Jeff,
 
Karen wanted me to ask you about this article.  Not about the content but about where you pulled it from to get the graphic.  Did you get it off the actual Wall Street Journal website?  Let me know when you get a moment.  Thanks, A.
 

-----Original Message-----
From: Dasovich, Jeff 
Sent: Thursday, August 23, 2001 10:01 AM
To: Guerrero, Janel; Shapiro, Richard; Palmer, Mark A. (PR); Steffes, James D.; Kaufman, Paul; Mara, Susan; Comnes, Alan; Kingerski, Harry; Lawner, Leslie; Frank, Robert; Neustaedter, Robert; 'Bev Hansen (E-mail)'; 'Hedy Govenar (E-mail)'; 'Scott Govenar (E-mail)'; Walton, Steve; Thome, Jennifer; Denne, Karen; 'Ken Smith (E-mail)'; 'Sandra Yamane (E-mail)'; 'Joan Kradin (E-mail)'; 'Rich Lichtenstein (E-mail)'; Landwehr, Susan M.; Montovano, Steve; Sullivan, Kathleen; Staines, Dan; Briggs, Tom; Robertson, Linda; Novosel, Sarah; Fulton, Donna; Alvarez, Ray; Allegretti, Daniel; Yoho, Lisa; Migden, Janine; Ryall, Jean; Keeler, Jeff; Bolton, Stacey; Schoen, Mary; Dernehl, Ginger; McVicker, Maureen; Noske, Linda J.; Schmidt, Ann M.; Linnell, Elizabeth; O'connell, Earlene
Subject: RE: California Campaign Closeout


FYI.  To show that the job is never ending, please see attached yesterday's column 1 story in the WSJ.
 
Best,
Jeff
 
****************************************************************
August 22, 2001 

Page One Feature


For Montana Power, a Broadband Dream
May Turn Out to Be More of a Nightmare


By BILL RICHARDS 
Special to THE WALL STREET JOURNAL


BUTTE, Mont. -- This is a gamblers' town. More than a century ago, Marcus Daly turned a bet on a copper vein under Butte into the giant Anaconda Co. The gambling game Keno was invented here for bored miners. In 1974, stuntman Evel Knievel, a Butte native, made headlines betting -- unsuccessfully -- that he could jump the Snake River Canyon on his rocket-powered motorcycle.

Now, Bob Gannon, another Butte native, and chairman and chief executive of Montana Power Co., is betting he can pull off his own breathtaking stunt: He plans to turn his staid 89-year-old utility into a high-tech high-flier.

 [gannon] <http://interactive.wsj.com/public/resources/images/Gannon_Bob-FM23808212001221914.gif>

In one dizzying two-year stretch, the Butte-based utility has sold just about all its assets -- power plants, transmission lines, dams, gas, coal and oil fields -- pouring much of the $1.6 billion take into a coast-to-coast fiber-optic network. By the end of this year, Mr. Gannon boasts, Montana Power will have 26,000 miles of fiber in the ground, a new corporate name, Touch America, and it will be among the nation's largest half-dozen broadband companies.

So far, Mr. Gannon's gamble seems to be following the same trajectory as Mr. Knievel's. The joke around here is that at least Mr. Knievel wore a parachute.

Indeed, while plenty of companies have been hammered by the telecommunications bust, few have taken a more severe beating than Montana Power. Under Mr. Gannon's leadership, the company sold out of the energy business just as electric rates were taking off and bought into broadband as it was poised to tank. Now, only 5% to 10% of Touch America's fiber is being used.

Mr. Gannon's makeover of the venerable utility has touched off warfare here, pitting Montana Power against regulators, investors, consumer advocates and its own former corporate customers. The company's stock, which hit a high of $65 a share five days after Mr. Gannon announced his decision to dump the utility business in March of last year, has spiralled downward since. At 4 p.m. in New York Stock Exchange composite trading Tuesday, it was at $7.90.

The decision by Montana Power's board to authorize a 6.6 million share buyback during the plunge didn't boost Mr. Gannon's image either. The spree cost the company $204.8 million; the purchased shares are now valued at about $52 million.

But perhaps most galling to Montanans are the huge gains made by PPL Corp., the Pennsylvania utility that bought Montana Power's electric generating plants. PPL has sold nearly a third of the plants' power out-of-state at a huge markup, producing record profits. Meanwhile, state utility regulators, angry at Mr. Gannon's refusal to share proceeds of the asset sale with customers, have locked his company into a painful contract: Montana Power is required to continue supplying power to its 288,000 customers until 2007, even though it owns no more power plants. That has forced the company to purchase electricity from PPL. Montana Power, which is barred from raising customer rates, has been losing money on the transactions.

