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EXHIBIT 1
REDACTED IN ITS ENTIRETY


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Valuation Report Prepared for:

NorthWestern Corporation
Determination of the Fair Value of Certain Underlying Assets acquired from Montana Power, LLC

Valuation as of
December 31, 2002


Prepared by: BearingPoint, Inc. 303 E. Wacker Drive Chicago, II., 60601

This document is protected under the copyright laws of the United States and other countries as an unpublished work. This document contains information that is proprietary and confidential to BearingPoint, Inc. or its technical alliance partners, which shall not be disclosed outside or duplicated, used, or disclosed in whole or in part for any purpose other than to evaluate BearingPoint, Inc. Any use or disclosure in whole or in part of this information without the express written permission of BearingPoint, Inc, is prohibited.

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BearingPoint, Inc.
303 E. Wacker Drive
Chicago, Il60601
Tel: +1.312.665.1000
Fax: +1.312.665.6044
www.bearingpoint.com


January 30, 2003

Private and Confidential
Mr. Kipp Orme
Chief Financial Officer
NorthWestern Corporation
125 S. Dakota Avenue
Sioux Falls, SD 57104

Dear Mr. Orme:

In accordance with your request, we have performed a valuation analysis of certain underlying Montana utility assets (the "Subject Assets") owned by NorthWestern Energy (liNE"). NE is a division of NorthWestern Corporation ("Management"). The companies may be collectively referred to as "NorthWestern" in this document. We understand that the Subject Assets consist of the following operating businesses: The Montana Power Company, Canadian-Montana Pipeline Corporation, One-Call Locators, LLC, Montana Power Capital I, Discovery Energy Solutions, and Montana Power Natural Gas Funding Trust. We understand that the purpose of this engagement is to provide Management with a valuation report that will be among the information Management will take into account in Management's detennination and certification of value that will be utilized in connection with a financing transaction, and that no other use is intended or inferred. We also understand that we are to utilize a valuation date of December 31, 2002 for our analysis. Valuation Summary
Our valuation was completed under the premise of "fair value" which can be defined as follows:

"The amount at which the asset could be bought or sold in a
current transaction between willing parties, that is, other than in a
forced or liquidation sale. "

The assets were valued as part of a "going concern in continued use." In our analysis we considered and utilized the three basic approaches to value: the market, cost and income approaches. Based upon our analysis and methodologies utilized and presented in this report, we have determined the fair value of certain underlying assets of NE as of the Valuation Date and have summarized this value as follows:

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$1,500,000,000
One Billion Five Hundred MiIHon Dollars

Catellory Montana Electric -ROW Montana Electric - Real Property Montana Electric -Operating Property Colstrip Units #1-3, Transmission Subtotal - Montana Electric Yellowstone Park -Electric Cushion Gas Working Gas Subtotal- Storage Gas MPC Gas - Operating Property Montana Gas ROW Montana Gas Real Property Suhtotal- MPC Gas Common Plant - Personal Property & Software Common Plant - Real Property Subtotal- Common Utility Townsend Propane Totals - Regulated Utilities Future Use Land Non-Utilitv Other Property Non-Utility Propane Colstrip No.4 - G&T Canadian - Montana Pipe Line Corporation One Call Locators, Ltd. Totals Non-Re2ulated/Other Propery Combined Subtotal Grand Total Rounded Fair Value- Rounded 36,184,000 5,213,000 844,351,000 65,000,000 950,748,000 10,624,000 33,394,000 6,954,000 40,348,000 416,979,000 7,920,000 3,475,000 428,374,000 16,057,000 14,535,000 30,592,000 578,000

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1,461,264,000
9,000 2,931,000 420000 (l,837,000) 326,000 10,864,000 12,713,000

1,473,977,000 $1,500,000,000

Based upon our discussions, we have excluded current assets and spare parts inventory from our analysis, as well as the environmental liability associated with the Milltown Dam. Please note that our analysis and conclusions are subject to the "Limiting Assumptions" as listed in Attachment 1. Statement of Qualifications and Disinterest This report has been prepared under the direction of Mr. Robert Musur, a Managing Director of BearingPoint, Inc. Mr. Musur is one of the designated Managing Directors

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BearingPoint.
within the Firm authorized to conduct business valuation and intangible asset valuation studies. If you have any questions or comments regarding this report please call Mr. Musur at (3 12) 665-5134, or Mr. Roy D'Souza at (773) 867-6322. BearingPoint has no present or contemplated future interest in NorthWestern Corporation, NorthWestern Energy, Inc., or any of their affiliated companies, or any other interest that might prevent us from performing an unbiased valuation. We thank you for the opportunity to assist you on this project. Very truly yours, BearingPoint, Inc.

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Robert J. Musur Managing Director Valuation Services Practice CC: David Monaghan, NorthWestern Energy Kurt Whitesel, NorthWestern Corporation Roy D'Souza, BearingPoint - Chicago (O'Hare)

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ATTACHMENT 1

Limiting Assumptions
1. Report Distribution - This report has been prepared solely for the purpose stated and should not be used for any other purpose. Except as specifically stated in the report, neither our report nor its contents is to be referred to or quoted, in whole or in part, in any registration statement, prospectus, public filing, loan agreement. or other agreement or document without our prior written approval. In addition, our analysis and report presentation are not intended for general circulation or publication, nor are they to be reproduced nor distributed to other third parties without our prior written consent.
2. Scope of Analysis - The valuation of any financial instrument or business is a matter of informed judgment. The accompanying valuation has been prepared on the basis of information and assumptions set forth in the attached report. associated appendices, or underlying work papers, and these Limiting Assumptions. 3. Nature of Opinion - Neither our opinion nor our report are to be construed as a fairness opinion as to the fairness of an actual or proposed transaction, a solvency opinion. or an investment recommendation. but, instead, are the expression of our determination of the fair market value of the subject interest(s) between a hypothetical willing buyer and a hypothetical willing seller in an assumed transaction on an assumed valuation date where both the buyer and the seiler have reasonable knowledge of the relevant facts. For various reasons, the price at which the subject interest(s) might be sold in a specific transaction between specific parties on a specific date might be significantly different from the fair market value as expressed in our report. 4. Going Concern Assumption, No Undisclosed Contingencies - Our analysis: (i) assumes that as of the valuation date(s) the Subject Assets will continue to operate as configured as a going concern; (ii) is based on the past and present financial condition of the Subject Assets as of the valuation date(s); and (iii) assumes that the Subject Assets had no undisclosed real or contingent assets or liabilities, no unusual obligations or substantial commitments, other than in the ordinary course of business, nor had any litigation pending or threatened that would have a material effect on our analyses. 5, Lack of Verification of Information Provided by NorthWestern Energy, Inc. ("NorthWestern") - With the exception of audited financial statements, we have relied on information supplied by NorthWestern without audit or verification, We have assumed that all information furnished is complete, accurate, and reflects management's good faith efforts to describe the status and prospects of Subject Assets at the Valuation Date from an operating and a financial point of view. As part

