The Arizona Corporation Commission has turned down a bid by Tucson Electric Power Co. (TEP) to form a public utility holding company to help enter other energy markets and compete in what TEP described as the "increasingly competitive electric energy business." Instead, the commission OK'd limited diversification (capped at $25 million) into energy-related activities under TEP's existing corporate structure, with the goal of improving the company's overall financial position.
The commission saw certain benefits from new ventures, and acknowledged that a holding company would shelter ratepayers from risk, but said that a new holding company could lead to uncontrolled diversification, harming ratepayers. It felt that TEP had not yet recovered from failed attempts at diversification made during the 1980s.
The commission faulted the utility for failing to include in its filing details such as the projected annual and cumulative investment in each affiliate. It also questioned whether TEP had fully repaired damage to its financial position incurred when it entered into unfavorable long-term agreements with a subsidiary formed to sell its excess capacity on the wholesale market. The spinoff of the subsidiary, the Alamito Co. (em with the utility still obligated to purchase Alamito's entire output for a 12-year period (em nearly drove the company to bankruptcy in the early 1990s, the commission said.
Nevertheless, the commission said that the utility might deserve "applause" for pursuing avenues of financial restoration, such as diversification, that would not rely solely on ratepayers to boost earnings and equity in regulated operations, if in fact the company would share profits earned by unregulated subsidiaries with its utility operations. But the
regulators feared that management of a new holding company would subordinate the interests of the utility company to unregulated ventures.
The $25-million cap was needed, the commission said, "as TEP and its ratepayers have suffered through the brink of financial disaster twice in the past decade [and] it would simply be untenable to risk nudging them to the edge a third time." Re Tucson Elec. Pwr. Co., Docket No. U-1933-95-069, Decision No. 59543, Feb. 22, 1996 (Ariz.C.C.).
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