The decision to merge with PacifiCorp was Utah Power & Light Co.'s best alternative to averting a financial tailspin caused by threats of a crumbling customer base, UP&L's chief executive said.

Outlining the utility's dark days in early 1987, UP&L's president and chief executive officer Frank N. Davis said the company investigated several options before settling on the $1.8 billion offer from PacifiCorp that could also cut UP&L's costs and power rates."It was imperative for us to lower costs (and rates) or else lose customers," Davis said Monday before the Public Service Commission.

Davis was the first witness out of 29 scheduled to take the stand in the next three weeks as Utah's PSC considers pro and cons on the merger.

Threatened with losing its Idaho service territory and other large industrial and municipal customers, UP&L had considered mergers with Nevada Power Co., Washington Water & Power and Public Service Co. of New Mexico, as well as pooling arrangements with several regional utilities, as ways of cutting costs and lowering rates, Davis said.

But PacifiCorp contacted UP&L, he said, and UP&L board members found the Oregon-based energy firm's offer and operations to be the best alternative for the utility's shareholders and ratepayers.

UP&L and PacifiCorp announced their plans to merge last August. Under the stock swap agreement, valued between $1.8 billion and $2.2 billion, UP&L would become a division of PacifiCorp, creating one of the largest utilities in the West, serving more than 1 million customers in seven states. PacifiCorp is the parent company of Pacific Power & Light with operations in Oregon, Washington, California, Idaho, Montana and Wyoming.

Both utilities claim that combining their operations will result in annual savings of more than $150 million, which will be passed on in the form of 5-10 percent rate reductions in the next five years.

Davis said the promised rate decreases are not an official part of the merger agreement, but he added that cutting their customers' power costs is essential for UP&L to stay competitive and keep its customers.

"I don't know of any utility anywhere, committing to lower its rates 5-10 percent," Davis said. "This is significant, and we are doing it because it's the best thing for our customers and the company."

However, Davis acknowledged that keeping the promise of rate reductions would only require the minimum 5 percent rate cut within five years without or without cost justification, and any further rate cuts would have to occur as a direct result of savings.

Monday's hearing's began with a warning from the three-member commission that the roomful of attorneys stick to the point of whether the merger is in Utah's best interest and steer clear of any tangential issues.

The Utah commission is the last of eight regulatory bodies to hold hearings on the merger. Regulators in California, Wyoming and Idaho have approved the merger, and decisions from Oregon, Washington, Montana, Utah and the Federal Energy Regulatory Commission are expected before the end of June.

Davis responded to concerns about Utah losing an independent utility serving 75 percent of the state by saying PacifiCorp's Utah division would include the largest state and city (Salt Lake City) in the diversified energy company's seven-state territory.

PacifiCorp also operates mining, financial services and telecommunications subsidiaries.

"I can't imagine PacifiCorp doing anything but paying attention and cultivating business in its Utah division," Davis said. "It doesn't make good business sense to do otherwise."

He explained that initially the Utah division would have four representatives on PacifiCorp's 21-member policy making board and more Utah directors would be named in the future.