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of this engagement we have relied upon publicly-available data from recognized sources of financial information that have not been verified in all cases. 6. Reliance on Forecasted Data - Any use of management's projections or forecasts in our analysis does not constitute an examination or compilation of prospective financial statements in accordance with standards established by the American Institute of Certified Public Accountants ("AICPA"). We do not express an opinion or any other form of assurance on the reasonableness of the underlying assumptions or whether any of the prospective financial statements, if used, are presented in conformity with AICPA presentation guidelines. Further, there will usually be differences between prospective and actual results because events and circumstances frequently do not occur as expected and these differences may be material. 7. Subsequent Events - The terms of our engagement are such that we have no obligation to update this report or to revise the valuation because of events and transactions occurring subsequent to the valuation date(s). 8. Legal Matters - BearingPoint, Inc. ("BearingPoint") assumes no responsibility for legal matters including interpretations of either the law or contracts. We have made no investigation oflegal title and have assumed that the owner(s) c1aim(s) to property are valid. We have given no consideration to liens or encumbrances except as specifically stated. We assumed that all required licenses, permits, etc. are in full force and effect, and we made no independent on-site tests to identify the presence of any potential environmental risks. We assume no responsibility for the acceptability of the valuation approaches used in our report as legal evidence in any particular court or jurisdiction. The suitability of our report and opinion for any legal forum is a matter for the client and the client's legal advisor to determine. 9. Testimony - Neither BearingPoint nor any individual signing or associated with this report shall be required to give testimony or appear in court or other legal proceedings unless specific arrangements have been made in advance. 10. USPAP - This engagement was conducted pursuant to the Uniform Standards of Professional Appraisal Practice. II. Verification of Legal Description or Title - As part of this engagement, we will not assume any responsibility for matters of a legal nature. No investigation of legal description or title to the property will be made and we will assume that your claim to the property is valid. No consideration will be given to liens or encumbrances which may be against the property except as specifically stated as part of the financial statements you provide to us as part of this engagement. Full compliance with all applicable federal, state, and local zoning, environmental, and similar laws and regulations is assumed, unless otherwise stated and responsible ownership and competent property management are assumed.

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12. Verification of Hazardous Conditions - We will not investigate the extent of any hazardous substances that may exist, as we are not qualified to test for such substances or conditions. If the presence of such substances, such as asbestos, urea formaldehyde foam insulation, or other hazardous substances or environmental conditions may affect the value of the property, the value will be estimated predicated on the assumption that there is no such condition on or in the property or in such proximity thereto that it would cause a loss in value. No responsibility will be assumed for any such conditions, nor for any expertise or engineering knowledge required to discover them. 13. Condition of Property - We assume no liability whatsoever with respect to the condition of the subject property or for hidden or unapparent conditions, if any, of the subject property, subsoil or structures, and further assume no liability or responsibility whatsoever with respect to the correction of any defects which may now exist, or which may develop in the future. Equipment components considered, if any, were assumed to be adequate for the needs of the property's improvements, and in good working condition, unless otherwise reported; 14. The Americans with Disabilities Act ("ADA") - ADA became effective January 26, 1992. The valuation professional will not make a specific compliance survey and analysis of this property to detennine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since the valuation professional has no direct evidence relating to this issue, he will not consider possible non-compliance with the requirements of the ADA in estimating the value of the property.

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ATTACHMENT 2

Appraiser's Certification

I hereby certify that, to the best of my knowledge and belief: · The statements of fact contained in this report are true and correct; · The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions and conclusions; · We have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved; · Our compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event;
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·

Mr. Roiston D'Souza contributed significantly to the person signing this report.

Robert J. Musur, ASA Managing Director BearingPoint, Inc.

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ATTACHMENT 3
Qualifications of the Appraiser

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ROBERT J. MUSUR, ASA
Managing Director - Valuation Services Practice

Key Qualifications:
Mr. Musur is a Managing Director in the Valuation Services Practice of BearingPoint, Inc. He has valuation experience in many industries, including communications, utilities, broadcasting, and publishing valuations. He has extensive experience in valuations for acquisitions, mergers, divestitures and litigation cases. Previously, Mr. Musur had been the practice leader for KPMG LLPs' appraisal and valuation group in New England, and is currently National Director for BearingPoint, Inc. 's (fOImerly KPMG Consulting, Inc.) U.S. Communications and Content Valuation Services Practice.
His utility experience includes the following: · Involved in the completion of a purchase price allocation for the acquisition of various operating power plants, power plants under development, and natural gas storage operations; · Valuation of an electric and natural gas utility in the State of Montana for
purchase price allocation purposes;
· Valuation of an electric transmission and distribution utility located in the State of Texas for financing purposes; · Valuation of a portfolio of electric generating facilities located in the State of Texas for financing purposes; · Valuation of two electric generating facilities located in the Dallas, Texas area for purchase price allocation purposes; · Valuation of hydro generating facilities and an electric transmission system
located in Winnipeg, Manitoba;
· Completion of a valuation study for tax purposes for an entity involved in electricity trading, non-utility generator restructuring and orimulsion contracts; and a related entity that engages in the purchase and sale of physical oil contracts in the United States; · Completion of a purchase price allocation for telecommunications property
acquired in the states of California, Illinois and Nebraska;
· Completion of a weighted average cost of capital study for ad valorem tax appeal purposes for a competitive local exchange carrier.