Long, Expensive Fight

The five-member utility commission could decide to let Montana Power boost its rates next year. But the high price of providing power has already drained the company's coffers. To cut back on its expenses, Montana Power agreed in June to pay $62.5 million to cancel the last year-and-a-half of a long-term supply contract with one of its biggest commercial customers, Butte-based Advanced Silicon Materials.

Last week, in an unusual lawsuit filed in state district court in Helena, eight Montana Power shareholders charged the utility, its board, and its senior executives and consultants with a "breach of fiduciary duty" for failing to get shareholders' approval for the company's transformation. The suit seeks a rollback of Mr. Gannon's makeover, charging the effort has cost shareholders $3 billion. It also seeks to return to shareholders what it calls PPL's "illegal" gains from power sales.

"We're trying to salvage the pension funds of thousands of Montanans who are wrapped up in this company," says Frank Morrison Jr., a former state Supreme Court justice and one of the attorneys filing the suit. Six of the state's largest law firms collaborated on the suit, Mr. Morrison says, "because we anticipate a long, expensive fight." Montana Power would not discuss its reasons for not seeking shareholder approval for the makeover but says it has done nothing wrong and will defend itself vigorously.

All this has tattered Mr. Gannon's reputation as a hometown genius. Just last year, Wall Street analysts and media praised his bold makeover plan. He was cheered during the company's annual meeting, a folksy conclave held at Butte's Mother Lode Theater that is part business session, part homecoming party. More than a third of the company's registered shareholders live in Montana.

But this year, angry shareholders and customers have picketed the company's headquarters, and Web sites are springing up across the state to rally voters to punish Montana Power. Earlier this month, Michelle Lee, a Democratic legislator from Livingston, launched Dumpthedeal.com ( www.dumpthedeal.com <http://www.dumpthedeal.com/>1), a Web site urging a referendum to repeal deregulation of the electric industry in Montana. She says the site drew more than 1,000 visitors in its first two weeks.

"A lot of people here just can't believe what's happened to Montana Power,'' says Ralph McCaughy, who retired from the company's data-processing department three years ago. Mr. McCaughy, who is 62 years old and has throat cancer, says he and his wife, Jean, had planned to use some of their Montana Power shares and dividends to buy a new car to replace their wheezy 1993 Honda and take a trip to Hawaii. Montana Power stopped paying dividends last year as part of the makeover.

Mr. McCaughy says his spending plans are on hold. "I don't know whether Gannon and the bunch running the company couldn't stop themselves or what," he says.

Enduring Hecklers

These days, strangers sometimes blow raspberries and heckle Mr. Gannon during his daily two-block trek from his office to Gamer's, a local luncheonette that features a Butte specialty -- pork-chop sandwiches. The fact that Montana Power -- always one of the state's most powerful political forces -- led the lobbying drive for deregulation in the state hasn't helped his popularity. Deregulated electricity prices soared so high here last summer that several large Montana companies that had elected to buy power on the open market closed or cut back operations.

Steven Walsh, president of Montana Resources, which operates part of Anaconda's open-pit mine in Butte, says he shut the mine and laid off 322 people last summer after his electricity bill jumped to $627 a megawatt hour from $26 an hour in a week. Prices have begun to come down, but the mine is still shut.

"I don't hold any animosity toward Bob Gannon," Mr. Walsh says. "But around here I guess the general feeling is they made a big mistake."

Despite the company's battered stock price, some Wall Street analysts say they still have hope for the transformation, and they note that Touch America -- which expects to have $1.6 billion in assets, including $350 million in cash -- has a stronger balance sheet than most of its telecom competition.

Defending His Position

Mr. Gannon denies rumors that he has been punched out in several Butte bars, but Montana Power's Internet message boards are sizzling with rants by angry investors threatening to show up at this year's Sept. 14 annual meeting with tar, feathers, or worse.

"Bob's a decent human being and I still like the guy," says Paul Cote, the owner of Gamer's. "But I have heard people bad-mouthing him. There's a lot of people upset with him right now."

Mr. Gannon, who can see the house where he grew up -- beyond the Hock-It-To-Me pawnshop -- from his office window, defends his makeover decision. Energy deregulation during the late 1990s doomed smaller regional utilities such as Montana Power, he says, while fiber optics was becoming a glamour industry. The company had begun laying fiber-optic lines in the 1980s. As the business began to take off in the 1990s, Mr. Gannon and others believed they had a solid head start.

