Utah Power & Light Co. directors met Wednesday to decide how best to move on and complete a proposed merger with PacifiCorp, following Utah Public Service Commission's order that approves the merger - but with reservations.
In addition to extending the merger's completion deadline past Dec. 15, board members may also consider a date when PacifiCorp's stock will be monitored to determine how much UP&L shareholders would get from the deal, UP&L spokesman Dave Mead said.Under the merger agreement, each UP&L share would be exchanged for PacifiCorp stock at a minimum of $32.25 and a maximum of $38 per share, based on a 10-day trading period before the deal closes. The stock swap is valued between $1.8 billion and $2.2 billion.
For ratepayers, the companies have promised a 5 percent rate reduction within five years of the merger's approval.
PacifiCorp directors will meet Friday in Portland, Ore., a spokesman said.
In its order issued Tuesday, the PSC lifted a suspension and reaffirmed its previous order approving the merger. The three-member panel also voiced dismay over UP&L and PacifiCorp proceeding with the merger without being fully aware of the costs and impact of federal conditions imposed on the merger.
The commission expressed concern about the possibility of the utilities trying to pass those costs, estimated at $1 million annually, onto ratepayers.
Mead said company officials are mulling over the PSC order and the board will evaluate it.
UP&L and PacifiCorp were "put on notice" by the commission that ratepayers absorbing the possible cost of complying with conditions made by federal regulators would be unacceptable.
The federal conditions come from the Federal Energy Regulatory Commission, which approved the merger on condition that the utilities open their vast transmission system for use by competing utilities.
UP&L and PacifiCorp had touted combining their strategic transmission systems as a primary benefit of their proposed merger because of the millions of dollars in revenues that would come from using the seven-state system in marketing surplus power to the southwest United States. Those profits would go toward rate reductions.
Following the FERC order, the Utah PSC immediately suspended its approval and held hearings to determine whether the FERC conditions committing transmission capacity to other utilities would hurt Utah ratepayers.
During the hearings, UP&L officials testified that while the conditions reduced merger benefits, the utilities could still honor a promised rate reduction of 5 percent within the first five years of merging.
In the 15-page order, the commission criticizes and questions the FERC conditions and the utilities for accepting them. But, recognizing merger benefits still exist and based on the "presumption" that any costs arising from the FERC conditions would not be borne by ratepayers, the commission let its previous approval stand, warning that the merged company would be closely monitored.
Commission Chairman Ted Stewart apparently wasn't comfortable with making that presumption. In a separate concurring opinion, he said the commission should state clearly that any FERC-imposed costs will be borne solely by company shareholders or benefiting competitors and not ratepayers.
Commissioner Brent Cameron wrote that "all parties must benefit" for the merger to succeed and who bears what costs should be determined in future proceedings.
"We recognize there are still benefits to ratepayers, but we are concerned about the FERC conditions and the companies' reaction to them," Stewart told the Deseret News. In his concurring opinion, Stewart criticized the FERC for overstepping its authority. "States' rights have been trampled," he wrote.
All three commissioners expressed disappointment about UP&L and PacifiCorp's intentions to proceed with the merger without knowing the exact impact of the FERC conditions. Requests for clarification and rehearing have been filed by numerous utilities across the country, concerned whether the FERC order will affect their interstate transmission systems.
Mead said the companies plan to file documents complying with the FERC order and proceed with the merger.
"Absent a stay or a court proceeding that could delay consummation of the merger, we plan to proceed. Clarifications can be taken up anytime by FERC," he said.
A FERC spokeswoman declined to say whether FERC consideration of the requests for clarification and rehearing could delay the merger going into effect.>