Contractor has not provided Company with written notification, except such amount as we may become entitled to in the event of cancellation of incomplete portions, of the Contract.
 
 
Contractor:
   
Signature:
 
Contractor Rep:
   
Title:
 

 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Exhibit 5 – Form of Letter of Credit
 
SAMPLE
 
IRREVOCABLE STANDBY LETTER OF CREDIT
 
 
CONTRACTOR:
 
 
 
   
BENEFICIARY:
 
 
 
 
 
 
By order and for the account of [Contractor Name] (hereinafter referred to as “Contractor”), we hereby open our irrevocable standby Letter of Credit No.       in favor of [Company Entity] (hereinafter referred to as “Company”) for an amount up to [Spell Out] US Dollars ($      ), expiring at the counter of the negotiating bank with the close of business on [Date].
 
Payments under this Letter of Credit No.       are available to Beneficiary against Beneficiary’s sight draft on us. The amount of such draft shall not exceed [Spell Out] US Dollars ($      ). Sight drafts shall be accompanied by a written statement signed by an official of Beneficiary certifying that Contractor has failed to perform some or all of its obligations under Contract No.       dated       (hereinafter referred to as “the Contract”) as agreed between Contractor and Beneficiary.
 
Any references to the Contract are for information purposes only and the terms and conditions of same are not incorporated nor made part of this irrevocable standby Letter of Credit.
 
This Letter of Credit shall be automatically extended without amendment for additional periods of one year from the present or any future expiration date hereof, unless we notify you by certified mail at least sixty (60) calendar days prior to the expiration date then applicable that we elect not to renew this Letter of Credit for an additional one year period.
 
It is a condition of the Letter of Credit that if this Letter of Credit would expire during the interruption of business of the issuing bank or the performance of Contractor in compliance with the Contract for reasons referred to in Article 37 of the Uniform Customs and Practice for Documentary Credits (2007 revision), International Chamber of Commerce Publication No. 600, this Letter of Credit shall not expire until 30 days after the end of such interruption.
 
It is a further condition of this Letter of Credit that Contractor and/or Bank, and/or Beneficiary shall not be deemed responsible for any default due to the conditions included in the above referenced Article 37.
 
All fees associated with this credit are for Contractor’s account.
 
Unless expressly stated, this Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (2007 revision), International Chamber of Commerce Publication No 600.
 
 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 

 
SIGNATURE AND SEAL
 
   
Name of Bank
 
   
Address
 
   
Date
 
 

 
 

 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
Exhibit 6 – Change Order Request Form
 
 
 
Fill in the header before providing paper and electronic copy to Sub
 
 
COR No.
   
Revision
   
Date
 
 
Originator
   
Contractor
 
 
To the attention of
   
 
 
AFFECTED DISCIPLINE

 
 
Demolition / Salvage
 
Concrete
 
Instrumentation
 
Site work / Civil
 
Special Concrete
 
Insulation
 
Underground Electrical
 
Structural Steel
 
Painting
 
Underground Piping
 
Building Construction
 
Manufacturing & Process Duct
 
Pipeline
 
Aboveground Piping
 
Mechanical Equipment
 
Piling
 
Aboveground Electrical
 
Instrumentation
   
Other
 
Explain
   
 
 
REASON FOR CHANGE
 
 
 
RFI -- No.
     
Correction Of Interface Problem
 
Field Work Order -- No.
     
Schedule Acceleration
 
Revised Drawing Or Specification
 
New Drawing Or Specification
 
Work Stoppage / Delay
 
Potential Claim
 
Rework
 
Client Request
 
Vendor Error -- VPR No.
     
Other (Describe)
 
List all relevant document types and numbers
 
 

DESCRIPTION OF CHANGE

Change Order Request (“COR”) is a written request from Contractor to Company asking for a Change Order.  Such CORs shall be submitted within seven days after the occurrence of any event that Contractor believes entitles Contractor to a Change Order.  When submitting a COR, Contractor shall include:
 
a detailed narrative describing the factual basis of the request including references to the applicable Contract Documents or other contractual basis, and

 
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NWE LOGO
Contract Number – 84670
Contract Title – EPC Balance of Plant
Contractor – NewMech Companies, Inc.
Project Name – Mill Creek Generating Station (MCGS)
 
 
 
a narrative describing how Contractor has complied with the applicable Notice requirement of the Contract, and
 
a detailed build-up of the proposed change in the GMP, if any, including labor (hours and unit rates), Materials and Equipment, Subcontracts, Constructions Works, and markups for overhead together with supporting documentation such as time sheets and vendor invoices, and
 
a detailed analysis showing the impact, if any, on the detailed Contract Schedule.

COR Description:
 
 
 
 
 
 
(Attached additional sheets as necessary.)
 
 
This request has cost impact?
 
Yes
 
No
 
 
CHANGE ORDER REQUEST COST SUMMARY (Attach details as requested above)
 
 
Direct Labor
$
Direct Materials
$
Construction Equipment
$
Subcontracts
$
Indirect Costs
$
Overhead
$
Contingency
$
Applicable Taxes
$
Other
$
   Total COR Costs
$
 

 
Total number of workhours associated with this COR:
 
 

 
COR represents schedule impact?
 
Yes
 
No
If yes, specify number of workdays
 

Originator Signature:
   
Date:
 



 
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EXHIBIT 31.1
 
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a)
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Robert C. Rowe, certify that:
 
1.
I have reviewed this report on Form 10-Q of NorthWestern Corporation;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   October 29, 2009
 
/s/ ROBERT C. ROWE
 
Robert C. Rowe
 
President and Chief Executive Officer
 

 



Exhibit 31.2
 
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a)
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Brian B. Bird, certify that:
 
1.
I have reviewed this report on Form 10-Q of NorthWestern Corporation;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 29, 2009
 
/s/ BRIAN B. BIRD
 
Brian B. Bird
 
Vice President, Chief Financial Officer and Treasurer
 

 

 



EXHIBIT 32.1
 
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
 
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of NorthWestern Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert C. Rowe, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
 
1)
The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
 
2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 29, 2009
 
/s/ ROBERT C. ROWE
   
Robert C. Rowe
   
President and Chief Executive Officer
 

 
 

Exhibit 32.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
 
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of NorthWestern Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian B. Bird, Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
 
1)
The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
 
2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 

Date: October 29, 2009
/s/ BRIAN B. BIRD
 
Brian B. Bird
 
Vice President, Chief Financial Officer and Treasurer