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~ BearingPoint.,
ROBERT J. MUSUR, ASA
Managing Director - Valuation Services Practice

Education:
JD, Loyola University of Chicago
MBA, DePaul University BS, Engineering, University of Illinois

Affiliations:
American Society of Appraisers, Senior Member

Professional Experience:
Managing Director, Valuation Services, BearingPoint, Inc. (fonnerly KPMG Consulting, Inc.), October 2002 to present Managing Director, Valuation Services, KPMG Consulting, Inc., July 1998 to October 2002 Director, Corporate Transaction Services, KPMG Peat Marwick LLP-Midwest, April 1996 to June 1998 Managing Director, Appraisal and Valuation Group, KPMG Peat Marwick LLP-New England, November 1993 to April 1996

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TABLE OF CONTENTS
SCOPE OF ENGAGEMENT
PREMISE OF VALUE
SUMMARY OF FAIR VALUE SUPPORTING DOCUMENTATION REGULATORY AND OPERATING ENVIRONMENT OVERVIEW OF ASSETS APPRAISED VALUATION l.\fETHODOLOGIES VALUATION OF ASSETS
REAL PROPERTY MONTANA POWER COMPANY ELECTRIC UTILITY COLSTRIP TRANSMISSION SYSTEM - UNITS 1-3 YELLOWSTONE NATIONAL PARK ELECTRIC UTILITy MONTANA POWER COMPANY NATURAL GAS UTILITY COMMON UTILITY PLANT TOWNSEND PROPANE FUTURE USE LAND OTHER NON·UTILITY LAND PARCELS NON-UTILITY PROPANE DISTRIBUTION COLSTRIP NO.4 GENERATION AND TRANSMISSiON CANADIAN - MONTANA PIPELINE CORPORATION ONE CALL LOCATORS, LTD CONCLUSION OF FAIR VALUE 22
25
33
34
38
46
50
50
50
50
52
54
55
56
12
12
14
14
18
19
20


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BearingPoint
Scope of Engagement
We have performed a valuation analysis of certain underlying Montana utility assets (the "Subject Assets") owned by NorthWestern Energy ("NE"). NE is a division of NorthWestern Corporation ("Management"). The companies may be collectively referred to as "NorthWestern" in this document. We understand that the Subject Assets consist of the following operating businesses: The Montana Power Company, Canadian Montana Pipeline Corporation, One-Call Locators, LLC, Montana Power Capital I, Discovery Energy Solutions, and Montana Power Natural Gas Funding Trust. We understand that the purpose of this engagement is to provide Management with a valuation report that will be among the infonnation Management will take into account in Management's determination and certification of value that will be utilized in connection with a financing transaction, and that no other use is intended or inferred. We also understand that we are to utilize a valuation date of December 31, 2002 for our analysis. The Subject Assets consist of the assets of the following operating businesses: The Montana Power Company, Canadian-Montana Pipeline Corporation, One-Call Locators, LLC, Montana Power Capital I, Discovery Energy Solutions, and Montana Power Natural Gas Funding Trust. Specifically, the Subjects Assets primarily consist of electric and natural gas transmission and distribution operations and associated real property, common plant real and personal property (including software), and associated businesses such as propane distribution, pipeline operations, and utility line locating. On December 19, 2002 BearingPoint, Inc. ("BearingPoint") submitted a valuation report for the Subject Assets for the purposes of purchase price allocation, utilizing a "Valuation Date" of February 1, 2002. To perfonn the current valuation, BearingPoint has relied extensively on the working documents completed for this prior appraisal, as we have been informed by Management that no significant change in business operation has occurred during the eleven-month period from the previous to the current Valuation Date. Any changes in fair value from this prior analysis have been documented in this report. Based upon instruction from Management, we have excluded current assets and spare parts inventory from our analysis, as well as the environmental liability associated with the Milltown Dam. Our analysis is solely inclusive of the specific assets described in this report, and does not constitute a business enterprise valuation ofNE.

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Premise of Value
Our valuation was completed under the premise of "fair value" which can be defined as follows: "The amount at which the asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. "

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BearingPoint.
The assets were valued as part of a "going concern in continued use." This valuation premise presupposes the continued utilization of the assets in connection with all other assets. This premise of fair value is not intended to represent the amount that might be realized from piecemeal disposition of the assets or from some other use of the assets. As previously discussed, we considered the three traditional approaches to value by applying generally accepted valuation principles and procedures. Our support for these various approaches is provided in this report, and has al10wed us to arrive at a reasonable conclusion of the fair value of the Subject Assets. In arriving at our opinion, we have applied generally accepted valuation procedures based upon economic and market factors. The accompanying valuation has been prepared on the basis of discussions with Management, public information, and financial information provided by Management. We have also used certain data supplied by Management in our valuation and have considered Management's representation of certain facts as part of the valuation engagement. The objective of these procedures was to develop a thorough understanding of the Subject Assets. This report summarizes the analytical approach and findings. In addition, we have commented on the adequacy of access to necessary materials and personnel in the course of our investigation and noted any limitations on our opinion.

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Summary of Fair Value Based upon our analysis and methodologies utilized and presented in this report, we have determined the fair value of certain underlying assets ofNE as of the Valuation Date and have summarized this value as follows:

$1,500,000,000
One Billion Five Hundred Million Dollars

Catel!orv Montana Electric -ROW Montana Electric - Real Property Montana Electric -Operating Property Colstrip Units # 1-3, Trnnsmission Subtotal - Montana Electric Yellowstone Park -Electric Cushion Gas Working Gas Subtotal-Storage Gas MPC Gas - Operating Property Montana Gas ROW Montana Gas Real Property SUbtotal- MPC Gas Common Plant - Personal Property & Software Conunon Plant - Real Property Subtotal- Common Utility Townsend Propane Totals - Regulated Utilities Future Use Land Non-Utility Other Property Non-Utility Propane Colstrip No.4 - G&T Canadian - Montana Pipe Line Corporation One Call Locators, Ltd. Totals - Non-Re2ulated/Other Propery Combined Subtotal Grand Total- Rounded Supporting Documentation This valuation report is the result of various financial calculations and analysis. We have maintained orderly and comprehensive workpapers that provide support for the value presented herein, and if requested by you, we would be pleased to provide these to you. Most of our information was collected through interviews and documents provided by NorthWestern personnel. Fair Value - Rounded
36,184,000 5213,000 844,351,000 65,000,000 950748,000 10,624,000 33394,000 6,954,000 40,348,000 416979000 7,920,000 3,475,000 428,374,000 16057,000 14535,000 30,592,000 578,000 1 461,264,000 9,000 2,931,000 420,000 (1,837,000) 326,000 10,864,000 12,713,000

