Forget March Madness – here at Advanced Energy Perspectives, we’re tracking Merger Madness. In the early days of the build-out of the electrical grid, the utility landscape was ruled by three utility holding companies that controlled almost half of investor-owned utilities across the United States. Last year we asked, “Does merger madness signal the return of the mega-utility?” As public utility commissions across the country consider the outcomes of these mergers, a pattern has emerged: the first attempt at a merger is denied, but the parties are eager for another chance.
Texas is in a unique position with its electricity grid, and last September, Hunt Consolidated and various other investors filed for approval to acquire Oncor, the largest transmission and distribution utility in Texas. If approved, Hunt would take control of Oncor, valued at $17.6 billion, and convert it into a Real Estate Investment Trust (REIT). Hunt would restructure the utility into two parts: an asset company and an operating company.
This week, the Public Utility Commission of Texas (PUCT) voted to delay the vote on the acquisition and pushed Hunt to provide a more complete draft proposal on the deal. According to Utility Dive, the REIT structure proved “vexing” for PUCT regulators, who wanted to ensure that the tax savings promised by the new structure would be passed on to customers.
“This is an incredibly difficult, complex situation, and we haven’t made it any less complex in our discussion,” Geoffrey Gay, a lawyer for the group Steering Committee of Cities Served by Oncor, which opposes the deal, told commissioners.
Elsewhere in the south, in 2014, an investor-led group that included several Canadian and Australian financial institutions entered into a $4.7 billion deal to purchase Louisiana’s Cleco Corp. They opened a docket October 23, 2014, and filed an application for the deal in February 2015. As of early 2016, however, the investors and Cleco were still trying to sell the deal to regulators. They have tried to sweeten the deal by offering nearly double customer bill credits to their customers, but in late February 2016, the Louisiana Public Service Commission (PSC) rejected the acquisition as not being in the public interest. Chairman Clyde Holloway said, in an interview with the New Orleans Advocate, “Cleco is in great shape today.”
This week though, Cleco and the investors asked for a rehearing, saying that the original vote was “procedurally flawed and wrongly decided on the merits” of the purchase. Holloway is unconvinced. “There’s no doubt about one thing, I’m going to vote no and I’m going to fight it with every ounce in my body,” Holloway said in an interview with the New Orleans Advocate.
Finally, in the mid-Atlantic, the merger between Pepco and Exelon has hit a few bumps in the road as well. Since the $6.8 billion merger deal was filed in 2014, the merger between the two utility giants seemed likely. On May 15, 2015, Maryland’s Public Service Commission (PSC) voted to approve the merger, and the deal seemed all but over. The District of Columbia had other ideas, however, and rejected the merger last year. The companies began to renegotiate the deal, hoping to win approval of the DC Public Service Commission (PSC).
In late 2015, the companies, the Office of the People’s Counsel (OPC), the DC Attorney General, and various other parties reached a settlement agreement and were granted a rehearing. On February 26, the PSC rejected the merger settlement, but they proposed alternative terms for a revised deal that would be accepted by the PSC if it were approved by all settling parties. Earlier this month, however, DC Mayor Muriel Bowser and the OPC withdrew their support for the merger, saying they couldn’t agree to the new terms set by the PSC, which did not guarantee the allocation of a rate credit for residential customers. On March 7, the companies issued an alternative proposal, which gives the PSC flexibility in determining the allocation of rate credits while still preserving a guaranteed portion for residential customers. The companies have asked for a ruling by April 7.
Although Merger Madness continues, it looks like the era of the mega-utility is still a ways off. AEE can keep you informed of any updates with our new DocketDigest service, which is free for AEE members. If your company isn't an AEE member, sign up for a free trial below!