Directors of Utah Power & Light Co. and PacifiCorp will be advised Tuesday to forge ahead with merger plans, despite federal regulatory conditions reducing benefits of the marriage, officials said.
UP&L spokesman Dave Mead said that company officials plan to recommend the board re-endorse the proposed merger it approved last year. PacifiCorp, based in Portland, Ore., declined to comment until its board meeting concludes and a decision is made.The $2 billion merger was approved by both companies in August 1987, with a self-imposed one-year deadline to complete it. The deadline was extended to Oct. 31 because of delays in regulatory approvals. Directors of both companies met Tuesday to again consider whether to proceed with the proposed merger.
Uncertainty about the merger's status surfaced late last week when the Federal Energy Regulatory Commission approved the proposed marriage on condition the merged company open its transmission lines to competing utilities. Many observers and Utah regulators believe the condition would wipe out a large share of the merger's benefits and possibly cause Utah rates to go up. Utah's Public Service Commission has issued an order suspending its approval of the merger and scheduled a hearing on the effect of the FERC's order.
But, a source close to UP&L said, a PacifiCorp analysis of the merger under the FERC conditions indicated enough cost-cutting and profit-making benefits remain to make the merger a worthwhile venture. Because the analysis was done by PacifiCorp, that company's board will most likely also be advised to continue efforts to merge with UP&L.
The source said the analysis showed FERC conditions would not prohibit the merged utility from keeping its promise of reducing UP&L's power rates at least 5 percent within five years of the merger's consummation.
Mead declined to disclose any details supporting the positive recommendation of the merger.
Under terms of the merger agreement, UP&L would become a division of PacifiCorp as UP&L shareholders swap their stock for PacifiCorp shares in a transaction valued between $1.8 billion and $2.2 billion. A diversified utility concern, PacifiCorp's other electric utility division is Pacific Power & Light.
But, the FERC feared the merger would stifle competition in the Western states wholesale power market with a single utility owning strategic transmission stretching from the Northwest to the Southwest.
From the onset, both utilities boasted that integrating their transmission systems would provide huge benefits and profits as they used the merged system to sell excess capacity to lucrative markets in the Southwest and wheel power between divisions to stabilize seasonal periods of low and high demand.
But the FERC, on condition of approving the merger, requires the merged company to open its transmission to competing utilities and "meet all bona fide requests for service either by using its existing capacity or by building new facilities."