PSC APPROVES ST. JOSEPH LIGHT & POWER/UTILICORP MERGER............
PROPOSED REGULATORY PLAN REJECTED
Jefferson City (December 14, 2000)---The Missouri Public Service
Commission has approved the merger of St. Joseph Light & Power (SJLP)
with UtiliCorp United, Inc. (UtiliCorp). The Commission determined,
based upon a thorough review of the testimony received in this case,
that the proposed merger would not be detrimental to the public
interest, the standard that is applied to merger cases.
While the Commission approved the merger proposal, it rejected
UtiliCorp's proposed regulatory plan which called for a five year rate
freeze. The Commission also deferred judgement on UtiliCorp's request
to recover the acquisition premium (merger premium) stating that
if UtiliCorp wanted to seek recovery of the merger premium in future
rates, that issue would be addressed in a subsequent rate case. The
merger premium is the amount of the purchase price above net book
value paid by UtiliCorp for SJLP.
Approval of the merger will have no affect on the current rates
of SJLP customers. Under the merger proposal, SJLP will continue to
operate as a division of UtiliCorp. The rates charged SJLP customers
will be the rates SJLP currently has on file and approved by the
Public Service Commission.
UtiliCorp and SJLP had argued before the Commission that the
proposed merger would not be detrimental to the public and would,
in fact, be beneficial for the ratepayers of both companies.
The Commission stated in its order: "SJLP is one of the
smallest investor-owned, publicly traded, electric utilities in
the country. While SJLP has been able to provide relatively
low-cost, reliable power to its customers in the past, the changing
structure of the electric power system may make it more difficult
for SJLP to continue to provide low-cost power in the future."
SJLP's difficulties in continuing to provide low cost power
result from the advent of competition in the wholesale electric
market. The price of purchased power is market driven and very
volatile.
"This volatility in the wholesale market," the Commission noted,
"may place a small company, such as SJLP, at a disadvantage
because it may lack sufficient financial resources to compete with
larger utilities for purchased power. The merger of SJLP with
UtiliCorp will permit SJLP's customers to be served by a
substantially larger utility better able to compete in the
wholesale energy market."
(More)
UtiliCorp, the Commission noted, has been an effective
player in the wholesale power market since 1996. On the other
hand, SJLP does not have a wholesale marketing group dedicated
to pursuing the wholesale market and does not have plans to create
such a group. "Even if it wished to develop such a marketing
group," the Commission noted, "as one of the smallest
investor-owned electric utilities in the nation, SJLP's size
and limited resource mix may make it costly to develop and sustain
an effective wholesale marketing group."
REGULATORY PLAN REJECTED: As part of the merger, UtiliCorp
proposed a regulatory plan. Part of that plan called for rates
of SJLP customers be frozen for five years. The Commission
rejected this proposal stating that a rate freeze would be
contrary to the Commission's statutory obligation to provide
continuous regulation of the public utilities in Missouri.
To approve the five year freeze, which was not agreed to by
the parties in this case, would deprive the Commission of
"the legislatively imposed duty to adjust UtiliCorp's rates
to meet changing conditions. The Commission will not agree
to relinquish its statutory duties." Rate moratoriums
authorized by the Commission in the past were the result
of an agreement reached by the parties that was then submitted
to the Commission for review and action.
The Commission noted that to impose the rate freeze
would prevent parties such as the Office of the Public Counsel
and the PSC Staff from filing a complaint against the company
seeking to challenge the reasonableness of the rates charged
by an electric corporation. The Commission's order states
that not only can the Commission not prevent appropriate parties
from bringing a rate complaint during the five-year rate
moratorium, it also cannot require UtiliCorp or even a
future Commission to observe such a moratorium. The Commission
also noted that significant change could occur in the electric
industry over the next five years and a five-year rate moratorium
would not be good public policy either from the perspective of
UtiliCorp or its ratepayers.
RECOVERY OF ACQUISITION PREMIUM: According to evidence
filed in this case, UtiliCorp's shareholders agreed to pay
$23 a share to acquire SJLP's stock. That purchase price
is approximately 36% above the trading value of SJLP's stock
just before the merger was announced. UtiliCorp's offer
creates an acquisition premium (merger premium) of
approximately $92 million. In this case, UtiliCorp asked
the Commission to authorize the company to recover, from
SJLP's ratepayers, through rates, the acquisition premium
it paid to purchase SJLP, to the extent that the ratepayers
would benefit from savings arising from the merger.
The Commission stated in its order that it will not
prejudge a ratemaking factor outside of a rate case.
"The Commission will give due consideration to a proposal
to provide for recovery of a merger premium if that proposal
is presented in a rate case."
St. Joseph Light & Power serves approximately 62,000
electric customers, approximately 6,400 natural gas customers
and five industrial steam customers in northwest Missouri.
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