Mergers & Acquisitions
Joint Ventures. The Federal Trade Commission, in consultation with the Antitrust Division of the U.S. Department of Justice, issued draft antitrust guidelines for "collaborations among competitors" that will apply to a wide range of joint ventures and strategic alliances other than actual mergers.
Such collaborations would include R&D efforts, information sharing and joint efforts in marketing, distribution, sales or purchasing, plus various types of trade association activities. File No. 971201, Oct. 1, 1999 (F.T.C.), published at 64 Fed. Reg. 54,484, Oct. 6, 1999.
Dominion Resources + CNG. North Carolina OK'd the merger of Dominion Resources Inc. and Consolidated Natural Gas Co., marking the final required approval by a state PUC, though the case is still pending before federal agencies.
State regulators told the companies to amend their merger application before the U.S. Securities and Exchange Commission to add language to "strongly encourage" the SEC to preserve state authority to review intercorporate allocations. Docket No. E-22, Sub 380, Oct. 18, 1999 (N.C.U.C.).
AEP + CSW. In light of the new electric competition law passed in Ohio this summer, the PUC closed its docket for review of the merger between American Electric Power Co. and Central and South West Corp. It agreed to postpone consideration of public interest issues resulting from the merger until it reviews company-specific transition plans to be filed later. Case No. 98-113-EL-MER, Oct. 21, 1999 (Ohio P.U.C.).
PacifiCorp + Scottish Power. Regulators in Oregon and Washington OK'd the PacifiCorp-Scottish Power plc merger - the second and third states out of six needed for approval - with the matter still pending in Utah, Wyoming and Idaho.
The Oregon PUC dismissed arguments by Industrial Customers of Northwest Utilities that the deal would pose more risk than the merger between Portland General Electric Co. and Enron Corp. It refused to compare the two deals because Scottish Power lacked U.S. operations (not the case with Enron), making comparisons on market power issues inappropriate. Order No. 99-616, Oct. 6, 1999 (Ore.P.U.C.); Docket No. UE981627, Oct. 14, 1999 (Wash.U.T.C.).
Con Ed + Northeast Utilities. On Oct. 13 Consolidated Edison Inc. announced plans to acquire Northeast Utilities for $7.5 billion in cash, stock and debt, creating the nation's largest electric distribution utility, with over 5 million electric and 1.4 million gas customers.
NU shareholders would receive a higher price per share if the company should reach agreement (with approval from Connecticut regulators) to sell its Millstone 2 and 3 nuclear units before the planned merger closing date of Dec. 31.
DTE + MCN. On Oct. 5 Michigan utilities DTE Energy and MCN Energy Group announced their intent to merge to create the state's largest electric and gas company, with over 2 million customers. DTE, the parent company of Detroit Edison, would purchase all shares of MCN, parent company of Michigan Consolidated Gas Co., for $28.50 per share, a total of $2.6 billion. DTE would assume about $2 billion of MCN debt.
NEES + National Grid. The New Hampshire PUC approved the merger of New England Electric System and National Grid Group plc, on condition that the PUC would receive the same access to books and records accorded to the Federal Energy Regulatory Commission, and that neither the FERC nor SEC would preempt state PUC authority over cost allocations between operating subsidiaries and the holding company. It added that by its approval it did not suggest that NGG should recover any part of the acquisition premium from state ratepayers. Order No. 23,308, Oct. 4, 1999 (N.H.P.U.C.).
So. Union + Fall River. Texas-based Southern Union Co. on Oct. 5 agreed to acquire Fall River Gas Co., a Massachusetts utility, for $75 million, including assumption of debt, resulting in Fall River Gas operating as a division of Southern Union.
So. Union + Penn. Enterprises. The Missouri PSC OK'd a merger agreement between Southern Union Co. and Pennsylvania Enterprises Inc. Pennsylvania and Florida also have approved the merger. Case No. GM-2000-43, Oct. 21, 1999 (Mo.P.S.C.).
