If ever there were a word likely to cause your eyes to glaze over, “deregulation” is it. A running story in Montana—and California and Texas—the late-’90s rush of state legislatures to hand over the keys to the energy industry has become so bogged down in lawsuits and bankruptcies and bureaucratic jargon that it’s sometimes easy to forget what was at stake, and what has been lost, and what we’re left facing in deregulation’s wake.
So here at the Indy, we thought it might be a good idea to boil the story down, give it some context, place it on a path even the disinterested could follow—sort of a De-reg for Dummies. We wanted to find a way to give de-reg the gift of clarity.
Because it’s remarkable, really, what the path looks like from the long view, removed from the daily detail of its own demolition. A pattern emerges, at least in retrospect, and the contours are easily recognizable as the wanderings of a failed idea.
Between January of 1994 and Dec. 31, 1998, Montana Power Company—the state’s century-old monopoly—delivered to its stockholders a return of 200 percent.
That was before deregulation.
Before deregulation, MPC stock traded at up to $66 per share. Many of the Montana company’s stockholders were also its Montana customers, and its Montana employees, whose retirements were tied up in the company’s 401(k) plans, which were themselves tied up in the value of company stock.
Before deregulation, Montana Power customers paid the sixth-lowest electricity rates in the country.
De-reg wasn’t so much sold to Montanans as it was shoved down their throats by Montana Power itself, which argued the company required the legislation to remain competitive. As if the aggressive patronage of then-Gov. Marc Racicot and the lobbying armies of Montana Power CEO Bob Gannon weren’t enough to assure its passage, the complex bill wasn’t introduced until the last days of the 1997 session, leaving legislators little time to consider the bulky law. Legislators, to the lasting shame of many, passed the bill 113-36.
After Montana deregulated its power utilities, Gannon—with help from the New York investment firm of Goldman Sachs—began the rapid transformation of the staid utility into a telecommunications company called Touch America. Touch America—once a tiny division within MPC—owned thousands of miles of fiber optic cable, and became busy building more, and with the dot-com bubble inflating daily, Gannon must have figured the market for bandwidth was poised to prove as rich a vein as anything underlying his hometown of Butte. In 1999, Forbes profiled the 27-year company veteran as a visionary maverick for daring to hope so.
In short order, Gannon’s shiny new company jettisoned its historical core businesses to out-of-state bidders. Everything but Touch America had to go.
Legislators and citizens tried several times to reconsider deregulation with special sessions and initiatives. Gov. Racicot never called the special sessions, and the initiatives failed in the face of a massive industry public relations campaign.
Electricity prices skyrocketed. In the summer of 2000, the Butte mines shut down rather than face the light bill. The following summer, what was left of Montana Power paid $62.1 million to get out of an electricity contract with Butte’s Advanced Silicon Materials that it could no longer afford—at Montana’s new deregulated market prices—to honor.
Whatever one thought of Gannon’s business plan, his timing couldn’t have been worse. Montana Power completed its transformation from a reliable utility into a hyped but experimental bandwidth provider just as the price of electricity spiked and the Internet bubble burst. Touch America never recovered, suffering a years-long free fall culminating in the company’s June bankruptcy filing in a Delaware court.
South Dakota-based NorthWestern, which purchased MPC’s distribution network and now sends our bills, followed Touch America into bankruptcy in September, and both companies’ grim futures are hung up in court.
Montana power customers, and the communities dependent upon the taxes once reliably paid by a Montana-based corporation, face an iffy future. As long as MPC provided the state’s power, the company was obliged to service the state’s customers at regulated rates. Today, Montana customers pay market rate, and they do so in a market too small to attract the competition of non-local energy providers.
The state, for its part, just funded $1 million to watch after the state’s interest in NorthWestern’s imminent dispersal.
Bob Gannon, meanwhile, took bonuses, raises and perk payouts at nearly every step of Montana Power’s demise and Touch America’s decline. At least he rode most of his own substantial stock in the company down with the ship. Perhaps he was a true believer, or maybe he was just slow to react.
“Who Killed Montana Power?” asked a February 2003 60 Minutes profile of Gannon, who by then had moved to Flathead Lake, where he’d built a $2 million-plus lakefront hideaway at a far end of Finley Point near Polson and joined the Flathead Lake Advisory Council alongside fellow Flathead luminaries including L.A. Lakers coach Phil Jackson and actor John Lithgow.
His guidance, apparently, is widely sought. He remains also on the advisory board of the Carlyle Energy Group, peer there to James Baker III (Bush’s legal man in Florida, recently tapped by the administration to lean on the rest of the world to forgive Iraq’s foreign debt) and Mikhail Khodorkovsky, the richest man in Russia and former CEO of Yukos Oil Co., arrested in November for alleged fraud and tax evasion.
And Gannon continues to siphon a salary of $38,625 a month from Touch America as the company negotiates its own bankruptcy and a proposed remaining-assets sale to Canada’s 360networks.
Bankruptcy filings show that company assets of $1 billion in 2002 had dwindled to $274 million by July 2003. When what remains is finally liquidated to pay off debtors for pennies on the dollar, all that’ll be left of the Montana Power Company will be the wholly owned subsidiaries of any number of distant boardrooms, the deferred retirements of loyal employees and long-term investors, unpredictable utility bills and Bob Gannon’s place up on Flathead.
We wanted to draw a line showing how we got from there to here. Call it De-reg: The Board Game. Roll the de-reg dice—where will you end up?
It’s an odd game, because unless you happen to be Bob Gannon, you can’t actually win. You start losing right at the start, actually, and the best you can hope for is recovery. But it’s an easy and scenic stroll with only three obvious destinations.
1) You can spend Christmas with the Gannons, if you’ve got the code to the gate. Do you have the code to the gate?
2) You can continue wandering farther out into the de-reg wilderness, waiting to see what a Delaware court decides about Montana’s power future.
3) Or you could take a turn thus far unmarked on any known map of the state’s political future—why is that?—and start thinking about undoing the damage done. How? Hell, we don’t know, but any idiot on a trail can recognize a good place to stop and turn back. Around here, we regularly turn to antonyms for opposite effect, and one path sounds at least grammatically promising: Reregulation, anyone?