Montana Business
A Populist Roadblock for Northwestern Energy
By Jonathan Weber , 5-24-07
As a general matter, state regulatory bodies rarely have much influence over mergers and acquistions. They might try to impose some conditions on the buying and selling of phone companies or power utilities or other firms that are subject to state regulation, but actions like this week’s 5-0 vote by the Montana Public Service Commission to block the $2.2 billion sale of Northwestern Energy to an Australian firm are rare indeed. Even the Republicans on the Montana PSC were thumbs down on the deal, for the simple (but perhaps legally indefensible) reason that it would not be in the interest of Northwestern’s electricity and gas customers in the state. Why the sudden outbreak of regulatory zeal in what’s thought of as a libertarian state?
The vote was, on one level, a reaction to the specific history of Northwestern Energy, which is the product of one of the most extraordinary cases of corporate mismanagement in business history. As just about everyone in Montana knows, there once was a company called Montana Power, created early in the century by the Anaconda Copper Co. It eventually became the biggest company in the state, a major regional power producer, a provider of cheap electricity to homes and businesses, and a source of pride in a part of the country that didn’t have a lot of economic successes to brag about. Then, the deregulation ferver of the 1990s and the lure of dot-com riches combined to convince the managers of Montana Power that their future lay not in electricity but in telecommunications. They sold off the power assets at the bottom of the market, bought telecom assets at the top, and the whole thing then collapsed in bankruptcy when the Internet bubble burst.
Northwestern Energy, a small regional utility, bought Montana Power’s retail distribution assets, i.e. the local grid, and with it the suspicions of many Montanans that power company deal-making - not to mention deregulation- would ultimately give them the shaft. Everyone knows someone whose savings were vaporized in the Montana Power debacle, and everyone is paying much higher electric and gas rates than they used to, and you can hardly blame them for thinking that the sale of their utility to Australian investors wouldn’t be a good thing. People may not be quite ready to support a plan in which a consortium of cities would make the power firm a publicly owned utility, but they’re rightly suspicious of the current alternative.
But the PSC vote reflects not just lingering anger at those who destroyed Montana Power. It’s also a product of something that few people realize about Montana: state laws and regulations here are among the most business-unfriendly in the country, and neither Republicans nor centrist Democrats like Governor Brian Schweitzer - who after the PSC ruling invited the Australians to “pack your bags and ride a Kangeroo” - are much inclined to change that. In the recent three-ring circus otherwise known as the state legislative session, Republicans did beat back a proposal to crack down on alleged out-of-state tax cheats, and Schweitzer did get his “clean and green energy” tax breaks through. But long-standing efforts to create tax incentives for entrepreneurial investments went nowhere, and no politician will touch the larger issues.
The state’s tax structure - no sales tax and a high personal income tax - is very progressive, and as such not so great for people with money (like successful entrepreneurs and business owners). The employment laws are extremely pro-employee - an eye-opener for me when I was hiring people for New West and was advised by my attorney to be very careful since it would be hard to fire someone once they were hired. True, there’s a probationary period, but after that mere incompetence isn’t safe grounds for dismissal.
A prairie populist tradition that is suspicious of big business, especially suspicious of New York investment bankers, and wholly unsympathetic to the complaints of the wealthy is very much alive and well in Montana. For better or worse, it’s one of the things that makes this great state special.
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The PSC vote says something else though. You or others may recall that the PSC is the same body that voted for deregulation, and that should not be forgotten. This time around they may certainly have taken into account ratepayers' needs and opinions, they may not have thought that a foreign company owning our local utility was a good idea, but above all the PSC was and remains deathly afraid of being associated with another disaster like deregulation. They saw the potential for that here, and it informed their votes.
Also, the legality of the denial is challenged. Not mentioned was the basis for the denial given by PSC commissioners, which was that there appeared to be no way the purchase price could be recovered without raising rates. The takeover was characterized by witnesses in the PSC hearings as one akin to "stripping" assets, leveraging and using Northwestern to rescue other subsidiaries of the Australian company. I may not have that last part just right, but see the testimony of Wilson by the MT Consumer Counsel before the PSC. Other reasons may surface when the written decision comes out. I guarantee political fear will not be one of them.
The peoples' political fear instilled by deregulation? Well justified, I think. And a good reason for the cities' takeover.