By REBECCA SMITH 
Staff Reporter of THE WALL STREET JOURNAL
July 1, 2005

Seeking to reassert local control of Montana's biggest utility, a consortium of five cities in the state recently put forward an unsolicited offer to buy NorthWestern Corp.'s energy-delivery business for $1.18 billion plus the assumption of $825 million in debt.

NorthWestern's board rejected the offer last week, saying the price and terms were inadequate. Now the consortium plans to take its proposal directly to shareholders.

The offer, for $32.50 a share, reflects broad dissatisfaction in Montana with electricity deregulation. The state's biggest utility, formerly known as Montana Power Co., dominated the state's energy market for a century. But it sold nearly all its generating plants to a unit of PPL Corp. in 1999, and then sold its electric- and gas-delivery business to NorthWestern, based in Sioux Falls, S.D., to focus on a new telecommunications venture called Touch America.
Within a few years, both NorthWestern and Touch America had filed for bankruptcy protection, while PPL was accused of exercising too much control over the local power market. Power prices rose in the state as a result of the Western energy crisis, causing further instability and discontent. 

NorthWestern emerged from bankruptcy last year."There was an amazingly fast unraveling" of everything the state had tried to accomplish through deregulation, said Mike Kadas, mayor of Missoula, Mont., and chairman of Montana Public Power Inc., the newly formed nonprofit corporation that would purchase NorthWestern's assets in Montana, South Dakota and Nebraska that provide service to about 600,000 customers.

If it succeeds, Montana Public Power would become the largest customer-owned utility, by geography, created in many decades. In Portland, Ore., public officials also are exploring the possibility of buying Portland General Electric Co. from creditors of bankrupt Enron Corp. Like their counterparts in Montana, they blame deregulation for a run up in power prices that has hurt industry and homeowners.

Under the arrangement proposed in Montana, the new nonprofit entity would buy NorthWestern's utility assets with financial backing from Citigroup Inc. Unusual among public-power entities, it would remain under the regulatory oversight of a state body, the Montana Public Service Commission. The price of $32.50 a share represents a 17% premium over the price NorthWestern's stock fetched in late April. It's 22.4 times NorthWestern's projected earnings per share for 2005. Under the plan, the new power company would sell its energy-delivery business outside Montana to South Dakota Power Co., also a nonprofit utility company.

Write to Rebecca Smith at rebecca.smith@wsj.com1