[BETA] Fortnightly

Southwestern Public Service Co. (SPS) and Public Service Co. of Colorado (PSCC) have entered into a definitive merger agreement to form a public utility holding company that will cover one of the largest geographic areas in the nation. Size apart, the merger is unique in that SPS operates as part of ERCOT, and the two utilities are not interconnected. A new transmission line will be built to connect the two companies.

The new holding company will have combined annual revenues of $3 billion, and assets of $6 billion. The companies expect to save $770 million in the first 10 years after the merger is completed.

Holders of PSCC common stock would receive equal shares of the new holding company stock. Holders of SPS common stock would receive 95 percent of a new share for each SPS share. The new company is expected to adopt the SPS dividend payment level, adjusted for the exchange ratio, resulting in a pro forma dividend of $2.32 per share.

The holding company will have corporate offices in Denver; the board will consist of the present directors of both companies. SPS and PSCC will keep their headquarters in Amarillo and Denver, respectively. After merger completion, expected early in 1997, PSCC chairman and CEO Del Hock will retire. SPS chairman and CEO Bill D. Helton will become chairman and CEO of the holding company, with PSCC president and COO Wayne H. Brunetti as vice chairman, president, and COO.

Employee reductions are expected to affect 8 percent of the combined workforce (em about 550-600 positions out of 7,000.

Moody's Investors Service has placed PSCC's ratings on review for possible upgrade, and SPS's ratings on review for possible downgrade. Moody's says the relative financial strength of SPS could ease PSCC's efforts to keep up with rapid growth, while the merger provides low-cost SPS with a needed expansion opportunity. Nevertheless, Moody's feels that the merger increases the risk associated with SPS, a historically conservative utility. Moody's also notes that because the two companies are not interconnected and operate in asynchronous power grids, additional transmission and costly DC conversion facilities will be required before merger benefits may be realized.

While the transaction is being touted as a "merger of equals," Standard & Poor's (S&P) does not immediately see any special synergies resulting from the combination. Instead, S&P refers to a statement from PSCC's Hock, "Bigger is better in an increasingly competitive marketplace."

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