Federal regulators appear in favor of merging Utah Power & Light Co. and PacifiCorp, but until a solution to anti-competitive effects of the merger is found, final approval by the Federal Energy Regulatory Commission won't happen.

"The commissioners said that the anti-competitive effects of the merger must be mitigated or the merger will be rejected. They feel the economic benefits (of the merger) are there," said FERC spokeswoman Barbara Connor.The FERC took up the merger at its regular meeting Wednesday, but delayed a final ruling until the federal agency's staff can come up with specific conditions addressing competitive impacts of the merger.

Merging UP&L and Oregon-based PacifiCorp would create a utility with transmission linesstretching from Oregon to Montana and south to the Utah-Nevada border.

Connor said the anti-competitive concerns center on access to the merged company's transmission system.

Opponents of the merger, including a FERC administrative law judge who recommended last June that the commission reject it, claim the merger would be anti-competitive by allowing a single utility to own such a vast amount of transmission in a strategic location dominating the western wholesale power market. UP&L's north-south transmission system is highly valued because of its access to lucrative markets in the southwestern United States.

The FERC staff presented the commission with a draft that would have permitted the merger but required the new company to auction its excess transmission capacity to competitors. The company would have to construct additional transmission capacity when it was needed.

"The bottom line is that the commission didn't accept that condition," Connor said.

The FERC staff may come up with another solution sometime next week and the commissioners can act on it without holding a formal hearing. "They are not dragging their feet on it," she said.

UP&L and PacifiCorp had reached transmission accords earlier this year with two major opponents of the merger, Montana Power Co. and Idaho Power Co. The separate agreements provided for wheeling Idaho Power electricity to public systems in southern Utah and spot market purchasers, and for PacifiCorp to buy electricity from Montana Power.

PacifiCorp called the auction proposal "a very novel approach," while UP&L declined to comment on the transmission issue. "Our attorneys are still going over what was said at the hearings in an attempt to define the conditions," UP&L spokesman Dave Mead said.

He said UP&L is dissappointed a final decision wasn't rendered Wednesday, but is pleased the process at FERC is moving forward.

"We are optimistic about the fact that the FERC has asked its staff to work on some things. Therefore the process is ongoing and proceeding on a course that could get the merger approved in a few weeks," Mead said.

The merger would create an $8 billion utility serving 1.2 million customers in seven western states. PacifiCorp is the parent company of Pacific Power & Light, operating in Oregon, Washington, California, Idaho, Montana and Wyoming, while UP&L serves Utah and parts of Idaho and Wyoming.

Both utilities claim the merger would result in savings of $150,000 annually in the first five years, and UP&L customers would realize rate reductions of 5-10 percent.

The merger, announced in August 1987 as a stock swap arrangement valued between $1.9 billion and $2.2 billion, would make UP&L a division of PacifiCorp, headquartered in Portland.

Shareholders of both companies have approved the merger as have regulators in seven states, including Utah.

Despite the delay, analysts believe FERC's further investigation into conditions of the merger is a good sign.

"It's a positive sign (for the merger), because if they were opposed to the merger they wouldn't need conditions, they could just vote it down," said Greg Enholm of Salomon Brothers.

UP&L stock traded early Thursday at $30.75 a share, up 12.5 cents, while PacifiCorp was unchanged at $35 a share.