Utility Plant Swap. The Ohio PUC OK'd a transfer and swap of generating plants between FirstEnergy and Duquesne Light, denying objections that it had no authority to review the deal. It refused to link approval to accelerated formation of a regional transmission organization and found no basis for claims by intervenors that the agreements must include obligations to provide reactive power support. Case No. 98-1636-EL-UNC, Oct. 28, 1999 (Ohio P.U.C.).
Hydroelectric Relicensing. A group of over 250 hydroelectric industry members and non-industry allies on Oct. 13 announced a new coalition, known as "WaterPower," to improve the hydro relicensing process.
Group spokesperson and former FERC chair Elizabeth Moler explained: "Our goal is to streamline the process, while respecting the economic and environmental benefits of hydropower."
Hydro Restructuring. The California PUC unanimously approved a ruling by an administrative law judge requiring Pacific Gas & Electric Co. by Nov. 15 to propose methods to assign a value to its 68 hydroelectric generating plants, since the assets make up a substantial portion of the state's ancillary services market and play a vital role in assuring the reliability of the state's electric grid.
While PG&E may propose any method, it must value each plant separately. At a minimum it must (1) include a market value for associated real property, (2) assume existing environmental and licensing conditions, (3) assume the cost and value of existing water contracts, (4) assume various future energy and capacity price scenarios, (5) consider the economies of operating clusters of facilities, and (6) assume continued operation of the generating facility at the Diablo Canyon nuclear plant. Decision No. 99-10-046, Oct. 21, 1999 (Cal.P.U.C.).
Colstrip Sale. Regulators in Washington state OK'd a proposal by Puget Sound Energy to sell its interest in the four-unit Colstrip coal-fired plant in Eastern Montana for $555.9 million to PP&L Global Inc., a sister company of Pennsylvania Power & Light Co.
The commission saw the sale as a "wash" for Puget Energy, producing a gain plus short-term savings from buying cheaper power elsewhere, but producing losses later on, as Colstrip is expected in the long run to produce power at below-market costs. Docket No. UE-990267, Sept. 30, 1999 (Wash.U.T.C.).
Emission Cuts. Public Service Co. of Colorado has signed an agreement to cut air pollution from its three Denver-area power plants, becoming the first utility to initiate an emissions reduction program under a state law passed last year that provides businesses with incentives to cut pollution to levels lower than those required by law.
The agreement, negotiated over several years and requiring approvals by the Colorado PUC and the state health department, calls for the utility to spend $205 million to cut sulfur dioxide emissions by 70 percent and nitrogen oxide by 40 percent. The utility will recoup the expenses by charging ratepayers an extra 82 cents per month for 15 years, starting in 2003.
Nuclear Unit Sales. Conectiv on Sept. 30 agreed to sell its ownership interests in three nuclear power plants to PSEG Power LLC and PECO Energy Co. for $20 million, plus reimbursement of actual fuel inventory at closing.
Conectiv, which no longer will own any nuclear plants, is selling a 15 percent interest (328 megawatts) in Peach Bottom units 2 and 3 in equal shares to the PSEG and PECO co-owners, each of whom already hold a 43 percent share, and a 14.8 percent interest (328 MW) in the Salem plant to PSEG, which already owns a 43 percent interest. Finally, it will sell a 5 percent interest (52 MW) in the Hope Creek plant, giving PSEG a full 100 percent interest.
Nuclear Sales, cont'd. The New York PSC was to hold a series of public hearings and educational forums throughout November on the proposal by Niagara Mohawk Power Corp. to sell its Nine Mile Point nuclear unit 1 and its 41 percent share in Nine Mile unit 2 to AmerGen Energy. New York State Electric and Gas Corp. also has proposed to sell its 18 percent share in Nine Mile 2 to AmerGen.
Standard Offer Bidding. Finding prices too high, the Maine PUC rejected all bids made by competitive suppliers seeking to provide generation resources for the standard-offer portfolios of Central Maine Power Co. and Bangor-Hydro Electric Co. under the state's electric industry restructuring program.
