JOURNAL OF COMMISSION WORK SESSIONS
November 15, 2005

CALL TO ORDER: 5:30 P.M.

ROLL CALL: City Commissioners present: Randy Gray, Bill Beecher, Sandy Hinz, Diane Jovick-Kuntz and John Rosenbaum. Also present were the City Manager, Assistant City Manager, City Attorney, Directors of Community Development, Planning, Public Works, Fiscal Services, Acting Police Chief, Fire Chief, Acting Director of Park and Recreation and the City Clerk.

Doug Wicks, Recreational Trails Inc. representative, reported that in 1886 a railroad line was constructed by the Montana Central Railway between Great Falls and Helena. The railroad was operated by Montana Central Railway until 1907; by the Great Northern Railway between 1907 and 1970, and by Burlington Northern Santa Fe (BNSF) from 1970 until the present. There has been no traffic on the line since 2000 due to an unstable and slumping rail bed and riverbank near Ulm. BNSF repaired the bank but has not repaired the rail bed and the tracks remain severed.

The Great Falls to Helena railroad line was identified as an "at risk rail line" in danger of abandonment in a 2004 study entitled Montana Branch Line Study, Phase 2. The Executive Summary stated that the Great Falls - Helena rail line was not operational, and it appeared that BNSF was in no hurry to correct the riverbank stability problem which closed the line.

Community leaders, grain growers, rail shippers and other interested parties advocate competitive railroad operations as a means to establish competitive shipping rates and further envision the establishment of competitive railroad operations on the Great Falls to Helena route as a means to enhance the marketability of this region and of Montana - produced products. The preferred interest of all involved parties was to reestablish the railroad line as an active, useful and productive carrier of commerce. However, at present, it was questionable whether any other entity was interested in acquiring, repairing and operating the rail line; and if there was, whether BNSF would be interested in relinquishing ownership of the rail line. If BNSF formally abandoned the rail line, and no other legitimate entity acquired it, it was likely that this rail corridor would be fragmented into many ownerships, making it difficult if not impossible to reassemble the corridor into a functioning railroad.

However, acquisition of the entire rail corridor by a public entity or other organization could protect its connectivity and continuity for other interim public and beneficial uses such as a non - motorized recreational trail. The proposed trail, informally dubbed the "Corridor of Discovery Trail" would create opportunities in both Helena and Great Falls with outlying urban and suburban neighborhoods as well as to provide a new public transportation and recreational facility for use and enjoyment by the public.

An Action Committee was established in Helena to explore the acquisition of the BNSF Great Falls to Helena line, and the development and operation of a non-motorized trail. Several months ago a Great Falls Action Committee was also formed. The committees are working together to understand and address the issues and generate support for the Trail.

Encouraging discussions have been held with the Rails-to-Trails Conservancy regarding their technical assistance in this effort, and with potential national partners Trust for Public Lands and the Conservation Fund, who would provide bridge financing and expertise in negotiating the acquisition.

The Action Committees acknowledged the grain growers, rail shippers and other interested parties who supported the establishment of competitive railroad operations on the line. If that was not possible, they supported keeping the rail corridor intact through a process such as Railbanking for its future possible reuse as a rail line and for interim use as a public non-motorized trail.

The Action Committee recognized that adjoining landowners may have concerns with a public trail, such as spread of noxious weeds, law enforcement issues and interference with the use of their property. At this point in time, Mr. Wicks reported, the committee did not know what BNSF planned to do with the Great Falls to Helena line. They have many options, one of which was to continue to do nothing with it. However, there has been rumor that BNSF would make some kind of decision in 2006.

Mr. Wicks concluded stating that there was a resolution of support on the Commission's agenda later that evening. He encouraged them to adopt the resolution.

Cheryl Patton, Assistant City Manager, reviewed the following:

• In April 2004 the cities of Helena, Butte/Silver Bow, Missoula, Bozeman and Great Falls adopted the Inter-local Agreement which established the Montana Public Power Authority (MPP).
• The purpose of MPP was to secure adequate, reliable and low cost electric and natural gas utility services by acquiring and developing the transmission and distribution assets of Northwestern Energy of Montana; and securing supply contracts on behalf of NorthWestern Energy customers.
• The three major phases in the acquisition and development process include the initial organization and purchase offer; due diligence to verify that there were no hidden defects in the assets to be purchased and regulatory approval; the final purchase, reorganization and management of the assets.
• In order for the initial organizational and purchase offer process, each City contributed $100,000. Recovery/reimbursement of this initial investment would come from the final long-term debt financing.
• MPP made a purchase offer to NorthWestern Energy board and management with a subsequent presentation to a majority share holders. The NorthWestern Energy management have declined the offer, but the owners of the majority of share holders have indicated the MPP bid was attractive.
• The next step would be for NorthWestern to agree to a due diligence phase.

Ms. Patton stated that the decision item before the Commission at their regular meeting was Resolution 9528 which would amend the original Inter-local agreement as follows:

• If an agreement was reached with NorthWestern Energy, additional assessments of up to $100,000 from each MPP member would be levied in order to fund the due diligence phase and the regulatory approval processes.
• An additional commitment of up to $100,000 from each of the MPP members for a Reverse Breakup Fee in case MPP willfully breached any representation, warranty, covenant or agreement with NorthWestern. This was similar to an escrow payment when purchasing a building.

