Morgan Stanley

Senate panel lobs shots at FERC's slow merger approvals.

Wall Street analysts and shareholder reps are urging Congress to help electric utilities recover stranded costs during nationwide deregulation to prevent a "cratering" of energy stocks.

One analyst recently testified that investors never expected 100-percent recovery. Another suggested that federal legislators should let states hammer out their own solutions.

But determining fair compensation state by state won't be easy, as witnesses and lawmakers conceded at recent hearings on Capitol Hill.

The Federal Energy Regulatory Commission has approved three orders that together clarify the Commission's jurisdiction over corporate realignments.

The FERC found on April 30, that while it does not have jurisdiction over mergers of public utility holding companies, it does have jurisdiction over transfers of control (dispositions) of public utility facilities.

Corporations will need FERC approval for a merger simply because they own paper assets that qualify as utility property.

In three companion orders issued April 30, 1997, the Federal Energy Regulatory Commission tried to stake out new jurisdictional turf. It attempted to expand its jurisdiction under section 203 of the Federal Power Act to cover "convergent" mergers and reorganizations involving electric utility holding companies and power marketers.

Oglethorpe Power Corp. recently completed an extensive restructuring that transformed the generation and transmission power cooperative into three specialized companies better able to compete in a restructured electric market.

In addition, the company's board of directors has approved a deal that would allow Morgan Stanley Capital Group to supply Oglethorpe Power Co. one-half of its power needs for up to eight years. The deal has been presented to the 39 Electric Membership Corporations (EMCs) for final approval.

Merger Menace: Holding Companies and Overcapitalization

States remain as powerless to control holding companies as they were

in 1935, when PUHCA was passed.

During the 1970s and 1980s, diversification swept the gas and electric utility industries. One byproduct of this craze was the formation of a large number of new public utility holding companies, exempt not only from regulation by the Securities and Exchange Commission (SEC), but from state regulation over security issues.

The United States Enrichment Corp. (USEC), after consulting with the U.S. Treasury Department, has selected investment bankers for its proposed privatization. The Energy Policy Act of 1992 called for USEC to prepare two paths to privatization: an IPO and a negotiated mergers and acquisition transaction with a third party. USEC supplies 86 percent of the domestic uranium enrichment market, and 37 percent of the world market.

Based on competitive bidding, Morgan Stanley & Co., Inc. has been chosen as transaction manager.

Everybody's talking about electric utilities dabbling in telecommunications. That's fine. But how about vice versa? Maybe what we've really got is telephone companies (and cable television, too) getting into energy. That's different.

SIDE SUBHEAD

Everyone talks about them.