In a 5-0 vote that stunned observers in the PSC's Helena meeting room, commissioners declined to approve Babcock & Brown Infrastructure as the new owner of the electric-and-gas utility, which serves 320,000 Montana customers.
“It offers no tangible benefits to the ratepayers, but puts them under much more risk,” said Commissioner Bob Raney, D-Livingston. “It seemed (the offer) was mostly what BBI could do, rather than what it would do.”
NorthWestern President Mike Hanson said in a statement Tuesday that “we are obviously disappointed,” but that the company would wait for the final written order before deciding what to do.
“We remain committed to this transaction and to working through the process,” he said.
Steve Boulton, chief executive officer of BBI, said in a statement posted on the BBI Web site that “our initial reaction is one of surprise,” and that the company is “evaluating a full range of options.”
“We believe we have made a strong case that together, BBI and NorthWestern provide the type of long-term stability that Montana ratepayers and regulators want,” he said.
The decision comes 13 months after NorthWestern announced it had agreed to the buyout offer from BBI, which is controlled by Australian investment banking firm Babcock and Brown.
BBI and NorthWestern argued the purchase would bring financial strength and stability to the utility, which has gone through bankruptcy and changes of ownership in the past half-dozen years.
But the commissioners said they were concerned about how BBI planned to recover the cost of its purchase price, which is about $700 million more than the current value of the company.
They said neither BBI nor NorthWestern convincingly countered arguments that BBI planned to extract high dividend payments from the utility, putting the company at financial risk and the ratepayers in danger of paying more down the road.
“I think there is considerable chance that significant harm will come to the company as a result of what they have in mind,” said Commissioner Doug Mood, R-Seeley Lake. “It will inhibit the ability to provide services at just and reasonable rates.”
Raney said he simply wasn't persuaded that BBI offered anything positive for consumers or the utility.
“What we got was a lot of words such as ‘commitment,' ‘encourage,' ‘foster,' ‘ability,' ‘pledge,' ‘can,' ‘should,' ‘propose,' ‘plan,' ‘expect,' and et cetera,” he said. “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.
“I think it's very disingenuous to have approached Montanans in this manner.”
When asked what the commission expects NorthWestern to do now, Chairman Greg Jergeson, D-Chinook, said the company should “continue to operate as a stand-alone utility.”
“We believe that Montana ratepayers will be better served by that model,” he said.
Gov. Brian Schweitzer said the 5-0 vote is “a resounding no” on BBI's ownership: “This is a vote that says, ‘Pack your bags and ride a kangaroo, because you're not going to be in Montana.'
“NorthWestern still has a responsibility to run a business. They better plan on running an electricity company a little while longer.”
BBI is one of numerous companies that made private offers to buy NorthWestern early last year in the wake of at least two publicly known offers after NorthWestern emerged from bankruptcy in late 2004.
A group of Montana cities offered to buy NorthWestern and turn it into a publicly owned utility, and Black Hills Power of Rapid City, S.D., also made an offer.
Many of NorthWestern's post-bankruptcy owners had indicated they bought shares of the company with the intention of selling in the near future and turning a quick profit.
BBI said it would be an owner with a long-term perspective.
Commissioner Brad Molnar, R-Laurel, said Tuesday he received many e-mails and communications urging him to reject the merger because it involved a foreign owner for a Montana utility.
Molnar, however, said foreign ownership did not figure into his decision. Rather, it was the additional debt BBI would assume in buying NorthWestern, he said.
“When NorthWestern bought Montana Power (in 2002), it quadrupled their size; the burden of that debt crushed them,” Molnar said. “This doubles the size of BBI.”
He also noted that BBI planned to take some $200 million of tax gains that NorthWestern accrued from the bankruptcy and use it as returns for investors. “Those belong to the people of Montana,” Molnar said.
The issue of BBI's debt and how it planned to pay off investors also was a key component of testimony submitted by the Montana Consumer Counsel, which harshly criticized the deal.
It said BBI was planning dividend payouts to the parent company far above the norm for American utilities.
Consumer Counsel Robert Nelson said Tuesday he's “pleased with the direction (the PSC) has taken” on the proposed sale, and that he “applaud(s) them for focusing as sharply as they did on the potential financial aspects of the deal.”
Nelson also said it's “critically important that they've said in no uncertain terms that they have authority over such mergers.”
NorthWestern's attorneys have suggested the commission does not have the authority to deny the merger, setting up a potential legal showdown.
The commission's lead attorney on the case, Al Brogan, said Tuesday he believes the PSC has the authority to reject any issuance of new stock by a utility it regulates - and that the BBI merger involves issuance of new stock.
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