"There's a lot of second-guessing taking place now," he says. "But we were the ones sitting in the chair, and we made a decision that was absolutely correct and justified."

Others blame Montana Power's problems on overreaching by Mr. Gannon and the utility's management, as well as on strong salesmanship by Goldman Sachs, Montana Power's investment bankers. Critics of the deal have suggested that Montana Power's 11-member board -- stocked with seven Montanans -- might not have fully appreciated the risks and challenges of the fiber-optic business.

"They were intoxicated by their stock price and Wall Street was telling them, 'Hey, you're on a roll,' " says Robert Anderson, a Public Service Commission member. "These were utility guys. What did they know about the telecommunications business?"

Mr. Gannon and other senior officials who were part of the Policy Leadership Group, a Montana Power internal decision-making team, say that until shortly before last year's makeover announcement they hadn't decided to turn Montana Power into a telecom. At first, Mr. Gannon says, the group had been "comfortable" with a more limited step: an initial public offering of the Touch America unit. The group also considered spinning off Touch America to Montana Power's shareholders or continuing to build it up within the company, he says.

Goldman Sachs, which has worked with the utility for 17 years, urged the company's management to drop its power business entirely, company officials say. Goldman specialists from New York, Los Angeles and Chicago made more than 100 visits to Butte, camping at the Copper King Motel and advising the utility executives on their options. As the discussions went on, company officials say, divestiture of the power business seemed the most logical choice. Mr. Gannon and others say Goldman's bankers warned that the IPO market was losing its luster and urged them to sell their power-making assets quickly to get the best price.

Matt Darnell, a Goldman managing director who advised Montana Power on its move toward telecommunications, declines to give specifics of Goldman's recommendations to either the policy group or Montana Power's board. "There were numerous options explored," he says, "but we certainly supported the thoughtful and deliberative approach the board took."

Of the subsequent downward turn of events, Mr. Darnell says: "The telecommunications industry has taken a turn no one expected."

For its advice, Goldman will get 2.5% of the gross payout from the asset sale, or about $14.2 million, a Montana Power spokesman says. Goldman officials say they are no longer advising Montana Power on its business plan.

Mr. Gannon scoffs at the notion that his company made the wrong move. In a strongly worded letter last week, he urged shareholders to approve the final pieces of his makeover plan at the Sept. 14 annual meeting. He warned that if the shareholders rejected the measures, Montana Power's board would seek to accomplish the divestiture of the utility business through unspecified "other methods."

Demand for fiber-optic networks will regain strength before long, Mr. Gannon says. When it does, Touch America could have an advantage over its debt-laden competition. Mr. Gannon says his company will emerge as one of the telecom industry's strongest national players, with no debt and a state-of-the-art technology.

"There are a lot of suggestions in watering holes around this state that Goldman was flying around the West looking for a bunch of guys to dupe and that we were a bunch of rubes from Montana who got taken in," he says. "That's the stupidest thing I have ever heard."

  _____  

-----Original Message-----
From: Guerrero, Janel 
Sent: Wednesday, August 22, 2001 5:18 PM
To: Shapiro, Richard; Palmer, Mark A. (PR); Steffes, James D.; Kaufman, Paul; Dasovich, Jeff; Mara, Susan; Comnes, Alan; Kingerski, Harry; Lawner, Leslie; Frank, Robert; Neustaedter, Robert; Bev Hansen (E-mail); Hedy Govenar (E-mail); Scott Govenar (E-mail); Walton, Steve; Thome, Jennifer; Denne, Karen; Ken Smith (E-mail); Sandra Yamane (E-mail); Joan Kradin (E-mail); Rich Lichtenstein (E-mail); Landwehr, Susan M.; Montovano, Steve; Sullivan, Kathleen; Staines, Dan; Briggs, Tom; Robertson, Linda; Novosel, Sarah; Fulton, Donna; Alvarez, Ray; Allegretti, Daniel; Yoho, Lisa; Migden, Janine; Ryall, Jean; Keeler, Jeff; Bolton, Stacey; Schoen, Mary; Dernehl, Ginger; McVicker, Maureen; Noske, Linda J.; Schmidt, Ann M.; Linnell, Elizabeth; O'connell, Earlene
Subject: California Campaign Closeout


Attached is the presentation that Rick and Steve will make to Mr. Lay regarding our accomplishments during the California energy crisis.  
 
Great work everybody!!  
 
More to come on RTOs.....