But the PUC OK'd two standard offer bids - by WPS Energy Services Inc. and Energy Atlantic - to serve Maine's other major electric utility, Maine Public Service Co.
"It is unclear why the standard offer bid prices for CMP and BHE were so much higher than those proposed for MPS customers," said the PUC. But it guessed that several factors might be to blame, such as (1) immaturity of the New England independent system operator, (2) high spot market prices in recent months, and (3) uncertainty about transmission pricing in the region. Docket No. 99-111, Oct. 25, 1999 (Me.P.U.C.).
Distributed Generation. The Vermont board opened a docket to set guidelines for "distributed utility planning." It would study options for using demand-side management and distributed generation to reduce the cost of maintaining the reliability and to avoid or defer investments in transmission and distribution networks. Docket No. 6290, Sept. 30, 1999 (Vt.P.S.B.).
EDI Standards. While resisting pressure from the Mid-Atlantic Power Supply Association to force use of a single Internet protocol, the Pennsylvania PUC modified its June 11 order on electronic data transfer and exchange standards to clarify that electric distribution companies may choose one of three standards: the "Electronic Delivery Mechanism" set by the Gas Industry Standards Board, or the AS1 or AS2 standards set by the state's Electronic Data Interchange Working Group.
The PUC said that the market will, and should, determine which protocol to use, and that deferring to the market encourages industry convergence of standards, "which would be the ideal resolution of this issue."
The PUC also modified policy on costs incurred by utilities that have implemented a valued-added network (VAN) for data transfers when generation suppliers have failed to adopt a compatible protocol. In its June 11 order it had required utilities to swallow such costs, but on review it accepted a proposal by the state electric association for utilities and suppliers to share costs for using a VAN. Docket No. M-00960890 F0015, Oct. 15, 1999 (Pa.P.U.C.).
Appliance Repair. The Massachusetts DTE rejected a bid by Bay State Gas Co. to conduct its appliance service and repair business as a business integrated within its regulated utility distribution operation, rather than as a separate subsidiary, citing the idea "a serious threat" to competition.
The commission added, "A natural gas LDC is in a position and has an incentive to exert undue preference and favorable treatment when providing services other than gas transportation." Letter order issued Oct. 13, 1999 (Mass.D.T.E.).
Purchased Gas Costs. Wisconsin OK'd a gas cost recovery mechanism for Wisconsin Fuel & Light Co. that will include up to a 2.5 percent producer premium above the gas commodity cost aimed at ensuring availability. The mechanism also would allow recovery of gas commodity costs not on the basis of actual costs paid, but by reference to an incentive benchmark based on market indices or derivatives of indices. No. 6640-GR-107, Oct. 20, 1999 (Wisc.P.S.C.).
Restructuring Plans. A 7,000-page electric restructuring plan filed Oct. 4 at the Ohio PUC by FirstEnergy Corp. claims some $1.1 billion in savings for consumers through 2005.
The plan would entail a 5 percent reduction in the price of generation for residential customers beginning Jan. 1, 2001. FirstEnergy proposed to recover generation-related transition costs, estimated at $3.8 billion after taxes, or an average of 2 cents per kilowatt-hour, over the five-year market development period.
Gas Retail Choice. With the start date for natural gas choice set for Nov. 1, the Pennsylvania PUC granted licenses to 30 natural gas marketers and suppliers, approved an interim settlement to restructure Columbia Gas of Pennsylvania and issued two interim orders, concerning operational and capacity issues plus disclosure of customer information.
* Columbia Gas. PUC Chairman John M. Quain called Columbia's customer choice pilot program, which pre-dated the state's natural gas retail choice law, "a model both for Pennsylvania and the nation." Docket No. R-00994781, Oct. 15, 1999 (Pa.P.U.C.).
