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 the Federal Energy Regulatory Commission (FERC). I asked Davis about that.
"Last summer," says Davis, "the WPL board of directors traveled to Washington, DC, and met with Energy Secretary Hazel O'Leary and FERC Commissioner James Hoecker. Hoecker articulated Massey's view. But that's only two Commissioners (em they haven't yet attracted a third vote. But if they do we'll deal with it. There are enough electric utilities in the United States to support competition. Will the FERC change its merger guidelines? It's not a concern."
The Interstate merger would also combine utilities that now operate in different reliability councils (em The Mid-Continent Area Power Pool (MAPP) in Iowa, and the Mid-American Interconnected Network (MAIN) in southeast Wisconsin. Again, Davis sees no real problem: "Candidly, that issue will be decided by the Primergy merger. It's already on the table. MAIN has put off its discussions on its regional transmission group pending the FERC Mega-NOPR. Those issues will be resolved in other forums."
At Wisconsin Energy, Richard Abdoo supports deregulation of generation with a PoolCo and independent system operator (ISO) to manage a transmission network owned by the utilities. "We get a lot of flak about ISO's," says Abdoo, "But we already have them in our own region. The employees of MAIN represent an ISO. MAPP has one, and so does ECAR."
Some of that flak comes from Mebane at MGE: "If Primergy goes through, the new company will control somewhere between 50 to 60 percent of the transmission capacity into and out of Wisconsin. Under WEPCo's PoolCo idea, the persons running the transmission system will remain on their payroll. That's a facade. You've got to have an independent ISO."
But Mebane sees the Interstate deal a bit differently: "Those three companies have been mediocre performers. Their operations and transmission networks aren't well integrated. To integrate their networks, they'd have to spend millions of dollars."
MGE scored a victory of sorts on October 31, when Wisconsin's Electric Advisory Committee struck a deal with state legislators to delay discussion of electric deregulation until calendar 1996, which is an election year. As reported elsewhere, the Wisconsin Public Service Commission (PSC) will now follow a "go-slow" approach. At press time, the PSC was to issue a major ruling on electric restructuring on December 12, 1995.
Mebane says the Committee had considered about four or five distinct proposals, but that the majority supported the MGE coalition: "Our coalition isn't against competition. We just want some kind of regional control. Wisconsin can't deregulate without some sort of reciprocal arrangement from neighboring states."
Abdoo sees it differently: "My sense is that if Wisconsin opens up, then Minnesota will open up, Iowa will open up, and so will Illinois."
I asked Davis whether his Interstate deal marked a direct challenge to the Primergy merger. He demurred, but noted that Adboo had sent him a small gift when the Interstate merger was announced. "I wish he had sent me a Harley-Davidson," said Davis. I asked Mebane about that. He says Abdoo has been known to inspect his service territory astride his Harley.
"The governor has one too," said Mebane. "But he fell off once."
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