Energy shields 

NorthWestern floats a bill to deflect stockholder lawsuits

Energy legislation and last-minute decisions—it’s a combination that’s frightened Montanans since deregulation slipped through in the final hours of the 1997 session. Some say it’s déjà vu all over again, as Senate Bill 458—submitted at the request of NorthWestern Energy to shield it from liability in a lawsuit—was hurried through committee last week.

“It had about twenty or twenty-five minutes of time that it was act- ually discussed,” says Sen. Carolyn Squires (D-Missoula). “It was the most rushed event.”

The bill’s sponsor, Sen. Walter McNutt (R-Sidney), introduced the bill on Monday, Feb. 24. By Tuesday it had been given a cursory examination by the Business and Labor Committee and passed with a 9-1 vote. In spite of the confusion, the committee passed the bill to keep it alive, while hoping that the House would have time to scrutinize it. Squires, who voted for the bill in committee, admits that she and her peers had difficulty understanding the consequences of their votes.

“You can’t believe the number of facts that were supposedly accurate on both sides,” she says. “But I didn’t want it to be dead because I thought that ‘Hey, there may be a benefit in here somewhere.’”

The hurriedness with which the bill has moved around the Senate is enough to raise the red flags, but there’s more to this tangled mess than speed. While many bills this session have taken heat for attempting to second guess the will of the voters—i.e. lawmakers trying to override citizen-passed initiatives—SB 458 appears to be aimed at counteracting the work of the judicial system.

The specific goal of the bill is to protect NorthWestern from a $3 billion shareholders’ lawsuit, resulting from the restructuring of Montana Power into Touch America (the now-faltering telecommunications company) and the sale of the utility’s core business to NorthWestern.

Lawyers representing Montana Power shareholders argue that NorthWestern should be enjoined in their suit as the successor to Montana Power.

“Just as the assets would transfer, the liabilities would transfer,” says Roger Sullivan, an attorney representing the shareholders. “That is basic, fundamental corporate law. It’s the law in all 50 states.”

It appears that District Court Judge Thomas McKittrick agrees with Sullivan. In October, McKittrick issued an order that named NorthWestern as “the surviving entity and successor in interest to the debts, liabilities and other obligations of the Montana Power Company,” thus paving the way for the lawsuit to proceed with NorthWestern as a defendant.

That judicial decision, McNutt says, was a mistake, and he has no qualms about trying to counteract it in the Legislature.

“[NorthWestern] didn’t buy stock. They didn’t buy the company. They bought the assets,” he says. “Normally if you’re going to inherit that stuff [liability], you would have had to bought stock or bought the company.”

McNutt believes that McKittrick ruled as he did because the judge was worried that if he excused NorthWestern from the suit, Montana Power stockholders would be left holding an empty bag.

“I’ve gotten lots of e-mails asking, ‘Why don’t you let the courts decide this?’ But five years from now they’ll still be saying ‘let the courts decide this’ and all this time the meter is going to run,” McNutt says, referring to mounting lawsuit costs and predicted resultant rate increases.

Sullivan, however, isn’t buying it.

“What’s being proposed here is an aberration that would benefit one corporation,” he says. “It would create enormous uncertainty for investors. It could actually result in having Montana’s corporate laws being used in essence as a toilet to flush down corporate liabilities. No other state has a provision like this.”

With both proponents and opponents delving into the minutia of the massive and complex five-stage corporate sale, it’s easy to see how Squires and her fellow senators were unable to get a good grasp on the bill’s implications during a thirty-minute hearing. University of Montana adjunct law professor Kristen Juras, however, has a professional familiarity with the Byzantine corridors of corporate law. After decoding some of the rhetoric both sides have dished out, the corporate law professor says she believes the transaction wasn’t an asset sale but a merger.

“I think they wanted it to be an asset sale, but it truly was a merger,” she says. “In a merger the surviving entity does step in and assume all liabilities of the previous entity… They could have structured it differently but they didn’t and so Judge McKittrick’s opinion, I believe, was right.”

Juras also agrees with Sullivan that the bill is an aberration in that it addresses the problems of a single corporation. Creating an exception that other companies could possibly take advantage of is a mistake, she says. But Juras doesn’t believe that the bill would set a precedent on environmental liability. Environmental clean-up obligations are spelled out in an entirely different set of laws, and the passage of this bill shouldn’t have a bearing on NorthWestern’s, Touch America’s or Montana Power’s environmental responsibilities, as critics have suggested it might.

“The part I’m really disappointed about is that right off the bat they [the bill’s opponents] say, ‘Oops, there goes the liability on Milltown Dam,’” says McNutt. “That’s bull. The liability of Milltown Dam is stated in the sale docket. If you look at the bill, it has nothing to do with Milltown Dam.”

But these economic and environmental liability impacts are only two of the numerous repercussions the bill could have. There are also fears that the lawsuit could bankrupt NorthWestern, and Montana would be left without a major electricity provider. McNutt’s bill purports to offer some insurance against just that possibility.

While senators often deal with confusing he-said/she-said testimony in committee hearings, SB 458 is a lot to digest in the time it takes to watch Wheel of Fortune. Because of the complexity, McNutt pulled it off the floor and into the Finance and Claims committee—the only committee that can hold bills over from the first part of the session to the second.

And Sullivan is thankful that the bill is going back to committee, thankful that his camp will have adequate time to prepare and make their case against it. Sen. Squires is also thankful. She was around when deregulation sneaked by in the eleventh hour, and doesn’t want to see that happen again with what could be another energy-related bill of far-reaching import.

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