MDU, co-op offer to buy NorthWestern

Although NorthWestern Corp. officials insist the company is not for sale, two North Dakota-based energy companies are making an offer to buy the bankrupt utility.

By JAN FALSTAD
Of The Gazette Staff

MDU Resources Group is joining forces with Basin Electric Cooperative, both of Bismarck, to buy NorthWestern’s Montana properties and perhaps the company’s utilities in South Dakota and Nebraska.

MDU Resources Chief Executive Martin White, Basin Electric Cooperative Chief Executive Ron Harper and several Montana co-op executives will hold a news conference Monday at the Hampton Inn in Helena to announce the offer.

Neither White nor Harper could be reached for comment. No sales price has been mentioned.

Dave Wheelihan, executive director of the Montana Electric Cooperatives Association in Great Falls, represents Montana co-ops. "Electric cooperatives in Montana have already expressed an interest in buying certain NorthWestern territories in this state," Wheelihan said.

About 15 of Montana’s 26 rural electric co-ops are members of Basin Electric, which sells wholesale power to several Montana cooperatives from its power plants in North Dakota and Wyoming, he said.

Like NorthWestern, Basin Electric does not own any power plants in Montana. The co-op serves 1.4 million customers in nine states.

It is rare for an investor-owned utility like MDU to join forces with a co-op in running a utility. MDU pays dividends to its investors, while co-ops are owned by their customers and distribute profits through their rates.

It is more likely that MDU and Basin

would carve up the territory. The specifics are unclear on who would buy which NorthWestern properties.

MDU may want the Montana transmission and distribution lines. Wheelihan said his members are interested in the NorthWestern customers in Montana that are surrounded by the co-ops.

"I cannot give you towns because we’re still working on those details," he said.

NorthWestern spokesman Roger Schrum said Friday he wasn’t aware of the news conference. Company executives have said repeatedly NorthWestern is not for sale, even after filing for bankruptcy protection in Delaware Sept. 14.

"We’ve received no proposal and we have no comment," Schrum said.

Rumors have circulated for months that MDU and NorthWestern were talking privately.

However, when NorthWestern Chief Executive Gary Drook spoke in Billings Oct. 23, he repeatedly said his company wasn’t for sale.

Drook later said if that changes, the company wouldn’t be sold like furniture in an estate sale.

"You would have to buy the whole house," Drook reportedly said.

Going public with a deal ups the ante in the political game over NorthWestern’s troubles.

Montana co-ops tried to buy the last energy assets of the former Montana Power Co., but lost out to NorthWestern Energy, a subsidiary of NorthWestern Corp.

NorthWestern, based in Sioux Falls, S.D., has suffered through months of bad publicity over price increases, bankruptcy and recent coverage of expensive bonuses for top executives.

NorthWestern paid $1.1 billion for Montana Power – most of it borrowed – 22 months ago. Since then, its stock price has collapsed from more than $23 per share to 17 cents at market close Friday.

The company said Friday it lost nearly $53 million on its common stock for the third quarter. Investors were essentially wiped out when the company filed for bankruptcy, but the company still must file quarterly financial reports.

MDU Resources closed Friday at $23.06, close to the company’s 52-week high.

Wheelihan said price is a concern.

"I don’t think any company will pay any price tag. The thing is to not go in there and do something crazy," he said. "We’re sensitive to the rates customers pay."

NorthWestern must file a plan to reorganize itself and emerge from bankruptcy by Jan. 15. The company can ask for an extension, which the court commonly approves.

The North Dakota power players will force the court-appointed creditors committee to seriously discuss the proposal. The public offer may affect NorthWestern’s reorganization plan.

Wheelihan doesn’t think any NorthWestern executives will attend Monday’s news conference.

"This is clearly not a done deal," he said.

MDU and Basin presumably will argue that they are more financially sound than NorthWestern and can deliver more stable service and possibly better rates. NorthWestern serves more than 300,000 Montana natural gas and electric customers.

MDU’s White used to work for Montana Power in Butte and was rumored to be the heir apparent to the top job at that company. However, Bob Gannon won the title of chief executive and turned the utility into a telecommunications company called Touch America.

Gannon’s plan quickly failed and the bankrupt Touch America will cease to exist later this month when it completes the sale of assets.

By buying NorthWestern’s Montana assets , White would, in effect, be buying what is left of Montana Power.

The Helena law firm of Hughes, Kellner, Sullivan and Alke reserved time between 10 a.m. and 2 p.m. Monday at the Hampton Inn for the news conference. Attorney John Alke represents MDU Resources.

Montana Public Service Commission Vice Chairman Tom Schneider took the news in stride.

"There has been speculation about a number of different utilities being interested in the system, so it doesn’t surprise me to hear MDU is making an offer," he said.

Jan Falstad can be contacted at (406) 657-1306 or at [email protected]

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