Montana Power: Killing the Big Sky’s Golden Goose

“In modern Montana history, there is one defining moment,
and that defining moment is deregulation.”

Cal Sweet, founder of Kalispell Electric.
February 18, 2001

Before deregulation, Montana Power had 2,700 employees or so dedicated to reliable service, produced double or more power then it could use and had the fifth or sixth lowest consumer rates in the nation. The very dependable power company was also the most popular investment for Big Sky residents –  union members, ranchers, farmers, Montana Power employees, small businesses and little investors – all of whom, for generations, had considered it a safe, low-risk, “widows-and-orphans” investment. And over the final five years before deregulation, January, 1994 through December 1998, the company stock returned 200 percent – more then any other investor-owned electric utility in the country. Total Montana Power shareholder return for 1999 was 30%.

Indeed, the old Montana Power Company was part and parcel of the fabric of the state. Montana Power was also the state’s only Fortune 500 company and the one Montana listing on the New York Stock Exchange. As well as being both a very safe and non-speculative investment for ordinary people and a long time link with a Montana tradition as well as the past, it also had a legal duty to serve the state and its residents. Additionally, the people of the state, through the Public Service Commission and the legislature had a working check and balances system on energy costs and availability..

Then came the iron fist of ideological greed of the 1990’s in the form of market solutions, privatization and deregulation. In Montana this meant Robert Gannon, Marc Racicot and what was called the  Electrical Industry Restructuring & Consumer Choice Act, in other words, deregulation.

Bob Gannon, was the new Montana Power CEO. Along with his wife Barbara, the Gannons were greed and yuppieism personified,

The deeply corrupt Marc Racicot, Gannon’s spiritual brother, assumed the Montana governor’s office in 1993. And anybody in Montana that paid the slightest attention knew where to find Marc when a corporate interest and the public interest collided.

Aside from Gannon, deregulation was the governor’s baby. No one else in state government pushed it harder then Racicot and he signed the bill, then opposed even discussing the issue two years later in a special session when it was clear where Montana Power was going. And when  Democratic legislator David Ewer (currently Gov. Brian Schweitzer,s budget director) tried not once, but twice, to convene a special session of the Legislature to stop the sale of Montana’s precious energy assets, Racicot led the Republican charge and crushed both attempts.

The deregulation law was passed in 1997. It was all down hill from there.

What was lost

In 1998, the revenues of the Montana Power Company totaled $1.25 billion. Four years later, the 2002 revenues of the stand-alone Touch America Company were estimated to be $3 million dollars or less. In other words, in just four short years of deregulation, TA receipts sunk to less then one percent of what the old Montana Power company took in.
Which should have came as no surprise. In 1999, despite the hype, TA contributed a mere 14% to Montana’s Powers net income.

As for the deregulation law, to judge its contents by even the lowest standard, one could well wonder if the idea originated in a mad scheme for blowing the old power company, the state’s largest private employer, into smithereens.

In a crackpot deregulation scenario, the Montana Power management was able to change the company from a nearly century old electric and natural gas utility to a snake oil telecommunications fly-by-night by selling off all of the state’s energy assets and shifting the returns from those asset sales to the same bogus fly-by-night. From there, they continued operating what was called a “stand alone telecommunications company”  for a couple of years before it ran out of money. Montana Power was no more, the shareholders were ruined, the state had lost its energy independence and many had lost jobs as well as futures. And for what?

What makes this even wackier was there was no logic to justify deregulation, no pressure from the public for deregulation and there was no regulatory problem to fix. But what there was, were Governor Racicot, CEO Gannon, and 18 Montana Power lobbyists working full-time cracking whips in the state capitol in Helena during the 1997 legislative session.

Let me take this opportunity to point out that your Board of Directors
is committed to the separation of Touch America, Inc.into a stand
alone company.

Not voting or voting against these proposals will not change our
strategy of maximizing shareholder value through the separation
of Touch America, Inc. from the utility.

Our future is in telecommunications.
Robert Gannon: Message to Montana Power Shareholders
March 27, 2000

Translation : “In other words shareholders, we don’t care what you think or how you vote.”

