State PSC may not have regulatory authority
HELENA - Montana Power Co. executives firmly asserted Thursday that state regulators have no authority to make the company share its proceeds with consumers when it sells its energy businesses, and at least one public service commissioner agreed.
The Montana Power officials did acknowledge that the state Public Service Commission has an obligation to make sure whoever buys the MPC energy businesses is capable of providing safe and reliable service at fair and justified rates to Montana customers
The new buyer is not required to pass along the purchase cost of the regulated properties into its rates, according to Jack Haffey, Montana Power's executive vice president of the Energy Services Division. That decision is up to the new owner, he said, and it is up to the PSC to approve or reject higher rates sought by the purchaser.
Montana Power officials briefed the five state public service commissioners, Montana consumer counsel and a roomful of legislators, state officials, and lawyers and representatives of other utilities, local governments and cooperatives.
It was the PSC's first official briefing since Montana Power announced March 28 it was selling off all of its energy service businesses.
That includes electric transmission and distribution lines, natural gas pipelines and its natural gas, oil and coal commodity businesses - to concentrate exclusively on its booming telecommunications subsidiary, Touch America.
The briefing came as the PSC has been flexing its regulatory muscle to have a say over the transaction. But Commissioner Bob Anderson, D-Helena, who has advocated that the upcoming special legislative session clarify the PSC's authority, seemed to take a different stand after hearing Montana Power. He said he was "sort of blown away" and didn't realize until Thursday that it was a stock sale rather than an asset sale, a distinction that greatly diminishes the PSC role.
"This commission doesn't regulate stock transactions," Anderson said. "It's an SEC (federal Securities and Exchange Commission) matter. People buy and sell your stock every day, and nobody even tells us about it. We read about it in the Wall Street Journal. And if somebody pays more for the stock than it's worth, they don't come to us and ask for an acquisition adjustment. Why would that be any different if you sell all your stock?"
He went on to say: "If this is a stock sale, there would be no authority that the commission has over that kind of sale, there would be no approval or disapproval of any gain or proceeds on that sale. They would go to your existing shareholders. And there would be no right for the buyers to seek an acquisition adjustment. It's a buyer-beware, speculative market and the original cost, less depreciation basis for today's regulation would continue."
Anderson concluded: "And if the new buyers came in and filed a rate increase and said 'we paid too much,' we'd laugh them right out of the door."
Haffey agreed, saying: "The proceeds from selling the Montana Power Co., whether gain or loss, will and should, flow entirely to our investors."
But Don Quander, a Billings lawyer who represents large industries, noted that most states have explicit laws that require state regulators' consent for a sale of utility assets and allow consumers to share in any gains from a sale. He asked Haffey if the Legislature should be asked to grant that authority to the PSC.
"The Montana Legislature should not and does not need to do one thing to make sure that the public interest is fully satisfied in terms of just and reasonable rates and safe and reliable service," Haffey said.
He said Montana Power's legal research found that in states across the country, when a stock sale of a utility occurs, the shareholders get the proceeds.
But Montana Power lawyer Mike Manion, citing court cases in a number of states, said stock and asset sales differ in terms of sharing the proceeds.
That led Haffey to say he was grateful Quander's question hadn't come from state officials or their staffs. He called it interesting that the state would even hear suggestions that a business like Montana Power, which is getting out of the utility business, would have to share the gains or losses from a sale with anyone but its investors. "That kind of discussion has the potential of putting a cloud over the economic development and wisdom of the state." Haffey warned.