The Missouri Public Service Commission has approved the merger of Union Electric Co. and CIPSCO Inc., if Union Electric meets certain requirements, such as helping to form an independent system operator for the region's transmission system.
The formation of the ISO must be consistent with guidelines established by the Federal Energy Regulatory Commission. The proposed merger will include the formation of a new entity, Ameren Corp., as a federally regulated public utility holding company.
Acquisition Premium. The commission approved a settlement agreement in which United Electric will not seek rate recovery of an asserted merger premium of $322 million, which is the portion of the purchase price exceeding current book value. United Electric also agreed to amortize an estimated $71.5 million in merger-related costs over 10 years and to develop an experimental retail wheeling pilot program. The program will offer 100 MW of electric power to all customer classes by March 1, 1997. Finally, the utility agreed to reduce rates beginning in September 1998 under modified earnings sharing rules offered by the utility as part of an experimental alternate regulation plan.
Market Power. The commission said the newly merged company would likely exhibit enhanced vertical and horizontal market power for both generation and aggregation to the detriment of consumers if full retail competition is approved in the state. The effect on competition would occur because of limited transfer capability into the region for imported power, disincentives caused by "pancaked" transmission rates, and barriers to market entry by new firms, the commission said. To mitigate these effects, the new company must belong to a regional transmission group with a region-wide transmission rate.
To make sure that Ameren would not use its transmission system to restrict competition from other generators, the regional transmission group should act independently to operate the vertically integrated utility systems within the region. To address concerns regarding barriers to market entry and the exercise of horizontal market power, the commission required Union Electric to produce a detailed study of the state's "electric markets and submarkets." The company was also directed to develop models and indexes to test market performance. The commission said that after reviewing the work it would consider taking action to mitigate market power before establishing statewide retail competition. Re Union Electric Co., Case No. EM-96-149, March 4, 1997 (Mo.P.S.C.).
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