FREE hosted several conferences this summer with participants from all over America. Several, indeed many, asked me to explain the signs “Shame on NorthWestern Energy.”

Here’s my answer. The NorthWestern experience and subsequent public reactions follow the usual pattern. To illustrate I’ll begin with a bit of history and follow with the account of a similar crisis in Pennsylvania.

The Montana Power Company was formed in 1912 by Anaconda Copper Mining to power its mining, milling, and sawmill operations. It built hydroelectric dams on 11 Montana rivers, some still producing cheap power.

Anaconda, “The Company,” and Montana Power, “The Power,” had interlocking directors and worked closely together to influence the legislature. Until 1959 Anaconda owned all but two of the state’s daily papers, the Lewistown News-Argus and the Billings Gazette.

Historian Bernard DeVoto wrote that these firms “...maintained a more thorough-going ownership of Montana's wealth, government and inhabitants than any other corporation has ever been able to maintain in any other state.” For executives, life was easier and more comfortable when they controlled the media and dominated the legislature.

A deregulation bill, the Electric Utility Restructuring and Customer Choice Act, was introduced in March 1997 when the legislative session was nearly over. Lawmakers readily approved it. Montana Power then began to exit the power business and created Touch America, an Internet service provider.

The new firm soon went bust and NorthWestern Energy picked up the pieces minus the generating capacity Montana Power had sold to PPL, a Pennsylvania company. Among the pieces acquired were the gas delivery lines, one of which famously failed behind Bozeman’s Main Street last March, destroying much of a city block. It was a catastrophic event.

In the 1980s, I was a member of the National Petroleum Council, a federal committee that reported to the Secretary of Energy. As I recall, John Hall, Chairman of Ashland Oil, told me one night over dinner of Ashland’s catastrophe — a ruptured 4-million gallon tank spilled into the Monongahela River just above its confluence with the Ohio. It temporarily contaminated the drinking water of one million people and killed fish, birds, and other wildlife.

When I asked what happened, Mr. Hall explained that the Skinner Tank Company had reconstructed a used tank and it failed because of negligence and ignorance. I asked him how he had dealt with it.

Here’s the important part. Mr. Hall said he was watching TV and seeing the oil gush into the river from a tank farm with Ashland Oil displayed in letters four feet high. While watching he received a call from Ashland’s general council who told him, “Say you don’t know what happened. Deny responsibility.” That illustrates why Shakespeare advised, “First kill all the lawyers.”

Instead, Mr. Hall told the media that, while he didn’t know why it happened, Ashland was responsible and would make everyone whole. Ashland paid for the cleanup, some 11 million dollars, and received a misdemeanor charge for discharging without a permit.

How does this relate to NorthWestern Energy’s situation pending lawsuits? First, by definition a catastrophe is unexpected. Being an unanticipated event, firms do not prepare for it.

Second, one probable consequence of deregulation is that less attention is given to maintenance, monitoring, and replacement of delivery lines. Under regulation, utilities did not skimp on maintenance as these costs were accounted for in the “fair” rate of return formula.

Third, the U.S. experiences nearly a million leaks in gas lines each year. To make repairs, utilities must find the precise location of defective pipe segments.

Fortunately, in 1999 the Gas Research Institute announced a new “trenchless” technology to find and repair gas lines. A probe finds cracks in pipes and pinpoints their locations.

Although expensive, costs will come down with technological improvements and competition among suppliers. One sure result of our recent explosion is heightened sensitivity to safety. NorthWestern Energy has strong incentives to avoid a repeat catastrophe.