During a visit to Billings on Wednesday, Mike Garland, who heads Babcock & Brown U.S. Infrastructure in San Francisco, admitted that his company's first effort to buy NorthWestern Energy flopped.

And he said the Montana Public Service Commission should vote next week to reconsider BBI's sweeter second offer.

"We admit that we blew it the first time around," Garland said. "Maybe we focused too much on the business and felt if we came in and did a good, fair job of presenting ourselves that we would be accepted."

On June 7, 2006, BBI offered $2.2 billion for NorthWestern. The proposal went through nearly a year of legal procedures - discovery, testimony and rebuttal.

In a unanimous vote on May 22, however, all five Montana Public Service commissioners rejected the proposal, saying it presented too much risk to Montana customers and no clear benefits.

Then on June 25, as PSC staff was writing a final order explaining the rejection, BBI and NorthWestern submitted a revised application.

During a meeting with The Gazette's editorial board Wednesday, Garland repeated earlier promises to set up a Butte-based utility headed by Montana executives and to shield assets from any potential financial problems at other Babcock & Brown companies. The company's revised offer would add jobs and would not strip the cash out of NorthWestern, he said.

The Australian-based investment group promised to invest $380 million over the next five years maintaining Montana's transmission and distribution lines.

That works out to $76 million per year. However, NorthWestern, based in Sioux Falls, S.D., already is required to spend at least $54 million a year to maintain its Montana properties. One audit recommended that the utility double its investment.

BBI is also promising to spend $220 million to build a power plant in Montana. NorthWestern must buy all the power it sells in this state because Montana Power sold all its power plants and dams to PPL Montana.

Former Montana legislator Royal Johnson, who serves as the community member on The Gazette's editorial board, told Garland that the first proposal was sold as the best offer Montana could expect.

"Everybody told us what a great deal it was and how important it was to get all this money in," Johnson said. "Now we find that we have a better attempt, and I think if they go one more time, we'll even get a better attempt the next shot."

Garland said, "You may not get anything."

"We may not. That's right," Johnson responded. "But it's not like there aren't any other buyers out there."

A consortium of Montana cities has unsuccessfully tried to buy NorthWestern and remains interested in running the utility as a publicly owned company.

Johnson said his biggest complaint against NorthWestern is that it has done a poor job of keeping electricity costs down. Power is generated at Colstrip for around 17 cents per kilowatt hour, Johnson said, but on his bill NorthWestern charges 50 cents for power, some of the highest costs in the region.

"What ratepayers in Montana want is a lower cost for electricity," he said after the meeting. "These Australian guys aren't going to give us any lower costs. Why not stay with the guys we've got?"

Garland promised to try to build power plants in Montana as soon as possible if the sale is approved, and to build transmission lines to try to bring in cheaper power from other states.

"But if there was a cheaper answer out there or an easier answer, people would already be doing it," Garland said.

BBI will provide fresh financial capital, management expertise and stability, he said, even if it can't turn back time.

"We can't fix the wrongs of the sale of the Montana Power assets," he said. "That was an unfortunate mistake, and we wish it hadn't happened."

BBI wants to invest in Montana for the next 30 to 40 years, he said. However, in its revised proposal, BBI committed to own the Montana utility only for 10 years.

After buying Montana Power in 2002, NorthWestern went bankrupt under a heavy debt load. BBI is offering $37 per share, or about $700 million more than NorthWestern is worth. Critics of the deal have said BBI would have to recoup that bonus from its customers, potentially leaving the utility cash-strapped again.

BBI will borrow an undisclosed amount of money to buy NorthWestern, Garland said, but that debt will be at the holding company - not the utility - level.

"We have zero added debt to NorthWestern," Garland said. "There is no risk to anybody in Montana, South Dakota or Nebraska related to the debt."

The Montana Consumer Counsel opposes reopening the process.

Tuesday, the PSC will start discussing whether to reopen the hearing and consider the revised application. If commissioners agree, PSC attorney Al Brogan said all the existing testimony would stay in the record and the new offer would undergo another round of hearings, discovery and rebuttals.

"Those things all have to happen before you get to a new hearing," he said, which wouldn't happen until probably November or December.

Garland said he doesn't know whether BBI's effort, including a publicity blitz, a poll, an upcoming ad campaign and lobbying by The Gallatin Group's Helena office, will work.

"The 24th is a big day. That vote is important," he said. "It's pretty much do or die."

Contact Jan Falstad at jfalstad@billingsgazette.com or 657-1306.