PIERRE, S.D. (KELO) — NorthWestern Corporation has South Dakota’s approval to restructure the energy company. The state Public Utilities Commission gave the go-ahead Tuesday.
NorthWestern, doing business as NorthWestern Energy, plans a new holding company at the top, and creating a new company for its electricity and natural gas operations in South Dakota and natural gas service in Nebraska that will be apart from its Montana electricity and natural gas business.
“The new subsidiary will be a separate, stand-alone, first-tier subsidiary underneath a new holding company,” a company attorney, Shannon Heim, said in the filing to South Dakota regulators.
“NorthWestern’s public utility business in Montana will continue operating as NorthWestern Corporation, which also will become a separate, stand-alone, first-tier subsidiary underneath the new holding company,” Heim continued. “This holding company structure will provide NorthWestern’s public utility businesses in South Dakota and Nebraska separation and insulation from NorthWestern’s public utility business in Montana as well as its other business activities.”
The new subsidiary will be known as NorthWestern Energy Prairies Corporation. Corporate secretary Timothy Olson told the commission Tuesday that the restructuring doesn’t require shareholder approval. “We are not changing the overall company, simply rearranging where some of the assets are in the structure,” he said.
Olson explained that NorthWestern has two mortgages: One covering South Dakota and Nebraska assets, the other for the Montana assets. He said therefore it makes economic sense to keep the South Dakota and Nebraska operations together rather than take on additional costs to split them.
The current board of directors will move up to the new holding company being created.
Commissioners had questions. Chairman Chris Nelson asked, Will the staff change? Heim replied, “No. We anticipate this will be completely invisible to our regulators and our customers.” Nelson asked whether a new board would be created for Prairies Corporation. Heim said the two new subsidiaries will be overseen by the existing executive team. Olson added that Prairies Corporation will have a new board of directors, too, “most likely” the executive management team.
Nelson said NorthWestern has provided “very very good service in South Dakota” and sought assurance that the current board’s leadership style will remain so that no expertise is lost in the transition. Heim said the current board — “the heart of the company” — will be just as interested and involved in overseeing the subsidiaries.
Heim assured commissioner Kristie Fiegen that the new board won’t mean an additional expense for customers.
An overextended NorthWestern filed for Chapter 11 bankruptcy in 2003 and re-emerged in 2004.
Commissioner Gary Hanson recalled that when he began serving about 20 years ago there was a company that he didn’t name that provided incentives that led to a lot of weak purchasing decisions. That led him to a push for a practice known as ring-fencing, where spending on operations are confined within sectors rather than business-wide.
“I was really surprised when I saw this docket come across, because I thought, were they not ring-fenced before this?” Hanson said. He noted Pam Bonrud, now a NorthWestern executive for South Dakota, was the commission’s executive director at the time. Regarding NorthWestern’s current plan, he said, “It appears to be finitely structured the way it should be.”
Heim commented that ring-fencing was important generally and noted that all of the executives’ compensation is public. “There’s not an opportunity for us to hide the ball,” she said, adding that the restructuring wasn’t a way to enrich executives or expand the core utility business into lots of other ventures.