Article published May 23, 2007

PSC calls proposed NorthWestern sale too risky

By GWEN FLORIO

Tribune Capitol Bureau

HELENA — Saying the proposed sale of NorthWestern Energy to an Australian company is too risky, the Montana Public Service Commission unanimously rejected it Tuesday.

“To me, just saying no is the way to go,” said Commissioner Ken Toole, D-Helena, of the proposed $2.2 billion deal involving Montana’s beleaguered utility and the Sydney-based energy giant Babcock & Brown Infrastructure Ltd.

The commission’s abrupt recommendation — it will be formalized later — ends a year of campaigning on the part of both NorthWestern and BBI in favor of the sale. Groups such as the American Association of Retired Persons; retirees who won a large settlement from NorthWestern and the Montana Consumer Counsel argued equally vociferously against it, saying all the advantages went to the companies, and the potential liabilities to consumers.

Tuesday, the PSC agreed with them.

“Nobody who makes investments, makes investments as a charitable act,” said Commission Chairman Greg Jergeson, D-Chinook, who led the charge in recommending against the sale. “They expect to make money.”

PSC utility analyst Eric Eck said that staff concerns focused on the possibility that BBI would pay out too much to shareholders, and that ratepayers could suffer as a result.

“The issue of dividends and excess earnings out of the company is of very real concern,” said Eck, pointing out that NorthWestern only recently emerged from bankruptcy.

NorthWestern filed for bankruptcy in 2003, and came out of it a year later. 

Its representatives argued that the BBI deal would give more financial stability to NorthWestern, which sells power to nearly 300,000 customers in Montana. 

Earlier this month, a report funded by BBI, and researched by University of Montana economist Paul Polzin, said that a sale to BBI could provide more and better opportunities for NorthWestern over the long term. Polzin was not available for comment Tuesday.

BBI’s proposal to buy NorthWestern beat out 10 other offers, including one from Black Hills Power of South Dakota, and another from a group of Montana cities, including Great Falls, that wanted to turn it into a public utility.

When the BBI offer became public last spring, representatives of the Australian firm traveled to Montana and pledged not to make any drastic changes. More recently, the firm said it would consider moving the headquarters for its Montana operations from Sioux Falls, S.D., to Montana.

None of that persuaded members of the PSC.

“I am not convinced that acquisition of NorthWestern by BBIL will improve the situation, and I think there’s a considerable chance that significant harm will come to the company,” said commission Vice Chairman Doug Mood, R-Seeley Lake, who made the formal motion to reject the sale.

Likewise, Commissioner Bob Raney, D-Livingston, said he agreed with other commissioners that “the burden of persuasion failed. ... Instead, what we got was a lot of words, such as commitment, encourage, foster, ability, pledge, can, should, propose, plan, expect and etc.

“However these words don’t mean a thing to Montana ratepayers who have been through this most difficult of 10 years and seen what has happened to electricity in Montana,” Raney said. “I think it’s very disingenuous to have approached Montanans in this manner.” 

The decision during an otherwise-routine PSC work session caught many onlookers by surprise. Representatives of NorthWestern and BBI argued last month that the PSC does not have the authority to reject the sale. 

PSC attorney Al Grogan said Tuesday that the commission’s responsibility to ratepayers covers the situation.

“I think the commissioners should recognize the increased risk of higher rates, and the increased risk of inadequacy in and of itself can be a form of harm” to ratepayers, he said.

NorthWestern spokeswoman Claudia Rapkoch did not return a telephone call seeking comment; nor did Mike Garland, head of US Infrastructure and Project Finance Group in the San Francisco office of BBI. 

Jergeson said that when BBI proposed the merger nearly a year ago, it became apparent that “this was probably going to be one of the most, if not the most, important decision this commission would be called upon to make. The magnitude of the decision is enormous.”