Montana regulators had little choice but to reject a 15-month-old effort by Australia’s Babcock & Brown Infrastructure (BBI) to buy South Dakota-based NorthWestern Energy, and the state’s largest private-sector utility now is poised to do just fine on its own, the state’s chief regulator told NGI last week.
Even the revised deal carried too many risks for ratepayers and shareholders, according to Greg Jergeson, chairman of the Montana Public Service Commission (PSC).
“Tuesday’s action was just further confirmation of the decision we announced in May rejecting the proposal, because it posed risks for the ratepayers as well as posing risks to the financial stability of the utility company itself,” Jergeson said. “This was primarily due to the magnitude of the acquisition premium and the pressure [regulators felt] that it would cause to somehow recover that investment.
“That was exposure that was not, frankly, minimized in the changed offer [by BBI], and therefore the [PSC] rules requiring a material change were not met to reopen the proceeding. They could have come in with a whole new application and proposal, and the issues could be fully vetted again. [BBI] chose not to do that, though.”
Jergeson, the head of a regulatory body that has been at odds with the out-of-state owners of the state’s principal electricity and natural gas utility, indicated that the PSC now is having better relationships with NorthWestern, which he characterized as “poised” to operate more smoothly and effectively going forward.
“Having improved its financial situation since emerging from Chapter 11 bankruptcy almost three years ago, and given the passage of [a new state law] allowing them to invest in rate-based generation, NorthWestern is poised to be a well managed, properly functioning and profitable company without needing to be merged into any other entity.”
As part of making an eleventh-hour attempt to get the Montana regulators to reverse their earlier opposition, BBI and NorthWestern agreed that either party could terminate the deal if the PSC rejected the latest sweetened proposal for acquiring the utility holding company, the bulk of whose electricity and natural gas distribution operations are in Montana.
The PSC staff recently recommended that the five regulators reopen the proposed BBI acquisition of NorthWestern, given a new proposal submitted by the utility. The PSC voted 5-0 to reject the original BBI-NorthWestern marriage May 23 (see NGI, May 28).
Regulators, however, would not budge, again denying the application last Tuesday to reopen the record in the case, and forcing BBI to terminate its proposed purchase, effective immediately.
“The Montana PSC has determined that it would not approve the proposed sale and has not permitted us to complete this transaction,” said NorthWestern CEO Michael Hanson. “We remain confident in the viability and strength of NorthWestern Energy, and we will continue to provide reliable service to our customers, while exploring ways to maximize shareholder value.”
Hanson thanked BBI for its interest and its “professionalism throughout this process,” noting that his company’s near-term focus will be to continue to improve its core operations, and it will provide more details on future plans at its second quarter earnings conference call Aug. 8.
Regulators in South Dakota and Nebraska, where NorthWestern also has utility operations, long ago approved the deal that was originally announced in April 2006 (see NGI, May 1, 2006).
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