Ms. Patton emphasized that funds expended would be repaid to the partner cities through the bond proceeds if and when the purchase of NorthWestern was made. She also pointed out that:

• There are over 2000 publicly owned utilities in the United States going back over 100 years.
• Generally, public power companies have better bond ratings than independently owned utility companies.
• MPP has a well-qualified advisor that would become the company's first CEO.
• The additional funds requested would not be drawn down unless an agreement was reached with NorthWestern, to enter into the due diligence phase.
• The bonds sold to purchase NorthWestern would be revenue bonds and not backed by tax dollars.
• MPP intends to meet the same property tax responsibility as NorthWestern Energy or any other private utility.

Mayor Gray asked Pat Corcoran, one of the vice presidents of NorthWestern Energy, to share some comments with the Commission. Mr. Corcoran stated that contrary to the facts that MPP presented to the five partner cities, NorthWestern was emerging out of bankruptcy as a financially strong utility company. He stated that the utility side of the company was always financially strong. However, NorthWestern and their predecessor, Montana Power, ventured into unregulated industries which led to NorthWestern ultimately filing for bankruptcy.

He explained that NorthWestern was a delivery company, they consisted primarily of poles and wires and they were at the mercy of the market for their commodity. He then reviewed some of the pivotal points MPP was using as justification to purchase NorthWestern.

1. MPP stated that it was important that the users of the utility be the owners of the utility; that the overall operation of the utility be locally controlled which would increase stability in the electric utility. Mr. Corcoran replied, stating that NorthWestern has already re-established stability with the utility and all that MPP was doing was casting a new cloud over the company. In fact, he stated that NorthWestern was on its way to improving its bond rating and this purchase request could impede their ability to do that.
2. MPP would honor the current rates or offer less expensive rates to its customers. Mr. Corcoran stated that rates change depending on the price of the commodity. He added that currently 54 percent of the energy bill was supply of the commodity, not the delivery of the commodity.
3. MPP stated that it would improve reliability of the utility because it would only be focused on delivering natural gas and electricity and would not venture into unregulated businesses. Mr. Corcoran replied that NorthWestern Energy outranks many other utility companies in reliability standards and recently received an award for top customer service. He added that the Liberty report recommended several items that NorthWestern should address in order to improve reliability and currently NorthWestern was implementing many of those suggestions.
4. MPP stated that because it would be locally owned, it would have a stronger commitment to the Montana communities it was serving. Mr. Corcoran stated that NorthWestern employed over 1000 employees in Montana who were all committed to the successful operation of the utility company. Additionally, they reestablished the corporate giving program and gave the authority for corporate giving to local committees.
5. MPP was to be banked by Citigroup. Mr. Corcoran stated that Citigroup did not have enough assets required to finance a $2 billion purchase.

Mr. Corcoran pointed out that NorthWestern Energy could meet all the goals set forth by MPP and that a buy-out was not needed. He reiterated that NorthWestern was financially strong. He added that in an agreement with the Public Service Commission, NorthWestern could not get into unregulated businesses that might affect the utility's bottom line until they reached a certain profitability. He said that MPP was proposing a $2 billion public power experiment without presenting a business plan to the public or involving the public in an open format. He stated that stability in the electric industry must come from the supply side, not the poles and wires side.

Commissioner Jovick-Kuntz asked if NorthWestern had long-term supply contracts. Mr. Corcoran stated that about 70 percent of their supply was through long-term contracts. He added that NorthWestern does not make any revenue from the electrical supply.

Missoula Mayor Kadas countered Mr. Corcoran's statement that this was a public power experiment. He stated that there are over 2200 publicly owned power companies in the United States and that typically their bond ratings were better than privately owned utilities. He added that the desire of NorthWestern Energy to venture into unregulated businesses was still a threat and that eroded any claim they have to improved reliability. He said that NorthWestern, at some point in time, was going to be purchased, if not now, then in the future. This meant that a critical piece of infrastructure for all Montana was at risk.

Mr. Kadas stated that MPP was currently negotiating with Bonneville Power Authority (BPA) to secure about one-third of the required energy load. Additionally, that public power had significant tax advantages over privately owned utilities. In conclusion, he stated that the process to purchase NorthWestern Energy was very public, as every decision so far was made in a public meeting in five cities around the state.

Commissioner Rosenbaum explained that the proposal was to purchase an asset; in this case, the poles and wires of a utility company. He asked Mr. Kadas, once the debt for the asset purchase was paid off, could the ratepayers expect a reduction in rates. Mr. Kadas explained that the rates were basically 50 percent commodity and about 50 percent delivery. It was anticipated that the debt to purchase the asset would be paid off in about 30 years. Once that debt was paid off, the board of directors would determine what the rates would be. Certainly, he stated there could be a reduction in rates. The board could also decide to incur additional debt in order to invest in the system. He reminded the Commission that the basic motivation between NorthWestern and MPP as to how to run a utility company was fundamentally different.

ADJOURN

Following a brief question and answer session from the Commission and audience members, Mayor Gray adjourned the work session of November 15, 2005, at 6:58 p.m.

Home => Records => Work Session Minutes Listing Page => 2005 Work Session Minutes