Cities can't do
deal without NorthWestern cooperation
Nov 20, 2005 - The Montana Standard, Butte
Author(s): Mike Dennison
Nov. 20--HELENA -- At least one thing is certain about the push by
five Montana cities to buy NorthWestern Energy: Without cooperation from
the company, the deal won't happen.
"We need to have the board (of NorthWestern Energy) to agree to allow
us to perform due diligence," says Ron Moe, an economist with R.W. Beck,
a consulting firm hired by the cities.
"Without the board's approval, we can't do due diligence. Without due
diligence, there isn't any money." Money, as in $1.7 billion, which the
cities will need to complete the purchase.
And "due diligence," as in a review of NorthWestern records that any
lender will require before handing over that kind of cash.
Which creates a sticky Catch-22 for the cities: Their plan to buy
NorthWestern and convert it to a publicly owned utility cannot occur
unless they prove it's financially sound and good for ratepayers, but
NorthWestern maintains it is not, and won't let them try to prove it.
"There's no reason to provide due diligence because we don't see this
thing moving forward," says NorthWestern spokeswoman Claudia Rapkoch.
NorthWestern's directors, however, serve more as gatekeeper of any
deal, rather than final judge.
For even if NorthWestern says it will consider the buy-out, the
cities still must clear a string of financial and regulatory hurdles.
The first step would be "due diligence," which is financial- speak
for checking under the company's hood to see if the engine looks as good
as the buyer thinks it may be.
Montana Public Power Inc., the nonprofit company created by the
cities to buy NorthWestern, and its financiers would scrutinize
NorthWestern's books and property to see if they still believe it's
worth the purchase price of $2.17 million.
If the company still looks good after this once-over, MPPI would ask
state and federal regulatory commissions to approve the purchase. The
Montana Public Service Commission would examine the financial prospects
of MPPI and give its blessing only if it thought the new owner was sound
and able to serve ratepayers at a fair price.
The review by the commission would involve scrutiny by the Montana
Consumer Counsel and other "intervenors," who provide sworn testimony to
the PSC. The process could take as long as a year.
If regulatory approval is obtained, MPPI's financier Citigroup of New
York will loan MPPI $1.17 million to buy NorthWestern's 36 million
shares of stock.
MPPI also must get an "investment grade" credit rating from two of
the three national major rating agencies before Citigroup will loan the
money.
NorthWestern officials and others have suggested it might be
difficult for MPPI to obtain these ratings, but it doesn't matter what
they think. If MPPI doesn't get the ratings, the deal is off.
If everything pans out to this point, MPPI issues $1.7 billion in
tax-exempt bonds, gets $400 million from a coalition of South Dakota
cities that is buying NorthWestern's South Dakota and Nebraska
operations, pays off the Citigroup loan, assumes and restructures nearly
$1 billion in debt and takes over the utility in Montana.
When it's all said and done, MPPI says it will operate the utility
pretty much like it is now, at the same rates.
Many questions remain about how MPPI would run this newly structured,
publicly owned utility. Would rates for its 310,000 customers truly stay
the same, or even drop? Can it obtain low- cost, government-produced
power? How would it calculate the property taxes it pays to the state
and scores of local governments? What top- level employees would go,
which would stay? How much at risk are ratepayers for any management
mistakes?
But unless NorthWestern lets MPPI get its foot in the financial door,
nothing's going to happen.
"Our understanding is that we have shareholders representing more
than 50 percent of the company saying yes," says Moe. "The hurdle is for
those shareholders to persuade the board that we should be able to
perform due diligence.
"That's the current situation. We are trying to figure out
alternative ways to persuade the board to grant our request."
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