1,473,977,000 $1,500,000,000

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Business Overview

We understand that NE consists primarily of regulated electric, natural gas and propane utility operations (the "Utility"), as well as certain non-utility generation and service operations. The electric and natural gas service territory covers roughly 107.600 square miles, or approximately 73% of Montana, making it one of the countries largest utilities in terms of service territory. The regulated electric utility purchases, transmits and distributes electricity to over 288,000 customers in 191 communities and their surrounding rural areas throughout Montana, including Yellowstone National Park. The electric utility also delivers electricity to rural electric cooperatives that serve approximately 76,000 customers. The total control area peak demand exceeds 1,500 megawatts, and over 10 billion kilowatt hours are delivered per year. The regulated natural gas utility purchases, transports, distributes and stores natural gas for over 151,000 customers in 109 communities throughout the state. The natural gas utility also serves several smaller distribution companies that provide service to approximately 28,000 customers. Peak capability is approximately 300 million cubic feet ("I\1MCFD") per day and approximately 50 billion cubic feet ("BCF") is moved annually on the system. Three natural gas storage fields provide up to 185 million cubic feet per day of peak day deJiverability. We further understand that these utility operations are managed through three operating units: Distribution Services, Electric Transmission, and Natural Gas Transmission and Storage. Distribution Services Distribution Services delivers electricity and natural gas to homeowners and commercial users through the Company-owned distribution infrastructure. These services can be broken down into four primary components:

(

1.

Operation and Maintenance of the Distribution System - The Utility operates a combined electric and natural distribution systems, as each of the six service centers (identified below) are equipped to construct, operate and maintain both electric and natural gas services. The Utility also owns and operates a transformer and meter service center in Butte, Montana, supporting all division operations and providing third-party services. Customer Service - Customer service functions include coordinating service calls, meter reading, customer billing and similar support functions. Ail operations of this nature are centralized out of a dedicated call center located in Butte.

2.

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BearingPoint.
3. Coordination of Electric Supply - The Utility has entered into power purchase agreements with PPL Montana to meet load requirements through June 30, 2002. The Utility then obtains its necessary load through the use of 15 Qualifying Facility contracts ("QF's"), along with electricity produced from the Milltown Dam location. Coordination of Natural Gas Supply - In 1997, Montana Power Company transferred its utility gas production assets to an unregulated affiliate, and entered into a buyback contract for roughly half its gas supply requirements. The buyback contract terminated on October 31, 2002. The remainder of the natural gas load is supplied under approximately seven annual contracts and four long-term contracts with various suppliers and marketers connected to the Utility's transmission system.

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4.

Distribution Services includes six divisions, with service centers located in Billings, Bozeman, Butte, Great Falls, Helena and Missoula. The electric distribution system consists of approximately 14,000 miles of overhead distribution lines and 1,000 miles of underground distribution lines ranging from 2,400 to 25,000 volts. The Utility has 336 substations, 269 of which serve the distribution system. The distribution system delivers approximately eight million megawatt hours to in-state markets. The natural gas distribution system consists of approximately 3,300 miles of underground distribution pipelines ranging in diameter from 0.5 inches to 20 inches. The Utility delivers over 40 billion cubic feet of natural gas annually to in-state customers.

In addition to its electricity and gas distribution operations, the Utility operates one regulated on and two unregulated propane distribution systems with annual sales of approximately 1.1 mi llion gallons per year.
Electric Transmission The electric utility transmits bulk energy from in-state generation sources to distribution points and other non-affiliated transmission systems. The transmission system also transmits power to and from other interstate transmission systems. The system consists of approximately 7,000 miles of transmission lines, 270 circuit segments and 125,000 transmission poles with associated transformation (67 transmission substations) and terminal facilities. The system extends through the western two-thirds of Montana from Colstrip in the east to Thompson Falls in the west. The system has interconnections with five major (non-affiliated) transmission systems located in the Western Systems Coordinating Council area, as well as one interconnection to system that connects with the Mid-Continent Area Power Pool region. With these interconnections, the electric transmission system is strategically located to allow for the purchase and delivery of power in diverse markets, including the Pacific Northwest, the desert Southwest and California, the Colorado area and the MAPP region.

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The Colstrip Station is a 4-unit coal fired generating station located in Colstrip, Montana, NE owns the transmission facilities for Unit #1-3, and has a 30% interest in Unit #4's generation through a sale-leaseback arrangement, as well as a 30% ownership interest in its transmission facilities. The Colstrip Transmission System was constructed to transmit the output of the Colstrip generating project to an interconnection with the Bonneville Power Administration near Townsend, Montana. This transmission system is divided into two distinct segments: Colstrip to Broadview and Broadview to Townsend. A specific discussion of this facility is provided later in this report. The Utility owns and operates an internal communications system that provides protective relaying circuits and "system control and data acquisition" (SCADA) to the Systems Operation Control Center in Butte. This communication link provides for local area network circuits, voice traffic and two-way radio traffic, all used to provide dispatching capability for the entire service territory. Natural Gas Transmission and Storage The Utility transmits natural gas from production receipt points and storage facilities to distribution points and other non-affiliated transmission systems. The natural gas transmission system is comprised of over 2,000 miles of pipeline serving over 130 city gate stations and has strategic connections with four major, non-affiliated transmission systems. Seven compressor sites provide over 23,000 horsepower, capable of moving approximately 300 MMCFD. The Utility also operates three working storage reservoirs that have over 50 BCF of cushion and native gas. Over 9,200hp of compression provides over 185 MMCFD of peak deliverability. The Utility also operates three underground propane distribution systems in Montana. One system serves the town of Townsend and is regulated by the Montana Public Service Commission. The other two systems serve Big Sky Resort and Anaconda Job Corps and are unregulated. Combined, these systems deliver approximately 1.1 million gallons of propane per year. Other Operating Units Canadian - Montana Pipe Line Corporation Canadian - Montana Pipe Line Corporation is a wholly owned subsidiary of NE established to handle the cross border importation of Canadian natural gas. The company pipeline commences at the Nova Pipeline, terminating at the U.S.lCanadian border where it connects with the Company's gas transmission pipeline. One Call Locators, Ltd. One Call Locators ("OCL") is wholly owned subsidiary of NE, located in Missoula, Montana, that provides utility line locating services. OCL targets utilities with underground wires and pipes for its line locating services. OeL has successfully deployed an aggressive service strategy in North and South Dakota, Minnesota, Arizona,