And there you have it,  Bob Gannon in spades, giving notice of the upcoming June 9, 2000 Montana Power shareholders meeting in Butte’s Mother Lode theater.

All in all, it is the Touch America story condensed, found in the above message delivered by an intoxicated Gannon to the shareholders. But Gannon’s delusions were not those of alcohol. This was the euphoria of greed and the righteousness
that accompanies it.

Montana Power stock had just reached its all time high, $65.75 (March 29, 2000). The stock’s value had nearly doubled since December and Gannon and crew were dancing on their desks.

Another reason to celebrate was in that same month (March 10, 2000), the “new economy” Nasdaq peaked at 5048, more than double its value just a year before. As giddy as Gannon, the Nasdaq’s biggest booster, Goldman Sach’s banker Abby Joseph Cohen (March 22, 2000)  sent out an “urgent” advisory stating that the Nasdaq was “still undervalued and recommended that investors aggressively purchase high technology stocks.

But come a few days and it is April. The Nasdaq roller coaster ride suddenly turns around and is now screaming down the tracks. And it is going to be a long ride.

On April 3, the Nasdaq fell 349 points, or 7.6 percent of its market value, the largest one-day point fall in its 21-year history. The next day it beat that record, dropping another 575 points, or 14 percent.

In just two days of April 2000, $1.7 trillion dollars had been erased from the Nasdaq. Within a year, the Nasdaq would be down 62 percent or roughly 4 trillion dollars, falling below 2,000 on March 9, 2001.

In other words things were happening fast.

And I well remember the nuttiness of those days. Like the January 2000 Super Bowl featuring seventeen information age, new economy hot spots like Netpliance that have since departed the world, gone the way of Touch America. These high rollers each paid over $2 million for a 30-second spot .

And then there were the preachers of the boom, Turn on your television and you would be told that Internet traffic would double every hundred days for the next ten or twenty years. Turn on your television again and there would be the Goldman girl,  Abby Joseph Cohen, the media’s designated prophetess of riches, telling one and all of the millions and billions to be made

Then there was Bob Gannon himself predicting TA will be in the top five U. S. fiber networks yet there was no reason nor any evidence that the company ever made the top 50. Not to be outdone, Marc Racicot was planning a now forgotten future publication centering on his Montana legacy as governor. Deregulation was to be the frosting on the cake of the Racicot era.

At the 2000 shareholders meeting in June, Gannon said, with a straight face, that the Touch America bandwidth strategy was so thought out that demand would at least triple every year for many years. He said this despite the fact that wholesale bandwidth providers, due to overcapacity and competition, were already dropping out of business.

And we can’t forget the market hype. A cinch one hundred dollars a share is what they were saying, and by Labor Day, or at least Christmas, Montana Power stock would hit $150 was the word from the wise men.

So “get in on the killing while you still can”  is what they were whispering in uptown Butte, Of course, and nobody could have possibly known, it would be all downhill and fast from the March day in 2000 when Gannon sent his message to the shareholders. But the Touch America ship, made of nothing but cardboard and paper stock certificates, was already sinking.

And the first, and best, clue was there, always in front of you. It was Gannon himself.

If you started listening and reading carefully, with your own eyes and ears, you began hearing the same thing over and over. For Gannon would walk into a room or a forum or a conference, always followed by well dressed corporate altar boys. From a podium, he would address eager eyed and open mouthed people like he was St. John the Evangelist and start chanting about the new economy and the coming harvest. Not to be specific but the message would be  something like this : “Complete attention of the management team is needed to aggressively grow the stock and Touch America’s national fiber-optic and wireless network so opportunities must now be acted upon with urgency. And without separation (from Montana Power) , the whole will be less than the sum of the parts.”

So, with that said or something like that said, (and all of it was nothing everytime he said it), and without a blink of an eye, an arrogant loudmouth named Robert Gannon and chums, backed at every step by Marc Racicot, were allowed to sell off the Montana Power’s extensive electric generation and natural gas holdings under the new deregulation law. And these were Montana assets which had been built up for nearly a century. To add to the debacle, utility stocks listed in the Dow Jones Industry Index for the year 2000 were up for the year over 53%

For Racicot and Gannon It adds up to a complete con job.

