Opponents to the merger between Utah Power & Light Co. and Paci-fiCorp hope that last week's rejection of the merger by federal administrative law judge has dealt the final blow in the battle between public power vs. UP&L.
"I really think this is the end," said Don Allen, a Washington, D.C.-based attorney representing the Colorado River Energy Distributors Association, a consortium of 117 public power systems, including many in Utah, that buy cheap power from government dams along the Colorado River."When they (UP&L) have lost as much as they have, they've got to give up," he said, hoping past victories over UP&L will transform the investor-owned adversary into a cooperative partner with publicly run systems.
But UP&L, though acknowledging last week's initial rejection was a major setback to its merger plans, says it will never toss in the towel in its ongoing battle with public power. With or without a merger, the utility will try everything possible to lower rates and vigorously compete with municipally owned power systems.
And for now that mission focuses on merging with PacifiCorp. "At this point we aren't considering options without the merger. Right now we are trying to get it (the merger) approved," UP&L spokesman John Ward said.
Analysts agree that UP&L's and PacifiCorp's quest to merge is far from finished, and some observers say it isn't a matter of if the merger gets approved, but when.
That prediction, of course, is based on the Federal Energy Regulatory Commission's overturning an initial decision issued last week blasting the merger proposal as an attempt to set policy based on the "strength of ill-proportioned benefits and sterile conjectures."
UP&L and Oregon-based Pacifi-Corp announced their intent to merge in August 1987, promising the move would result in multimillion dollar savings for the companies and lower power rates by at least 5 percent for UP&L customers. The merged utility would serve more than 1 million customers in seven states, as well as secure control over a vast interstate transmission system, requiring regulatory approvals from seven states and the FERC.
But as state deliberations rolled along to meet the merger's 12-month deadline, FERC approval hit a major snag last week when FERC administrative law judge George P. Lewnes found both utilities failed to substantiate the merger's savings and he questioned the promise of lower rates because the reductions were not cost-based. He further found the merger anti-competitive by locking out competitors from a strategic interstate transmission system to southwest wholesale power markets.
Lewnes' 250-page opinion, arriving three months after FERC hearings on the merger, didn't list one redeeming feature about the utility marriage but offered an exhaustive list of 91 reasons not to approve it.
Allen said Lewnes' decision was another losing round for UP&L as it struggles to overcome public power's grip on low cost power. The latest knockout was UP&L's lawsuit contesting public power's privileged access to cheap hydro power along the Colorado River. The complaint was summarily dismissed by a Utah federal court judge.
From the time it was announced, the proposed merger became another battlefield for public vs. private power. Public power proponents claim the merger would give total control of vital transmission in the West to one utility and freeze out competitors from selling surplus power to the Southwest.
Allen said that Lewnes apparently agrees and the decision was so exhaustive and written in such a way to make it very difficult to counter. "It just wasn't written to be overturned," he said.
The judge's decision serves as a recommendation to the FERC, which must make the final ruling on the merger by either concurring with Lewnes or overturning the decision and modifying it. UP&L and Pacifi-Corp have two weeks to file briefs with the FERC before it makes its final ruling.
But analysts and FERC observers, while agreeing that the lengthy decision puts a tremendous burden on the applicants and the FERC to prove why it should be overturned, believe the merger will gain approval because it's a sound business decision that falls in line with past FERC actions emphasizing consolidation and efficiency in the utility industry.
Idaho public utility commissioner Perry Swisher, who along with his fellow commissioners approved the merger in that state, said the FERC may use the merger to set down policy on access to privately owned transmission systems.
"This merger has got utilities talking and doing something about transmission and marketing power to the Southwest," Swisher said. "It's actually improving competition already."
The proposed merger also caused an unusual and uncomfortable relationship among some Utah members of CREDA. The Utah Associated Municipal Power Systems was able to gain some wheeling concessions from UP&L for the first time because of the merger, shifting UAMPS into supporting the merger and making it the lone public power entity not against it.
"The reality is that this FERC wants to make things work, and some feel you can make this thing (the merger) workable under certain conditions. FERC can come back and approve the application and impose certain conditions," said Jerry Pfeffer, a Washington-based energy industry advisor for the national law firm Skadden, Arps, Slate, Meagher & Flom.
The issue then will be whether UP&L and PacifiCorp can live with those conditions.
Pfeffer said that the FERC will primarily address the merger's im-pacts on competition and he believes the FERC has "shown itself neutral" on the public vs. private power debate.
Responding to reports that FERC's staff will file a brief taking exception to Lewnes' decision, Pfeffer said that sounds reasonable since the staff had put its support behind the merger afterUP&L and PacifiCorp drafted a policy to wheel competitors' power on its lines.
But even if the FERC overrules Lewnes and approves the merger, Allen said the battle isn't over for public power either. They will simply appeal it to the federal court system.
Ward said UP&L and PacifiCorp may consider the same move if the FERC ruling doesn't go their way.
With a court battle certain and the FERC only meeting twice in July before taking the whole month of August off, UP&L and PacifiCorp's self-imposed deadline of Aug. 12, 1988 to complete the deal doesn't seem likely. Ward said the companies will still shoot for that date and if they don't make it then they must reconsider their push to merge.
"At this time both companies are committed to seeing this through. It would have to look pretty grim to call it off," he said. "We don't want the deal to fail for our lack of effort."
Analysts apparently never expected the $1.8 billion merger to close by the Aug. 12 deadline, but they advise shareholders to hang on.
"Sound ideas can't be stopped, only delayed," counseled Greg En-holm, an analyst with Salomon Inc. He said he wouldn't sell until it looks evident either utility may bail out.
He said the $1.8 billion acquisition of UP&L by PacifiCorp is what makes UP&L stock attractive; otherwise, UP&L shares would be trading around $23 a share rather than hovering near $29 and $30.
Despite the company's worth, or lack of it, to investors, Ward indicated UP&L has improved its financial condition and will continue improving with or without a merger.
But, he said, the merger is the best way to accomplish UP&L's goal of lowering rates and keeping customers from escaping to the competition: public power, alternative energy sources or other investor-owned electric utilities.
He said UP&L and PacifiCorp will continue to review the worth of merging as time passes before final approvals are in hand. And if the merger doesn't work, then UP&L may try pooling arrangements with other utilities as a means of lowering rates.
"Competition is the big deal and the driving force behind this. The merger is just the thing that's making headlines," he said.