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Montana, Idaho, and Utah. GCL currently maintains 23 contracts for line locating
services, and also performs private location services on an as-needed basis.
Montana Power Capital I
This entity exists for the sole purpose of issuing trust securities and holding junior
subordinated debt as trust assets. Since this business does not own any tangible assets,
we have not assigned any value to this entity.
Discovery Energy Solutions Calk/a Energy Productivity Improvement Group)
This entity provides unregulated, energy-related products and services to industrial,
institutional and commercial customers. It adds value for its customers by lowering their
cost-of-goods through methods aimed at reducing energy costs, Since this business does
not own any tangible assets, we have not assigned any value to this entity,
Montana Power Capital Natural Gas Funding Trust
This trust was borne from a Montana Public Service Commission (uMPSC") order
instructing the Utility to transfer substantially all of its natural gas production assets to
unregulated affiliates. The trust was established to issue transition bonds to refinance
these transition costs for the benefit of natural gas customers. Since this business does
not own any tangible assets, we have not assigned any value to this entity.

Regulatory and Operating Environment

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The electric and natural gas utility business is regulated by the MPSC and the Federal Energy Regulatory Commission ("FERC"). MPSC regulates private and investor-owned natural gas, electric, telephone water and private sewer companies operating in Montana. The FERC has jurisdiction over wholesale service to rural electric cooperatives and electric transmission. Montana's Electric Industry Restructuring and Customer Choice Act provided large industrial customers with choice of commodity supply beginning July 1, 1998. Pilot supply programs for residential and small commercial customers began November 2, 1998. Choice of supply for all customers was implemented as of July 1, 2002. The Utility has been designated a default supplier, and is obligated to continue to supply electric energy to customers in its service territory who have not chosen, or have not had an opportunity to choose, other power suppliers during the transition period. To meet these energy delivery requirements, the Utility executed power purchase agreements with PPL Montana, LLC through the transition period ending June 30, 2002. In its 2001 session, the Montana Legislature passed House Bill 474, which extends the transition period through Jun 30, 2007. This law provides for the use of a cost-recovery mechanism that ensures all prudently incurred electric energy supply costs of the default supplier are fully recoverable in rates charged to customers. Montana's Natural Gas Utility Restructuring and Customer Choice Act provided that natural gas utilities, such as the Utility, could offer customers a choice of natural gas

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suppliers by providing open access to the transmission and distribution system. The Utility has participated in open access since I991. Currently, all customers have the ability to choose alternative suppliers. With the divestiture of generation and production assets, the impact of customer choice on the Utility business is minimal. The energy component of the utility rate is a "pass through", allowing Company management to focus on the delivery and service aspects of the business. The Utility Business faces no direct competition in the transmission and distribution areas.

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Overview of Assets Appraised
As previously discussed, our valuation ofNE assets was primarily focused on the storage, transmission, and distribution Utility property assets, while providing a separate analysis for certain subsidiaries. The following is a summary of the major utility asset categories addressed in our analysis: Electric Transmission - Land, rights-of-way, substation equipment, towers, poles, conductor, underground conduit and underground conductor. Electric Distribution - Land, rights-of-way, structures, substation equipment, poles, conductor, underground conduit and underground conductor, transformers, overhead services and conductor, meters, and lights. Gas Storage Plant - Land, storage rights, wells, lines, compressor station equipment, metering and regulating station equipment, and purification equipment. Gas Transmission - Land, rights-of-way, land improvements/structures, compressor station equipment, mains, and measuring and regulating station equipment. Gas Distribution - Land, plastic and steel mains, plastic and steel services, and meters and regulators. General Plant Equipment - Communication equipment, office furniture and fixtures, data handling equipment, computers, transportation equipment, stores equipment, tools, laboratory equipment, power operated equipment, and microwave equipment. Common Utility - Land, office structures, communication structures, office furniture, data handling equipment, computer hardware, computer software, and office communication.

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Valuation Methodologies

Our study will consider, where appropriate, the three basic approaches to value: the market, cost and income approaches, which are summarized as follows:

Market Approach
Under the market approach, the fair value of the asset reflects the price at which comparable assets are purchased under similar circumstances. Use of the market approach requires that comparable transactions be available. This situation is most commonly found when the acquired asset is widely marketed to third parties. Under these circumstances, the market comparable approach represents the most appropriate approach for determining the fair value of the asset.

Cost Approach
In this approach the fair value of an asset is estimated as a function of the current cost to purchase or replace the asset. This is based upon the principle of substitution, which states that a prudent investor would pay no more for an asset than the amount necessary to replace the asset. The cost approach utilizes either a reproduction or CRN analysis. Reproduction cost (new) is the current cost of reproducing a new replica of an asset with the same or closely similar materials. CRN (new) is the current cost, new, of a similar new property having the nearest equivalent utility as the property being appraised. Upon completion of our reproduction and eRN new analysis, we adjusted the cost new values for depreciation and obsolescence as of the acquisition date, to give an indication of fair value.