Three years later, almost to the hour, the Butte stock was valued at 50 cents or so and it was delisted from the New York Stock Exchange . As for the Nasdaq, it was a 30 month drop from 5048 to 1114 in October, 2002 when it finally bottomed out, The plunge erased  78% of the exchange’s value and $7 trillion dollars had been lost.

For myself, I was spared much of this, my skepticism reinforced by my familiarity with the Butte hill. Butte’s real past reinforced a different viewpoint, a way at looking at what was going on. And my first monthly column for Butte’s Rountown Review appeared in January,1997, a few months before the deregulation law.

Along with Touch America and Montana Power,  a number of those past articles focused on the historical relationship of Montana with Wall Street. And the lesson to be learned, the iron rule of Montana history is that what is good for Wall Street is bad for Montana.

Oh, there was the great turn-of -the-century copper stock mania promoted by Wall Street’s National City Bank’s takeover of much of the Butte hill with the creation of the Almagamated Copper Company in 1898. This  was described in the first Wall Street expose and best seller, Thomas Lawson’s Frenzied Finance (1903). Like today, the National City Mob planted story after story in the New York daily papers which spread the buy Amalgamated frenzy across the country. Every day the papers said America and the world were to be electrified so get in while you can. Of course, this sent the copper craze to fever pitch on Wall Street and the gullible sheep were ready for a shearing courtesy of the bankers. “Coppers, ” shall we say, were the stock of 1899.

Then there were the 1920’s and the Anaconda Copper/National City Bank stock swindles ran by the Wall Street bankers including “Sunshine” Charlie Mitchell, Percy Rockerfeller and Butte’s John D. Ryan. A 1933 Senate banking comittee called these operations the greatest frauds in American banking history and a leading cause of the 1930’s depression.

Among the details grudgingly given by Mitchell to the comittee was the single most sensational Wall Street “sting” of the “Roaring Twenties.”  First,  Mitchell, Rockerfeller and Ryan set up a “joint account” of nearly a million and a half shares of Anaconda Copper Company stock.

The stock was then repackaged and aggressively advertised and sold through the National City affiliate and its salesmen. At all times the  “joint account” was being manipulated by Mitchell and Ryan who ran the stock up, from $40 in December, 1928  to $128 in March of 1929. The trio then dumped the stock, which plunged and the investors were wiped out, The results are still considered one of the great fleecings in Wall Street history. The hearings concluded that this single Anaconda Copper/National City operation cost the public at the very least, $150 million.

I might add that this same crew, Mitchell, Rockerfeller, Ryan, along with James Stillman did the same thing with what became an Amalgamated Copper/National City property in 1903, the Chicago, Milwaukee, St. Paul Railroad. With the railroad looted, the investors wiped out completely, the gang jumped ship, leaving the public to sort it out. The Chicago, Milwaukee, St. Paul bankruptcy, filed in Butte in 1925, was the largest in American history at the time of filing.

And what did we learn from our Montana past. Unfortunately nothing. Come the 1990’s and we were still the same gullible sheep being herded by the same Wall Street con artists working for Goldman Sachs.

As for Touch America there remains still another tale to tell.

Again we return to March 2000, to be exact March 19, when Denver’s Qwest Communications International, led by a new economy poster boy, CEO Joseph Nacchio, announced the sale of 250,000 long-distance customers in 14 states to Touch America. The price: $206 million The company further claimed that the good hearts at Quest had chosen Touch America over 40 other eager buyers.

Fast forward to last year, Dec. 20, 2005, and we find former Qwest CEO Nacchio indicted by a federal grand jury on 42 counts of insider trading. Nacchio, who is free on a $2-million bond, pleaded not guilty and said he welcomed the opportunity to clear his name.

And there is more. The Securities and Exchange Commission sued Nacchio and other former Qwest executives in civil court in March, 2005, claiming they concocted a $3-billion fraud on shareholders and others by overstating Qwest’s financial picture from April 1999 to March 2002.

Which is an interesting time period for Touch America followers. And another story for another day from Brave New Montana.

JACKIE CORR lives in Butte. He can be reached at