HELENA — Two of the biggest energy players in the state ended a year-long face-off Wednesday, announcing a new electric-supply contract that’s projected to increase prices 7 percent for NorthWestern Energy consumers a year from now.\

PPL Montana, the state’s largest power generator, agreed to a seven-year contract to keep providing a substantial chunk of electricity for NorthWestern’s 310,000 customers in Montana.

The contract kicks in next July — the same time that PPL’s current five-year contract to supply power to NorthWestern expires.

“This agreement with PPL Montana represents months of negotiations and is a testament to the quality of our team in Montana,” said Mike Hanson, president of NorthWestern Energy. “They have worked hard to find a solution that provides reliable electricity supply at reasonable prices. “

The two companies had been negotiating for more than a year to replace PPL’s current contract, which provides about 55 percent of the electricity for NorthWestern customers in Montana.

The new contract initially will provide about 37 percent of the power needed to supply NorthWestern customers, and then decline gradually over the next seven years.

The price paid to PPL is a 40 percent increase starting next July, and increases another 2 percent to 3.5 percent in each of the next five years.

The projected increase next year for residential consumers is only 7 percent, because the price-hike paid to PPL is only a portion of customers’ overall bill. Power from other sources is projected to cost less and delivery costs should be the same.

NorthWestern officials said the contract is below the current and long-term forecasted future market rates in the region.

However, they also said the 7 percent projected increase could be higher or lower, depending on fluctuations in the regional electricity market.

NorthWestern still must buy nearly one-third of its power for Montana customers on the open market, said John Hines, the company’s director of energy supply.

“We’ll try to take some steps to reduce that exposure to the market,” he said.

Utility regulators said Wednesday the deal may be the best NorthWestern could hope for from PPL, but that it’s nothing for consumers to cheer about.

“Whether they could get anything better between now and (when the current contract expires), I don’t know,” said Commissioner Tom Schneider, D-Helena. “(But) the overall impact on the Montana economy is still going to be a minimum of $40 million a year. And that’s a bad impact.”

Schneider’s $40 million is his estimate of the lower prices PPL Montana would be forced to charge if it had lost a recent case before the Federal Regulatory Energy Commission.

Montana’s Consumer Counsel had argued that PPL had near-monopoly power over electricity sales to NorthWestern, and therefore should be forced to sell at rates based on the cost of production, instead of the much-higher market prices.

FERC ruled in May that PPL does not have “market power” in Montana, and therefore can charge whatever the market will bear.

PPL and NorthWestern have been sparring over a new contract since early last year, when NorthWestern publicly criticized PPL’s then-offer as too high and not in the best interest of Montana customers.

Yet in the ensuing months, as the critical contract got closer to expiring, market prices for electricity continued to climb in the region.

Then came the ruling in the FERC case in favor of PPL, leaving NorthWestern only a year to either replace or renegotiate the PPL contract’s large chunk of power for Montana customers.

NorthWestern officials said the new contract helps the company with its long-term strategy, which is to arrange for other sources of electricity besides PPL and thus diversify the mix of power supplying customers.

That could include the company building or investing in new power plants of its own, they said.

A PPL spokesman said the company is satisfied with the contract, which is 100 percent more than PPL charged in its contract that expired in 2002.

PPL spokesman David Hoffman said that earlier price was artificially low, and that the current contract, arranged in 2002, is now well below market rates.

“We have a commodity that we sell at market prices,” he said. “Those are the terms that were in place when we purchased (the power plants). We think (the new contract) is very competitive with the market over the life of the contract.”

Details, explanations of power deal

HELENA — NorthWestern Energy and PPL Montana agreed to a new, seven-year contract to supply electricity for NorthWestern customers starting next year.

Here are details on the cost and components of the contract:

n Beginning July 2007, PPL agrees to supply up to 325 megawatts of power at peak times. It also will provide 175 megawatts of power during non-peak times.

This amount is less than PPL’s current contract to supply up to 450 megawatts, or 55 percent of the total electricity needed for NorthWestern’s 310,000 customers in Montana.

n The price of the power is $44.95 per megawatt hour, a nearly 40 percent increase over the current price paid to PPL of about $32.50 per mwh.

The price gradually increases during the life of the seven-year contract, up to $52.95 per mwh by 2013. The amount provided by PPL also declines gradually during the seven-year period.

An average home served by NorthWestern consumes about nine megawatt hours a year of electricity.

n The cost to residential consumers is estimated to increase about 7 percent next July, when the contract goes into effect. That increase presumes that NorthWestern will be able to reduce the cost of other electricity it must by from other sources.

Electricity prices for NorthWestern customers in Montana have been declining from their historic high this January. If NorthWestern’s predictions hold true, the price paid by Montana consumers next July will still be below those January highs. However, NorthWestern customers will still be paying one of the highest cost per-megawatt hour among major utilities in the Pacific Northwest.