Regulatory structures protect ratepayers in geography-spanning utility mergers.
Charles E. Peterson is a financial economist with the Utah Division of Public Utilities. Email him at firstname.lastname@example.org. J. Robert Malko serves as a professor of corporate finance at the Jon M. Huntsman School of Business at Utah State University. Note: This article reflects the views of the authors and does not necessarily reflect the views of the Utah Public Service Commission or the Utah Division of Public Utilities.
Corporate restructurings of electric utilities in the United States have become a significant and controversial issue during the past thirty years.1 The controversy is caused by differing perspectives among electric utility executives and regulatory commissioners relating to corporate restructurings associated with mergers, diversification, and functional separation of generation, transmission, and distribution.
Electric utility executives generally view corporate restructuring as a potential source of economic value and a potential partial solution to financial problems that reflect changing business risks. On the other hand, regulatory commissioners attempt to insulate and regulate the utility component of the restructured energy business and to protect the public interest, including reliability of service at reasonable costs.
A prime example is the Utah Public Service Commission, which is applying ring-fencing conditions and tools to utility PacifiCorp. The geographic diversity of PacifiCorp poses regulatory problems to its new owner, MidAmerican Energy, which may require solutions similar to approaches that have been applied to the legal, financial, and economic issues related to ring-fencing of energy utility companies.