Income Approach
The income approach is predicated upon the value of the future cash flows that an asset will generate over its remaining useful life. The first step involves a projection of the cash flows that the asset is expected to generate. This involves an analysis of financial information and discussions with marketing, operations, and financial personnel to develop the future income stream attributable to the asset. The second step involves converting these cash flows into a present value equivalent through discounting. This discounting process uses a rate of return that discounts for the relevant risk associated with the asset and the time value of money. The fair value of the Utility property was determined through the cost and market approaches to value. We utilized the cost approach to determine the fair value of the operating property, and the market approach to determine the value of the real property. We did not utilize the income approach to value for the Utility property due to the fact that it is rate-regulated property, and is a business that is expected to truly operate in

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~ BearingPoint
perpetuity. In completing a discounted cash flow model, it is desirable to be able to accurately forecast cash flows over a long time horizon. As it is very difficult to predict the outcome of future rate cases in this regulated industry, it is not common industry practice to complete long-term cash flow projections. In addition, due to the fact that the purpose of this business is to provide energy in perpetuity to all residents and businesses in the State of Montana (as opposed to, for example, a manufacturing plant that can be assumed to have a finite life), it is very difficult to compute an accurate terminal value at the end of the cash flow projection period. Due to these facts, we have considered, but not utilized the income approach in our analysis of the Utility property.

In the following section we provide a discussion of our approach and methodology for
detennining the fair value of each major Utility category, as well as for each of the NE subsidiaries holding tangible assets. It should be noted that no one formula or rule of thumb automatically yields a definitive determination of value. Each company and each situation involves unique factors. The valuation process combines the objective analysis of hard data with the application of experienced judgment to yield a reasonable conclusion.

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Valuation of Assets Real Property Real property appraised consists of the following categories: Land rightslRights-of-Way Utility Real Property (including Common Utility) - Fee Ownership Fee owned land (land under transmission lines) Fee owned land under service centers - Fee owned land under substations Service Center Structures Offices Future Use Gas Land Non-Utility Property Land Rights/Rights-of- Way Based upon information provided by NorthWestern management, the rights-of-way ("ROW") totaled 6,853 linear miles for electric transmission and 2,000 linear miles for natural gas transmission, based upon an estimated 40' and 30' ROW width, respectively. We have concluded on a fair value of $36,183,340 and $7,920,000 for the electric utility and gas utility ROW, respectively. Utility Real Property - Fee Ownership This category is made up of a significant number of land parcels and structures/improvements thereon. We have concluded the fair value of the utility real property to be: Common Utility - $14,534,674; Montana Electric Real Property $5,212,970; MPC Gas Real Property - $3,475,314. Future Use Land The Utility owns non-regulated land parcels in Bozeman and Great Falls, both acquired at minimal investment. We have concluded on a fair value of $8,984 for these assets. Other Non-Utility Land Parcels The Utility owns a variety of other non-regulated land parcels. We have concluded on a fair value of $2,930,874 for these assets.

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Valuation of all other Tangible Assets In determining the fair value of the tangible assets, we have relied primarily on the concepts of Reproduction Cost New less depreciation ("RCNLD") and Cost of Replacement New Less Depreciation ("CRNLD"). Under the CRNLD method, the Cost ofReplacement New ("CRN') is based on the cost of constructing a facility that provides the same function as the subject facility but is modern in its utility and design. Another starting point in this approach is RCN, which is the cost of reproducing the property as of the Valuation Date based on the assumption that a replica ofthe property could be built as of the Valuation Date. CRN is RCN less any capital functional obsolescence that takes account ofthe erosion ofRCN because of technological developments. Once CRN is detennined, it is necessary to make adjustments to account for the age and all of the infirmities, inefficiencies and obsolescence to the extent they may exist in the property at the Valuation Date. These reductions are due to the passage of time during which the property ages and deteriorates due to use and exposure to the elements. In addition, during this time new designs and technologies may have come about and, in some cases, changes in requirements of various public authorities may have occurred. These deductions or adjustments are generally referred to as depreciation. Depreciation can be subdivided into its various forms, or categories, of physical depreciation (incurable and curable), operating functional obsolescence, and economic obsolescence. These forms of depreciation, if applicable, must be determined and deducted from the RCN and CRN in order to arrive at the fair value of the subject assets. Based upon this methodology, we have utilized the following formula in calculating the fair value of the Subject Assets: Reproduction Cost New (RCN) Capital Functional Obsolescence CRN New (CRN) Physical Depreciation Operating Functional Obsolescence Economic Obsolescence RCN or CRN Less Depreciation (or Fair Value)

Less: Equals: Less: Less: Less: Equals:

Our process commenced by conducting detailed discussions with NorthWestern's Transmission and Distribution engineering teams regarding questions about the history of the system, recent performance issues, routine upgrade and maintenance programs, and recent and projected major capital expenditure projects. The CRN's were developed and provided based upon information provided by NorthWestern's engineering group utilizing current internal construction and acquisition

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cost data from recently completed projects, as well as from projects currently under development and construction. In computing our depreciation adjustments, we have determined that the effective age of the property has not increased since the completion of the prior valuation analysis (eleven months prior to Valuation Date utilized for this analysis). This is due to the fact that the Subject Assets have not incurred any significant permanent impairment due to extreme weather conditions, and that Management has certified that the assets have continued to operate in their expected function and condition during 2002. We present our analysis and discussion by major business units and then by FERC regulatory account for the regulated assets, and then discuss the non-regulated assets.

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Montana Power Company Electric Utility

Intangible Plant
This category includes the following accounts: Organization, Franchises & Consents, Computer Software, and BPA-Rattlesnake Line.
E301 - Organization - The investment in this asset category represents old costs incurred to incorporate Montana Power. We have not assigned any value to this category. E302 - Franchises and Consents - The investment in this asset category represents the costs to obtain "franchise" rights to operate the utility in certain jurisdictions, and usually consist of one-time payments. We have determined the fair value to be equal to historical cost and; therefore, have concluded on a fair value of $2,000 for these assets. E303.1 - Computer Software - The category consists of one major software package identified as Landvision Transmission Tracking and Load Scheduling, plus a number of smaller packages all of which are required and in use. We have determined the fair value to be equal to net book value and; therefore, have concluded on a fair value of $73,000 for these assets. E303.3 - Bonneville Power Administration Rattlesnake Line - Montana Power desired created a tie into Bonneville Power Association's ("BPA") transmission grid. Montana Power incurred the entire cost of purchasing and installing tangible assets that included a "tie-in" transmission line between the two transmission systems, and additional substation equipment on BPA's site. In return for BPA's concession to construct this line, :MPC turned over the entire ownership of the tangible property to BPA upon completion of construction. Montana Power then capitalized the entire investment as an intangible asset and began amortizing it over 30 years, and the MPSC allowed them to recover the investment by allowing its inclusion in rate base. We have concluded a fair value of $746,000 for these assets.

