As early as the mid-1990s, Goldman Sachs officials made presentations advising Montana Power officials to sell its generation assets, the hydroelectric dams that had provided the state with cheap power since the early part of the last century, and its more recently built coal-fired power plants, the new lawsuit said.
"During this time period, all the assets of Montana Power were potentially on the table for sale, and Goldman, Sachs was advising Montana Power that there was time pressure to dispose of these assets, especially generation assets, as more and more utilities were dumping similar assets into the market place," the complaint said. "The theory perpetrated by Goldman, Sachs and Gannon, in particular, was that a window of opportunity presented itself and if Montana Power did not dispose of its generation assets, it would potentially fail."
Although there was initial resistance among MPC officials to the sale of the core assets, it "was overcome by the greed of the potential for Montana Power to become a high-flying telecommunications company," the lawsuit said.
The investment bank and law firm concealed the profound implications such a move would have on customers, employees, creditors and shareholders and hid "the enormous financial gains" the two New York businesses stood to make.
Neither Goldman Sachs nor Milbank, Tweed responded to an attempt by the Lee Newspapers State Bureau to get a response, nor did Touch America.
Gannon and the two New York firms used the 1997 deregulation "as part of their scheme to divest Montana Power from its energy assets," the lawsuit said. The 1997 Legislature passed an electric deregulation bill pushed by the company, and Gov. Marc Racicot signed it into law.
The law was touted as a move to provide wholesale and retail customers with a choice of where they bought their electricity, the complaint said. In reality, however, the New York firms and Gannon and others "intended to use the legislation to facilitate the already developed plan to divest the energy assets, and this was concealed from the customers, employees, creditors, shareholders and the public," the complaint said.
Later in 1997, Montana Power announced it would sell its dams and coal-fired plants. The announcement shocked and angered Montanans.
"Within a mere three-year period of time, all under the advice of Goldman, Sachs and Milbank, Tweed, Montana Power disposed of all of its energy assets, which caused the ultimate downfall of Montana Power," the complaint said. "During this time, Goldman, Sachs earned $20 million in fees and Milbank, Tweed also earned millions of dollars in fees."
Goldman Sachs knew as early as 2000 that Montana Power's divestiture plan was a bad idea. The lawsuit quotes an e-mail from Lee Michael to Michael Munson, both of Goldman Sachs, describing the Montana Power situation:
"This is going from bad to worse - a complete cock up in marketing is happening before our very eyes. If I had a gun I would now blow my brains out - we are whistling in the wind - why get professional advice if all you want to do is to go and screw it up all on your own ... ."
Later, in the same e-mail string, Michael said, "At least we're not on the utility team for this crap. I wouldn't want to sell this company in several pieces."
Both Goldman Sachs and Milbank, Tweed knew that Montana Power was required to give notice and obtain the consent of two-thirds of its shareholders to sell its assets, but they encouraged Montana Power "to ignore these requirements to have the sales occur more quickly and without public scrutiny," the complaint said.
What's more, the lawsuit accused Goldman Sachs of "playing both ends against the middle." At the same time Goldman Sachs was advising Montana Power to sell its energy assets, it had formed separate partnerships with other businesses to buy "the very type of generating assets that Montana Power was selling," the complaint said.
The lawsuit accused the two New York firms of making false and misleading statements to Montana Power and concealing other information about selling its energy assets.