* LDC Operations. Guidelines call for each natural gas local distribution company to create an "Operational and Capacity Council" to resolve operational and capacity issues relating to customer choice, but anticipate that details will be further developed in restructuring cases for individual LDCs. Docket No. L-00990144, Oct. 15, 1999 (Pa.P.U.C.).
* Info Disclosure. Guidelines cover bill format, customer requests for information, marketing and sales materials and customer privacy. Docket No. M-00991249F0005, Oct. 15, 1999 (Pa.P.U.C.).
Outage Investigations. After reviewing a staff investigative report on July outages, the Delaware commission opened a formal proceeding into whether Delmarva Power & Light Co. (doing business as Conectiv Power Delivery) is fulfilling its obligations to provide adequate and reliable service. The proceeding is to be concluded by May 2, 2000. Order No. 5244, Oct. 12, 1999 (Del.P.S.C.).
Economic Development Costs. The comment period ended Oct. 6 for a controversial proposal by the Texas PUC to prohibit electric utilities from passing along to customers any costs to support economic development.
The rule change would compel utilities to divide transmission and distribution and retail units into separate businesses. Any service offered by transmission and distribution utilities would have to be classified as either system, discretionary, petitioned or other service. The Texas PUC was to rule by Nov. 18. Project No. 21083, Tex.P.U.C.
Energy Efficiency Programs. Culminating over two years of work among the state's 22 electric distribution utilities, various consumer and environmental groups, state government and International Business Machines Inc., Vermont approved a settlement that will create an "energy efficiency utility" to deliver comprehensive energy efficiency services to all classes of electric consumers. The EEU will be an independent entity under contract to the Public Service Board and funded through charges on electricity usage.
Initially, the EEU will implement a set of energy efficiency programs aimed primarily at acquiring "lost opportunity" savings - efficiency opportunities that can be captured only at particular times, such as during new construction or extensive remodeling - from end-users. Later, the EEU is to move into areas such as new technologies and changing markets, seeking "to uncover new opportunities for cost-effective savings."
Following a conference held Oct. 19, hearing officer Sandra Waldstein said there was "general agreement on most of the details" associated with a future EEU wires charge, noting ongoing negotiations on the calculation and structure of the charge and its allocation among utility service territories. Docket No. 5980, Sept. 30, 1999 (Vt.P.S.B.), Oct. 22, 1999 (procedural order by hearing officer).
Competitive Metering. The New York PSC reaffirmed a June 16 ruling setting policies for competitive metering and meter data services in the restructured electric utility market, dismissing concerns that a rule requiring utilities to grant an embedded cost credit to customers who chose a competitive metering service provider would lead to an excessive discount for switching customers and subsidize competing meter service firms.
The PSC concluded that many of the components of metering were labor-intensive and for those items, embedded costs were "a very good proxy for long run costs." Case 94-E-0952, Sept. 15, 1999 (N.Y.P.S.C.).
Studies & Reports
Internet Commerce. A study by Andersen Consulting finds that many Internet sites maintained by electric utilities around the world lack the sophistication needed to compete online, leaving utilities vulnerable to upstarts selling electricity over the Internet.
The study examined 144 web sites in the United States, United Kingdom, Australia and Hong Kong. It found tremendous variation in the quality among utility web sites, and nominated Utility.com as the best performing site overall. The site was judged to outperform other sites in key areas such as quality of content, ability to conduct transactions, range of interactivity and usefulness of content to key stakeholders.
Utility Cash Flow. Fitch IBCA's annual "Electric Utility Financial Peer Study," which compared selected financial ratios of 110 electric utilities for the year ended June 30, reports a bolstering of utility cash flow measures across all rating categories with the transition to a competitive generation market.
Nevertheless, Fitch does not expect that level of cash flow to be maintained beyond the transition period, when generation plant values will be written down to market. See www.fitchibca.com.