Transmission
This category includes the following accounts: Land, Land Rights, Structures, Substation Equipment, Towers and Clearing Land, Poles and Clearing Land, Conductor, Underground Conduit, Underground Cqnductor, and Roads and Trails. The concluded fair value was allocated where applicable between the Montana Electric and Colstrip No. 4 entities. Allocation between entities was based on a percentage calculated using original booked cost. The cost approach was used in valuing the Transmission assets unless indicated otherwise.

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E352 - Structures - This asset category includes the civil construction located at the 55
transmission substation sites. Assets consist of buildings which house the controls,
communication and switchgear, plus yard improvements which include site related roads,
site development, fencing, gravel base, foundations and related assets.
Since Structures are an integral part of a substation, depreciation of Structures was based
upon equipment depreciation as per account E353, concluding on a fair value of
$6,566,000, allocated as follows:
E352 - Montana Electric, Structures EC352 · Colstrip No.4, Structures ~
$6,369,000 $ 197,000

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E353 - Substation Equipment - This asset category includes 55 substations having a
total capacity of 8055 MYA, and a Systems Operating Control Center ("SOCC"). Asset
inventory and substation data was based on a FERC report dated December 31, 2001
("FERC Report"). Substation equipment includes transformers, breakers, equipment
steel structures, insulators, bus bar, local controls and communication and related assets.
The control center is located in Butte and includes the Emergency Management System,
control board, console system hardware and software with related assets.
We concluded on a fair value of $143,363,000 for the Substations and SOCC, allocated
as follows:
E353 - Montana Electric Substation Equipment EC353 - Colstrip No.4 Substation Equipment$139,062,000 4,301,000

$

E354 - Towers and Clearing Land Account - This asset category includes the NE owned portion of these assets. Assets include a total of 495.13 miles of transmission lines divided into five independent 500kV high voltage transmission lines, which was based upon inventory and transmission data from the FERC report. Tower line equipment includes steel tower structures, fittings, installation and clearing of rights-of way and related assets.
We concluded on a fair value of $20,965,000 for the Towers and Clearing Land, allocated as follows:

E354 EC354.1-

Montana Electric, Towers and Clearing Colstrip No.4, Towers and Clearing (see additional Colstrip amount below)


$17,191,000
$ 3,774,000


E355 - Poles and Clearing Land Account - This asset category includes 6,274.26 miles of wood pole electric transmission lines, ranging in voltage from 230 to 50KV, based upon data from the FERC report. Pole line equipment includes wood poles, cross anns, supports, fittings, installation and clearing of rights-of-way and related assets.

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We concluded on a fair value of $90,698,000 for Poles and Clearing Land, allocated as follows: E355 Montana Electric Poles and Clearing EC354.1- Colstrip No.4 Towers and Clearing$90,653,000
45,000


$

E356 - Conductor Account - This asset category includes conductor wire installed on towers and poles as identified in accounts E354 and E355. Assets include tower and pole mounted conductor wire and related devices. We have concluded on a fair value of $75,034,000, allocated as follows: E356 - Montana Electric, Conductors Tower Conductors - $11,946,000 Pole Conductors - $60,436,000 E356 - Colstrip No.4, Conductors Tower Conductors - $2,622,000 Pole Conductors 30,000 $72,382,000

$ 2,652,000

E357 - Underground Conduit - This asset category includes the underground conduit at the Hamilton Heights and Hamilton Heights substations located at the Bitterroot Valley development, which was installed in 1999. RCN of $37,000 was based upon the historical cost being indexed for inflation, and then depreciating this value by 10% to conclude on a fair value of $33,000 for these assets. E358 - Underground Conductor - This asset category includes a 2.4-mile below ground electric conductor line located in the Bitterroot Valley development, which was installed in 1999. The CRN of $899,000 was based upon the historical cost being indexed for inflation, and then depreciating this value by 10% to conclude on a fair value of $809,000 for these assets. E359 - Roads and Trails - This ass.et category includes roads and trails that were constructed at time transmission lines were built. Once transmission lines are completed, these roads and trails are normally abandoned and not maintained or required since access to rights-of-way becomes the rights-of-way itself. Therefore, we have not assigned any value to these assets. Distribution This category contains assets used to distribute electricity, which are physically located between the transmission and customer's property. Distribution accounts include: Land, Land Rights, Structures, Substation Equipment, Poles, Conductor, Underground Conduit, Underground Conductor, Transformers, Service Overhead, Service Underground, Meters

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and Lights. The cost approach was used in valuing the Distribution assets unless indicated otherwise. E361 - Structures - This asset category includes the civil- construction located at the large capacity substation locations. Assets consist of buildings, which house the controls, communication and switch gear, plus yard improvements which includes site related roads, site development, fencing, gravel base, foundations and related assets. We concluded on a fair value of $5,768,000 for these assets. E362 -Substation Equipment - This asset category includes 65 substations with a capacity of 10 MYA or greater, and 214 substations with a capacity of under 10 MYA or less, based upon data from the FERC report. Substation equipment includes transformers, breakers, equipment structures, insulators, bus bar, local controls, communication and related assets. Depreciation was applied based upon the following parameters: 30% excellent condition; 40% mid-life; and 50% if in fair condition. Based upon our analysis, we concluded on a fair value of $73,057,000 for these assets. E364 - Poles - This asset category includes 11,522 miles of wood pole electric distribution lines. Asset information was based upon reports provided by NorthWestern management, which state that 16,460 miles of overhead and underground lines exist. Of the total miles, approximately 70% are overhead lines. Pole line equipment includes wood poles, cross arms, supports, fittings, installation and clearing of rights-of-way and related assets. Depreciation is based upon the conclusion that 20% of lines are in very good condition, 50% are of mid-life depreciation, and 30% being in fair condition. Based upon this analysis, we concluded on a fair value of $88,931,000 for these assets. E365 - Conductor - This asset category includes the 3-phase and single-phase wire mounted on 11,522 miles of distribution electric lines as indicated in account E364 and whose equipment includes the wire and related fitting. Depreciation is based upon our estimate that 20% of these assets in very good condition, 50% are of mid-life depreciation, and 30% being in fair condition. Based upon this analysis, we concluded on a fair value of $88,931,000 for these assets. E366 - Underground Conduit - This asset category includes 1,481.4 miles of conduit buried below ground and used to protect the conductor. Conduit is located adjacent to substations, transformers, and poles, where the conductor goes from overhead to underground and primarily where a high probability of damage to the conductor could occur. The assets consist of steel or plastic conduit with fittings.

