July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
On Saturday, November 11, WPL Holdings, Inc. announced its three-way merger with IES Industries Inc. and Interstate Power Co. to form Interstate Energy. The very next day, in a full-page ad that ran in Milwaukee Journal-Sentinel, Madison Gas & Electric Co. launched its counteroffensive, featuring Boris the Pig.
"Hi (em I'm Big Boris," the ad begins. (The face of a handsome pig with a large snout stares back at the reader.) "My friends and I crave Radical Electric Deregulation. We cleverly call it 'Customer Choice.' Under 'Customer Choice' we big guys get all the electricity at prices we want and you get what's left over." At the bottom of the ad, MGE provides a toll-free number you can call to "learn how deregulation will affect you." (See Table of Contents for later MGE ad and WPL response.)
So I called.
In fact, during the first few weeks of November, I spent two half-hours on the phone talking directly to David C. Mebane and Erroll B. Davis, Jr., the respective top men at MGE and WPL. Earlier, at a Capitol Hill press conference and suburban luncheon, I had talked briefly with Richard A. Abdoo, who is chairman, president, and CEO of Wisconsin Energy, the holding company for Wisconsin Electric Power Co. (WEPCo). Here's a taste of what they said.
Beware of Moguls
Richard Abdoo is one who believes strongly in customer choice. "Right there in Madison," says Abdoo, "the University of Wisconsin operates the 10th largest R&D plant in the country, but they're having to cut back because of high power costs. They could save $3 million a year if they could switch. Heck, WP&L has its headquarters right there inside MGE's service territory."
At WP&L, Davis predicts a rocky future for MGE: "Look at the small utilities. Two years ago, when the market went South, their stock prices didn't drop. [Investors saw a takeover premium.] But MGE may have waited too long. It would seem to me that utilities the size of MGE are [now] horrendously overvalued in the market. It takes 15 to 18 months to close a merger. Primergy won't be interested in MGE anymore."
Mebane counters: "MGE's financial performance has been good over last five years. We have a very dynamic service territory that is recession-proof. Whether there is any merger premium built in there or not, well, it's probably been there for the last 15 to 20 years."
On November 17, Mebane and MGE issued a position paper in which he attempted to rebut quotes by Davis that appeared the day before in the Wisconsin State Journal, Madison's hometown newspaper, allegedly claiming a rate advantage against MGE. Mebane's statement, titled "Beware of Utility Moguls Bearing False Numbers," acknowledges only a small industrial rate advantage for WP&L. He claims that MGE can undercut WPL on commercial rates: "This is
critically important, since 99.5 percent of business customers in the Madison area are commercial, not industrial."
Not a Concern
The Primergy and Interstate deals come just as Commissioners Hoecker and Massey are suggesting a tightening of merger approval guidelines at