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The Failure Of Montana Power Company

Montana Power Company logoMPC was built with money from citizens' pockets as a public utility with guaranteed profits of 13%. The whole snafu started when the 1997 legislature passed Senate Bill 390, the so-called "Energy Deregulation Bill." This was a blunder of historic proportions; it allowed the company to sell its subsidiaries for billions of dollars:

  • Eleven hydroelectric dams sold to Pennsylvania Power & Light Co. (PP&L) of Allentown, PA.
  • Four coal-burning thermoelectric plants sold to PP&L.
  • Thousands of miles of electric transmission lines sold to Northwestern Energy (NWE).
  • Thousands of miles of electric distribution lines sold to NWE.
  • Thousands of miles of gas transmission and distribution lines sold to NWE.
  • Western Energy Coal, the Absoloka and Rosebud Mines, and a mine in Texas all sold to a Westmorland Coal subsidiary.
  • Western Syn Coal, an energy plant near Colstrip which heats up coal to draw off water in order to make a cleaner fuel, was sold.
  • A natural gas exploration, production and marketing subsidiary sold to Pan Canadian Petroleum Ltd. Of Calgary, Alberta, Canada.
  • Water rights contained with all the hydro and coal-fired electricity generating facilities sold to PP&L.

The $2.7 billion from the sale of the above facilities were spent on installation of 18,000 miles of fiberoptic cable in a failed venture called Touch America. Touch America filed for bankruptcy and sold its facility for $43 million to 360 Networks of Vancouver, British Columbia. Touch America's chief executive officer, Bob Gannon, along with New York Wall Street firm Goldman Sachs orchestrated the sale at a huge loss. Some profited by this $2,457 million loss, however. Goldman Sachs received $20 million and four executives collected $5.4 million. Then Representative John Harp of Kalispell, chairman of Touch America Credit Committee, gave $500,000 additional bonuses to Touch America managers for a smooth transition into bankruptcy. Harps' Construction Co. did the fiberoptic cable installation.

Thus ended the Montana Power Company as we knew it, started in 1906 by Butte mining magnate William Clark (one of the copper kings) when he built the Milltown Dam on the Clark Fork River seven miles above Missoula. The dam was later taken over by the Anaconda Mining Co. with intermingled directorships. Then the 2001 Legislature passed House Bill 474, the so-called Energy Bill, which guaranteed MPC -- and subsequently NWE -- full cost recovery from its 300,000 Montana electricity and gas customers to make up for losses in power purchased on the free market. Residential customers and taxpayers now face a rate increase of 20% when the current PP&L power supply contract with its locked-in price ends.

HB 474 was not studied thoroughly and, on the last night of the Legislative session, was completely rewritten by MPC lobbyists and PP&L accountants. Thirty-two pages of amendments were presented on the House floor on the final day. None of the legislators understood the amendments and in the last day of business HB 474 was passed without a public hearing, to the detriment of customers and taxpayers. It was like being back in the 1940s and 1950s when the Anaconda Mining Co. and its subsidiary MPC tightened the copper collar around all of our necks. HB 474 is a flawed law created by a flawed process, shifting all risks of doing energy business in Montana to consumers and taxpayers by guaranteeing full cost recovery to the industry. Portions of the bill, supposed to be a safety net for consumers, are completely unfunded.

An effort to remedy HB 474 was begun by Representatives Michelle Lee and Chris Harris who designed Referendum 117, and 31,645 signatures in 58 legislative districts were gathered, well over the required minimum for a public referendum. Referendum 117 appeared on the November 2002 ballot. It generated further debate and scrutiny with the objective of changing or throwing out HB 474. The message sent by all of this is: citizens must not be left out of the process and will not tolerate industry lobbyists bartering away the citizens' right to the legislative process. Numerous ideas to mitigate these industrial and legislative blunders have been suggested:

  • The public buying back the dams (see below).
  • Stopping deregulation.
  • Taxing excess energy profits and returning the money to energy consumers.
  • Repealing deregulation of the energy industry.

All these ideas were defeated by PP&L and MPC lawyers.

One remedy for the legislative errors was proposed when a coalition of electricity customers and taxpayers came forward with an initiative for the public to buy back the eleven hydroelectric dams purchased from MPC by PP&L. The initiative was submitted to the Montana State Legislative Council as a way to provide Montanans with affordable power. The Initiative was approved and supporters began collecting signatures to place the purchase measure on the November ballot. Members of the Buy-Back Coalition were senior citizen Archie Nunn, Public Utility Commissioner Bob Anderson, former State Commerce director Gary Buchanan, Senator Ken Toole, former State Representative Hal Harper and Polly Baily of Dam Cheap Power. As expected, PP&L immediately opposed the purchase initiative and killed it.

What does this do to old-line Montana Power employees who made up the finest cadre of power and gas people in corporate America? First they had to endure the breakup of MPC due to deregulation. Second, the valuable public facilities were then sold from underneath them. Third, all of the attention of MPC directorship was focused on the failed Touch America enterprise, while ignoring the Public Utility Power Co. which was the source of their wealth. Then, NWE, the company from South Dakota which purchased the electricity and gas transmission and distribution lines, filed for reorganization bankruptcy in Delaware's federal court because of bad debts not related to electricity and gas. Its stock was de-listed from the New York Stock Exchange. This could have wide-ranging, negative effects for Montanans. NWE has the responsibility to provide electricity to 300,000 customers, which is 78% of Montana's population. Where is the justice for the employees, the stockholders and the retirees of Montana Power Company?

NWE has plans to build wind-generated and gas-fired power plants in the near future. If their reorganization is successful Montanans can breathe a temporary sigh of relief.

Montana River Action is concerned about the water rights that sold with the dams and thermoelectric generation plants. The fastest growing disincentive to water conservation is the growing corporate influence in the water world. The increasing role of for-profit water systems creates a water-wasteful mindset, controlled by the amount of water sold and not by how much is saved. Privatizing water can lead to development of the watershed and companies will sell off as real estate, opening the watershed to pollution runoff. Ultimately, consumers will pay more and have inferior service from private water systems. ~

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