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Depreciation was based upon 30% of the assets being in very good condition, 40% of mid-life depreciation, and 30% being in fair condition. Based upon this analysis, we concluded on a fair value of $7,310,000 for these assets. E367 - Underground Conductor - This asset category includes 4,938 miles of underground conductor, of which 1,975.2 miles are 3-phase wire and 2,962.8 miles are single-phase wire. Assets consist of conductor, raisers, fittings and related equipment. Depreciation is based upon 30% of conductor being in very good condition, 40% of mid life depreciation, and 30% being in fair condition. Based upon this analysis, we concluded on a fair value of $68,697,000 for these assets. E368 - Transformers - This asset category includes pole and pad mounted transformers, serving residential, commercial and industrial customers. These transformers mainly range in size from 25 to 75 kVa, with a count of approximately 60,000 residential and 36,000 commercial units (these figures include a small number of industrial customers). Assets consist of transformers, pads or mountings and fittings. Depreciation was based upon 40% of the assets being in very good condition, 40% mid life of mid-life depreciation, and 20% being in fair condition. Based upon this analysis, we concluded on a fair value of $83,556,000 for these assets. E369.1 - Services-Overhead - This asset category consists of electric services commencing at overhead distribution power lines, and terminating at the point the customer takes ownership. Customer service overhead entries consist of 180,697 residential (average 75 ft. of #4 triplex), 44,484 commercial (average 100 ft. of #2 triplex), 59 industrial (average 200 ft. of#2 parallel 3/50), 3,725 streetlights (average 100 ft. of#2 triplex), and 218 special meters (average 200 ft. of#2 parallel 3/50). The assets consist of overhead conductor and related fittings. Depreciation was based upon 40% of the assets being in fair condition, and 60% of the assets being in good condition. Based upon this analysis, we concluded on a fair value of $18,737,000 for these assets. E369.2 - Services-Underground - This asset category includes electrical service commencing at underground distribution power conductors and terminating at the point customer takes ownership. Customer service underground entries consist of 60,000 residential services (average 80 ft.) and 4,200 commercial services (average 150 ft. of underground conductor). The assets include underground conductor, connection to the distribution conductor, and fitting at the meter. Depreciation was based upon average age of 20 years (assets' in good condition). Based upon this analysis, we concluded on a fair value of $38,634,000 for these assets.

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E370 - Meters - This asset category includes general and category E370.1 Special Meters. Meters are used to meter electricity sold to a customer and are physically located on customer premises. Meters are grouped by type, which can be classified as follows: residential-240,697; commercial and street lighting-55,409; special meters/industrial-277; spare meters - residential-975; and spare meters - commercial-688. Depreciation was based on the meters being of mid-life depreciation. Based upon this analysis, we concluded on a fair value of $26,142,000 for these assets. E373 - Lights - This asset category includes street lighting, yard lighting and post top lighting, for a total of 88,588 light fixtures. Street lighting (39,865 fixtures) is lighting mainly located in cities adjacent to a city street; yard lighting (31,006 fixtures) is lighting generally located in rural areas; and post lighting (17,718 fixtures) is decorative lighting mounted on a post generally no greater than 4 ft. in height. Lighting equipment includes poles, and where applicable, lighting fixtures and related wiring and controls. Depreciation was based on the fact that 90% of streetlight fixtures are old style and will be replaced over the next 15 years; yard lighting was installed mainly in the 1960-1970's and past mid-life; while an upgrade program is current in place for post top lighting. Based upon this analysis, we concluded on a fair value of $24,767,000 for these assets. General Plant These assets are used solely in Montana Electric and not shared with any other entity. The following accounts are included in this category: Land, Land-Communication, Structures Office, Communication Structures, Office Furniture, Data Handling Equipment, Computer Equipment, Transportation, Stores Equipment, Tools and Equipment, Laboratory Equipment, Power Operated Equipment, Microwaves Equipment, Other Communication, Office Communications, and Miscellaneous Equipment. In most cases the total assets in an asset class have been valued as a whole, and then allocated to respective accounts within a function, based on usage or percentage calculated based on original booked cost. The cost approach was used in valuing the General Plant assets unless indicated otherwise. E390.6 - Structures-Communication - This asset category includes the electrical portion of the structure pertaining to the microwave 500kVa system. For details concerning the valuation of these assets, please reference account C397.1 below. Based upon our analysis, we have concluded a fair value of $107,000 for these assets. E391 - Office Furniture - This asset category includes office furniture located in the electrical facilities. Office furniture includes all furniture associated with an office including movable partitions. For details concerning valuation of these assets, please reference the Common Utility property section, account C391. Based upon our analysis, we have concluded a fair value of $153,000 for these assets.

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E391.1 - Data Handling Equipment - This asset category includes company owned office machines located in the electrical entity. For details concerning valuation of these assets, please reference the Common Utility property section, account C391,]. Based upon our analysis, we have concluded a fair value of $70,000 for these assets. E391.2 - Computer Equipment - This asset category includes company computer hardware. For details concerning valuation of these assets, please reference the Common Utility property section, account C391.2. Based upon our analysis, we have concluded a fair value of $54,000 for these assets. E392 - Transportation - This asset category includes licensed vehicles consisting of passenger cars, Y2 ton trucks, %-ton trucks, one to three ton trucks, line trucks, tractor trucks and trailers. Valuation of vehicles was based upon the market approach, utili