Fourteen days of hearings involving more than 50 witnesses and some long, detailed cross examination didn't change the minds of supporters or critics of Utah Power & Light Co.'s proposed merger with PacifiCorp.
The daily hearings before the Utah Public Service Commission apparently offered no surprises for the parties involved as they continue to stand by their claims of benefits and harm the $1.8 billion merger could bring to Utah.The hearings ended last Thursday. A final day of oral argument is scheduled June 8. The three-member commission will then weigh the positives and negatives of the merger, and if it nets positive the marriage is approved. Otherwise, disapproval will most likely kill the deal.
A PSC decision is expected on the merger before Aug. 1.
UP&L and PacifiCorp announced their plans to merge last August. Both utilities have promised that the union would result in multi-million dollar savings passed on to UP&L customers in the form of 5 percent to 10 percent rate reductions.
Many feel the promise of rate reductions makes PSC approval certain. But what remains unknown is what kind of conditions regulators will impose on the merged utility before giving their blessing to the marriage.
"Approval is not a foregone conclusion," PSC chairman Ted Stewart replied to assertions the deal is done. "But if it is approved there will undoubtedly be conditions attached."
It's anyone's guess which of the 60 conditions formally laid down by intervenors in the case will be adopted by the three-member commission. But Stewart said conditions would be selected to make the merger in the interest of Utah, UP&L and its customers.
Most of the conditions UP&L and PacifiCorp can live with, but one unaceptable condition is that the promised power cost cuts be guaranteed past the 5 percent level at a rate of 2 percent per year for five years, making a guaranteed total 10 percent reduction. That condition was proposed by Utah's Committee of Consumer Services, a state-established watchdog for residential and small business ratepayers, and similar guarantees were requested by a group UP&L's large industrial customers.
Both parties question the $500 million in savings the merger would bring and have challenged the merging utilities to back up the promises with guarantees and a cost allocation method to prove Utah will get its share of the asserted benefits.
UP&L and PacifiCorp say that combining their transmission systems would result in savings and additional revenue justifying the rate reductions. Merging would stabilize the year-round loads carried by each system, because each system has alternating peak loads, and provide easy access to lucrative markets to sell excess power.
Other savings will be realized by combining duplicative operations, meaning the loss of more than 370 jobs at UP&L through attrition and retirements, the utility said, and delaying future construction projects.
But after extensive cross examinations of UP&L and PacifiCorp officials, attorney Gary Dodge, who represented several of UP&L's industrial customers, said his clients are still not convinced the savings will amount to the promised rate reductions. He cited a PacifiCorp exhibit estimating an allocation of merger savings and benefits that had UP&L's Utah service territory receiving $123 million, while the 5 percent rate reduction would require $132 million in benefits.
Dodge also said a red flag was sent up when Frank N. Davis, president and chief executive officer of UP&L, testified that the company would fulfill its promise of rate reductions by meeting the minimum 5 percent and that anything above that level would be based strictly on savings.
But Davis added that futher rate reductions would be aggressively sought because lower rates are a prime motivation for the merger and essential for UP&L to maintain and nurture its customer base.
Answering claims that the merger's benefits could be realized without a merger, Davis said UP&L investigated pooling arrangements and other agreements with utilities in neighboring states as a way to cut costs and lower rates, but concluded that the merger with PacifiCorp was the only workable solution.
Under the merger agreement, UP&L would become a division of Portland, Ore.-based PacifiCorp, owner of Pacific Power & Light, which operates in six states and has controlling interest in mining, telecommunciations and financial services territories. Critics contend UP&L would become lost in a giant, diversified corporation, and Utah's interests would not be heard.
But Davis testified that the UP&L division would include PacifiCorp's largest metropolitan area and state in its seven-state territory. "I can't imagine PacifiCorp doing anything but paying attention and cultivating business in its Utah division. It doesn't make good business sense to do otherwise."
UP&L spokesman John Ward said the company had faced similar opposition to the merger in six other state hearings and wasn't surprised by anything in Utah.
"There weren't a whole lot of new questions being asked. Our case was presented very similarly in every respect and identically in many."
Out of the six states - Oregon, Washington, California, Idaho, Montana and Wyoming - three have approved the merger and decisions are pending in the others. A decision regarding the merger's interstate transmission issues is also pending from the Federal Regulatory Energy Commission.