The Montana Public Service Commission (PSC) could decide as early as July 10 whether it will consider a revised merger proposal from Australian investment firm Babcock & Brown Infrastructure (BBI) and South Dakota-based gas and electric utility NorthWestern Energy. Last week the would-be merger partners filed a revised proposal that has garnered at least lukewarm support from some intervenors in the case.

The PSC, which is the only regulatory body standing in the way of the merger’s completion, earlier rejected the $2.2 billion deal unanimously (see NGI, May 28). And Montana’s governor essentially told BBI to go back to Australia (see NGI, June 4).

A PSC staff attorney told NGI last week that the PSC, which meets weekly, would likely decide on the revised proposal by its meeting July 24, noting that some commissioners are expected to be absent from the July 17 meeting. Montana administrative procedure calls for a 10-day public comment period on a request for rehearing before the PSC acts on the request.

Last week BBI and NorthWestern filed a petition with the PSC proposing “several new provisions that would benefit Montana customers” if the PSC were to approve a merger. Among the new provisions:

Further, the Montana utility would have a Montana-based management team with a separate board of directors composed mostly of Montana residents. The utility would not make any distributions in a calendar year that exceed its net earnings without PSC authorization. It also would maintain its own financial metrics and maintain minimum liquidity at the end of each quarter of at least $75 million while making all reasonable efforts to obtain and maintain an investment-grade credit rating on its secured debt. Finally, it would commit to the the 15% renewable resource portfolio standard of the state by 2012, three years earlier than the law currently requires.

“We believe that this proposal represents a substantial and quantifiable benefit to Montana consumers, and it deserves a careful review by the intervenors and the PSC,” said NorthWestern CEO Mike Hanson. “We look forward to working with the intervenors to consider this proposal as the PSC works toward its final order on this matter.”

The companies also proposed to waive and supplement certain provisions of their April 25, 2006 merger agreement.

If the PSC rejects the revised proposal, it likely also will issue an order denying approval of the merger. Commissioners were expected to issue the denial order at last week’s meeting but were obligated to hold back to allow consideration of the revised proposal. If the revised proposal is set for hearing, the process could take months, according to the staff attorney.

Several intervenor groups lent their comments to a press release circulated last week by the merger partners, indicating that the revised terms of the deal have their appeal.

“AARP Montana did not take a position on whether or not this merger should be approved by the commission,” said Montana AARP Director Bob Bartholomew. “However, we did propose conditions to protect the consumer’s interest should the merger be approved. The proposals made by BBI in their request to reopen the record represent a good faith effort to respond to the conditions AARP Montana has raised in this docket, and represent a starting point for further discussion among the parties and consideration by the commission.”

Chuck Magraw, an attorney who represented four public interest intervenors, said the new commitments made by BBI and NorthWestern would “produce real benefits to Montanans and serve as an example of responsible energy policy for other Montana electric and gas utilities to follow.”

In April 2006, NorthWestern and BBI announced a definitive agreement under which BBI would acquire NorthWestern in an all-cash transaction at $37/share (see NGI, May 1, 2006). The transaction followed NorthWestern’s emergence from bankruptcy (see NGI, Nov. 8, 2004) and a decision in November 2005 to seek strategic alternatives for the company. The Federal Energy Regulatory Commission approved the deal in October 2006 (see NGI, Oct. 23, 2006). The Montana PSC’s review of the deal attracted about a dozen intervenors (see NGI, Aug. 7, 2006).

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