Utility Settlement Ontario Inc. and Harris Computer Systems have announced plans to interface two of their top systems, USO's Settlement One and Harris' Customer Information and Utility Billing System, allowing the two systems to "talk" to each other. Settlement One, designed for use in deregulated electricity markets, manages the commodity settlement among local distribution companies, their customers and multiple retailers that will be part of the new power paradigm in Ontario.
CellNet Data Systems Inc., a provider of telemetry services, has installed the 3 millionth device in its wireless networks. CellNet, whose networks primarily monitor electricity, natural gas and water usage for utilities throughout the United States, has accelerated its average installation rate to 125,000 devices per month.
Aquila Energy, a wholly owned subsidiary of UtiliCorp United, is establishing a presence in Scandinavia in order to offer energy-related and risk-management services to industrial and energy groups in Finland, Norway and Sweden, marking the company's third strategic move this year into European markets. The Scandinavian region is the leading electricity market in Europe, with a 1999 sales volume in financial contracts estimated at 1,000 terrawatt-hours. Leading the development is Nord Pool ASA, the world's longest-established electricity market, formed in 1993. "Because of the strategic importance of Scandinavia as a European energy market and the significance of Nord Pool, this represents another key step in Aquila becoming a truly European energy player," said Richard C. Green Jr., UtiliCorp.'s chairman and chief executive officer.
The MCHC/IHHA Utility Program - a joint effort of the Metropolitan Chicago Health Care Council and the Illinois Hospital & HealthSystems Association to help association members reduce electricity and other utility costs under Illinois' new deregulation law - recently entered into a partnership with Nicor Energy L.L.C. Through the partnership, the Utility Program will offer electric and natural gas services to the approximately 250 Illinois hospitals and health care organizations that are members of the two associations. Nicor Energy is a joint venture between Nicor Inc. and Dynegy Inc., two of the nation's largest energy providers.
Ozone & Particulates. On Oct. 29 a federal appeals court voted 2-1 to deny rehearing of its May ruling that had struck down air pollution standards for ozone and particulates proposed by the U.S. Environmental Protection Agency as unconstitutional.
At the same time, the court fell one vote short of deciding to rehear the case en banc before the court's full slate of 11 judges, even though five of the nine judges who examined the matter chose to vote for rehearing. American Trucking Assoc. Inc. v. EPA, Nos. 97-1440 et al., 1999 WL 979463, Oct. 29, 1999 (D.C.Cir.).
Earlier, on Oct. 21, while court review was still pending, the EPA had announced that it would reinstate its one-hour smog standard for measuring ground-level ozone in nearly 3,000 counties where the standard had been revoked since 1998 in favor of a more stringent 8-hour standard.
On Oct. 28, EPA had released for comment its latest draft report of scientific air quality criteria for particulate matter. See www.epa.gov./ncea.
The EPA added that by Nov. 30 it would act on petitions from several states regarding regional transport of nitrogen oxide emissions. See www.epa.gov.ttn/oarpg/ramain.html.
Gas Pipelines. A federal appeals court ruled that a gas pipeline compressor station qualified as a gathering facility outside FERC jurisdiction, even though the station supplied pressure needed for operation of a mainline pipeline system, where other factors were more important: (1) the compressor was located upstream of processing facilities, (2) it was needed to operate a cryogenic liquid extractor, and (3) it supplied pressure needed to overcome mainline pressure to facilitate pipeline injection - a function seen as the province of producers. Williams Field Servs. Group Inc. v. FERC, Nos. 98-1241 et al., 1999 WL 969261, Oct. 26, 1999 (D.C.Cir.).
Radioactive Waste. A federal appeals court ruled that federal agencies need not grant permission to intervene in agency proceedings to persons who would otherwise satisfy the criteria for standing (case controversy and justiciable interest) in a judicial setting.
The would-be intervenor, which had long held a license to dispose of radioactive byproducts, had wanted to appear before the Atomic Safety and Licensing Board to oppose license applications filed later by competitors that would be reviewed under less-stringent rules. Envirocare of Utah Inc. v. NRC, Nos. 98-1426 et al., 1999 WL 961164, Oct. 22, 1999 (D.C.Cir.).
