11/17/2003

KUFM / KGPR

T. M. Power

The Mysteries and Dangers of Utility Bankruptcy

Nothing could be more distant and arcane than a bankruptcy proceeding almost of a continent away in Delaware, that tiny state that made a cottage industry out of helping corporate America escape from government regulation a century before anyone had heard of the Cayman Islands.

But for better, and mostly for worse, that is where the fate of NorthWestern Corporation and the electric and natural gas utility serving most Montanans will be determined.

NorthWestern Corporation was a house of cards built during the tail end of the speculative boom that generated the current never-ending recession. Piling debt upon debt, supplied by speculative investors who paid no attention to normal business criteria, NorthWestern successfully bid for the remnants of the Montana Power Company as a different group of speculators took a billion dollars of that successful company’s wealth and turned it into the Touch America bankruptcy.

Until the middle of this coming January, the management of the bankrupt NorthWestern Corporation will negotiate with its creditors to develop a business reorganization plan that promises to pay back at least some of the dollars owed to the folks who lent so much money to NorthWestern.

You might think that the banks and other financial institutions that put up the billion dollars for NorthWestern to take over the Montana Power Company are the ones sitting at the table demanding the best business plan possible. But that is not the case. As the Northwestern bankruptcy became inevitable, those financial institutions sold off their failed NorthWestern investments for cents on the dollar. Speculators, who thrive in high risk settings, purchased those debts. So the folks who will be calling the shots in the NorthWestern bankruptcy are a group of speculators out for a fast buck, not financial institutions interested in a utility with a long run future.

It would be bad enough if Montana’s energy future were in the hands of the managers whose brilliant leadership led to the bankruptcy and the bottom-feeders who bought up the bad debt. But now a gathering group of other sharks has been drawn by the smell of blood. A half-dozen groups are busily preparing financial proposals to take over our prostrate utility and divide up the spoils.

The most recent is an unusual alliance between the investor-owned utility, Montana Dakota Resources and the electric cooperative, Basin Electric, both North Dakota organizations. They have not spelled out their plans yet, but have indicated that they will divide the old Montana Power Company among Montana’s many Rural Electric Cooperatives and Montana Dakota Utilities: jackals tearing apart the dead corpse of what was once Montana’s largest corporation.

Another group of East Coast investors is interested in buying the electric system, leaving, apparently, the natural gas system for someone else or NorthWestern Corporation to pick up. Other groups are jumping into the fray. Some are centered on past Montana Power executives others on current NorthWestern employees. Many others may be quietly plotting their own takeover strategies.

The implications of this for Montanans is anything but clear. When financial bottom-feeders battle other bottom-feeders, there is no reason to be optimistic about the outcome. On the other hand, it is always possible that a healthier, financially sound, utility would emerge from bankruptcy, stripped of the burdening debt that was crushing the utility before bankruptcy. In addition it is possible that a new group of energetic and skilled managers might take over.

But who will decide just which of these possible outcomes Montanans will have to cope with? Unfortunately, it will be that group of speculators who now own the NorthWestern debt and now make up the creditors’ committee. They have to approve any proposed reorganization plan. For the State of Montana’s economic future to partially depend on that group of distant high-risk speculators should give none of us confidence.

If the Montana Public Service Commission clearly had authority to approve or disapprove of any transfer of ownership of a regulated utility or any significant part of its assets, we might breathe a little more easily. It the Montana Public Service Commission could also control how outside owners manipulated the finances of a regulated utility, we might not much care who owned the utility. The Commission could at least try to keep us from being taken for a ride by quick profit out-of-state investors.

Unfortunately, although the Public Service Commission thinks that it implicitly has the authority to do both of these, public utilities in the state have regularly insisted that the Commission cannot “meddle” in the utilities’ wheelings and dealings. The Commission, so the utilities claim, can only regulate electric and gas prices.

This is far too important an issue to be left uncertain, especially as the state faces the possibility that a group of speculators in Delaware will be making decisions that could seriously harm Montana citizens and the Montana economy. Whether Montana’s deeply divided government can act to correct this problem in time is far from certain.