Mergers and the Public Interest: Saving the Savings for the Poorest Customers
How Colorado's settlement in the Xcel merger builds a case for treating needy ratepayers as a separate class entitled to merger benefits.
Low-income consumer interests frequently get lost in the shuffle when utilities merge. Believing that the needs of low-income consumers are neither caused nor exacerbated by the merger itself, the companies and the regulators who oversee them instead focus on traditional merger-related issues such as market power, the ratemaking implications of acquisition costs, and the extent to which merger-related efficiencies should be shared between investors and ratepayers.
Not so in Colorado's recent consideration of the proposed Xcel Energy merger that would combine New Century Energies - and its operating subsidiary Public Service Company of Colorado (PSCO) - with Northern States Power Co. (NSP). In February, the Colorado Public Utilities Commission (PUC) approved a groundbreaking settlement between PSCO and a low-income advocacy alliance of Catholic Charities of Metropolitan Denver (CC) and the Colorado Energy Assistance Foundation (CEAF). The settlement addressed a host of low-income issues.
- Energy Assistance. PSCO agreed to contribute $4.75 million to CEAF during a seven-year period. CEAF provides energy assistance and energy efficiency assistance to low-income Colorado residents.
- Funding for Social Agencies. PSCO agreed to provide 20 computers and Internet access to energy assistance agencies designated by CEAF over a two-year period. PSCO will train the agencies to use this equipment to access the PSCO home page to review a client's account, determine an appropriate assistance amount, and communicate financial commitments to PSCO customer services staff.
- Set Aside of Default Credits as Relief. PSCO agreed to pay CEAF 8 percent of any bill credits the energy company might be required to pay for failing to maintain designated service quality standards. Such funds will be applied to energy assistance for low-income customers of PSCO.
- Energy Efficiency Funding. PSCO agreed to fund a low-income energy efficiency program at $2.6 million per year through 2006. Funds can be used for any purpose allowed by the U.S. Department of Energy's low-income Weatherization Assistance Program.
- Project for Testing Relief Delivery. PSCO agreed to design and implement a pilot rate-affordability project by fall 2000 for testing cost-effective means of delivering rate assistance to low-income consumers.
- Reports on Payment Problems. Finally, PSCO agreed to make annual reports on low-income payment troubles through 2009, even though its regulatory obligation to make such reports was to expire at the end of 2001. These reports include information on termination of service, payment agreements, households in arrears, PUC complaints, impacts of energy efficiency and rate-affordability programs, and related matters.
The Xcel case offers a legal framework for PUCs in addressing several key questions: (1) How do utility mergers generate cost savings? (2) Are local consumers likely to see any of those benefits? (3) If not, should regulators make a special effort to capture those savings for low-income customers? (4) If yes, then how can advocates develop a legal argument within the framework of utility regulation to justify that needy ratepayers should represent a separate class deserving of a special allocation of merger savings?
Traditional legal and economic analysis requires