Electric Standard Offers. Connecticut regulators OK'd a standard offer distribution rate of 9.34 cents per kilowatt-hour for Connecticut Light & Power Co., the last order in a series of dockets setting the framework for competition beginning Jan. 1. But the order was "by no means definitive," the commission said, because several transactions, including the bidding to provide wholesale standard offer generation services and the completion of generation plant sales (expected around the end of the year) still needed to be completed, causing the competition transition charge and general shopping credit to be listed as "To Be Determined."
Distribution Rate 2.53 cents
Transmissio* 0.38 cents
Systems Benefit Charge 0.23 cents
Conservation and Load Management 0.3 cents
Renewables 0.05 cents
Competition Transition Assessment (CTA) TBD
General Shopping Credit (GSC) TBD
GSC and CTC combined 5.85 cents
Docket No. 99-03-36, Oct. 1, 1999 (Conn.D.P.U.C.).
Oil Pipeline Conversions. Despite opposition from the California PUC, the FERC issued an optional certificate to Questar Southern Trails Pipeline Co. allowing it to acquire an oil pipeline from its affiliate, Questar Line 90 Co., and convert the line to natural gas service, while constructing new facilities to provide open access natural gas service from the Four Corners area of New Mexico, Arizona, Utah and Colorado to Southern California.
The California PUC had said the project would lead to unsubscribed capacity on the SoCalGas system and had questioned the lack of any comparative cost analysis between new construction, current transportation service and incremental capacity of existing systems.
But the FERC noted that optional certificate rules do not require it to examine market need for a project. Docket Nos. CP99-163-000 et.al, Oct. 13, 1999 (F.E.R.C.).
Transmission & ISOs
The New York PSC OK'd a Nov. 18 start date for the New York Independent System Operator and issued orders on asset transfers and financing.
* It gave the ISO authorization to enter into a $12 million revolving credit facility to provide working capital during the ISO's initial years of operation, and to enter into a $54 million term loan, to be used to reimburse electric utilities for their start-up cost contributions. Case No. 99-E-1176, Sept. 21, 1999 (N.Y.P.S.C.).
* It approved asset transfers (such as the New York Power Pool Energy Control Center Buildings and equipment) and transfer of operational control of designated transmission facilities from the investor-owned utility member systems of the NYPP to the ISO. Case No. 99-E-0745, Sept. 21, 1999 (N.Y.P.S.C.).
Electric Restructuring. Senate Energy and Natural Resources Committee Chairman Frank H. Murkowski (R-Alaska) on Oct. 7 unveiled his proposed electric restructuring bill, H.R. 2944. The bill prospectively would repeal the Public Utility Holding Company Act and the Public Utility Regulatory Policies Act. The bill encourages the creation of regional transmission organizations, giving standards for the FERC to follow, along with including an eminent domain provision to help address market power issues and facilitate building of new facilities.
The bill includes no renewable energy mandate. It also doesn't address the role of the Tennessee Valley Authority or Bonneville Power Administration, nor atld between municipal and investor-owned utilities.
Waste Storage. Fearing that on-site storage facilities "could become de facto permanent disposal sites," the New England Governors' Conference on Oct. 5 urged the U.S. Dept. of Energy to retract its proposed plan to take title and assume responsibility for the spent nuclear fuel on-site. Instead, the governors favored a central interim storage site.
The governors said DOE's plan would abridge states' rights by diverting funds already earmarked for a permanent repository. They noted that New England consumers had already contributed $1.3 billion. See www.tiac.net/users/negc/nuclear%20waste%20storage.html.
News Digest was compiled by Carl J. Levesque, associate editor, Lori A. Burkhart and Phillip Cross, contributing legal editors, and Bruce W. Radford, editor-in-chief. For continual news updates, see www.pur.com.
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