- Email: [email protected]
Merger develops wobbles
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McGraw Professor at Illinois Institute of Technology and founding president of the Gas Research Institute; William A. Nierenberg, director emeritus of Scripps Institute of Oceanography; Frederick Seitz, president emeritus of Rockefeller University and former president of the National Academy of Sciences; S. Fred Singer, professor emeritus of environmental sciences at the University of Virginia and first director of the U.S. weather satellite service; and Chauncey Starr, founding president of the Electric Power Research Institute. ~~ s scien,t~ts," they told i ' l W i r t h , we are deeply disappointed by the political nature of the IPCC documents and by the misleading information conrained in them. By greatly exaggerating risk, they raise public fear of even minor changes in climate .... The costs of... drastic and hasty actions [the documents may prompt] would almost certainly diminish economic growth and our competitiveness on the world scene, with no noticeable effects on climate. The back-up studies, as can be readily demonstrated, do not support such a response." The scientists' letter called "triply false" the very first statement in the offending IPCC release - that "[c]urrent research supports earlier findings that the world's climate is at serious risk .... " The scientists' letter says that the special report, in fact, leaves climate discussion to a report to be pubfished in 1995. November 1994
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They note also that the "earlier finding" referred to - - presumably the "Policymakers Summary" of the IPCC's 1990 report - - also was not supported by that report. An appendix to the letter compares the IPPC "Policymakers Summary" which predicted "a rate of increase of global mean temperature ... of about 0.3 C per decade" with the report itself, which found a global trend since 1979 of -0.03 C per decade - - "not significantly different from zero."
The scientists are not alone in their criticism. The journal Nature tweaked the IPPC panel for "[c]ommunication by press release and 'Executive Summary.'" Scoffed the editorial "Unanimity? Nobody denies that carbon dioxide is a greenhouse gas, but argument persists in the research community about the effects on climate. To be persuasive, IPCC must show that it has given these issues the respectful considerations their origins command. Sadly, we shall not know for some
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time whether that essential obligation has been discharged." --Kennedy P. Maize and Robert O. Marritz
Merger DevelopsWobbles Bankruptcy Court Lifts Ban on City's Grabfor El Paso Lines; CSW Loses Appetite
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s the Central and South West Corp.-E1 Paso Electric Co. merger express going off-track? It's not been a good few months for Dallas-based CSW and bankrupt E1 Paso Electric Co., as they try to complete their nuptials. CSW outlined the problems in a frank letter to E1 Paso in mid-September, noting that a series of events could constitute "material adverse effects" and deep-six the deal. Heard between the lines of the letter was the sound of gears clattering into reverse. First, there's the city of Las Cruces problem. The New Mexico city of 60,000 looks serious about becoming a municipal utility and dropping E1 Paso as its electricity supplier. E1 Paso's rates are among the highest in the nation, dragging d o w n the city's economy at a time when it should be booming. In late August, voters in the city approved a takeover of E1 Paso's distribution facilities in the city by a 2-1 margin. Earlier the city negotiated a favorable purchase power contract with Southwestern Public Service Co. to supply the city's 55 MW load, beginning in 1966. SPS had ear13
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lier been a strong suitor to merge with ailing E1 Paso, but lost out to CSW. Now both companies seem to have lost their appetite for the merger. The Sept. 14 letter from Fred Meyer, CSW's general counsel, to Eduardo Rodriguez, El Paso's general counsel, noted that Las Cruces constitutes eight percent of E1 Paso's gross revenues. A "favorable resolution of this dispute is a material element of CSW's bargain with E1 Paso Electric," wrote Meyer. "Merely delaying a 'litigated settlement' with Las Cruces beyond the termination date under the merger agreement would not be a satisfactory resolution of this matter. CSW will not close this transaction unless this matter is favorably and timely resolved." Meyer's letter noted the thenupcoming ruling in federal bankruptcy court in Austin, where Las
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Cruces had filed a motion to lift the automatic stay that goes into effect when bankruptcy protection is granted, so that the city could proceed to condemn E1 Paso's property. CSW had filed a brief with the court, much to E1 Paso's chagrin, arguing that granting the stay could kill the merger. Then CSW got the jolt it feared, as the court in late September agreed with the city's motion and lifted the sta~ effective Jan. 1,1995. Clint Vince, a Washington lawyer who represents Las Cruces, called the court's bench ruling "a significant advance for Las Cruces." But CSW was concerned about more than the loss of Las Cruces. From Meyer's letter, the company appears to be fearful that E1 Paso is disintegrating before CSW's eyes in other respects as well. "In addition the city of Las Cruces," he said, "the Departments of the Air Force and the Army within
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the last several months have requested proposals related to the provision of electric service to Holloman Air Force Base and White Sands Missile Range, respectively. The potential for losses of further customers could also constitute material adverse effects which would make it impossible to close the transaction." eyer also pointed to the steam generator problems at the Palo Verde nuclear plant, the giant boat anchor of a plant that is pulling down every utility in the region that owns a piece of it. He noted that "it is uncertain how long the units may be operated before significant expense may be required with respect to the replacement of these generators .... The significance of these problems will have to be determined before CSW will close the transaction." CSW also said it is concerned that the merger rate case at the Texas Public Utility Commission is not going well, with the city of E1 Paso proposing a rate cut and the TPUC staff proposing only a small hike and arguing that the merger is not in the public interest. Meyer said that "the failure for whatever reason to obtain a finding that the proposed merger is in the public interest or the inability for whatever reason to obtain a rate path substantially in the amount described in the disclosure statement will constitute a failure of the regulatory closing conditions in the merger agreement."
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Second thoughts about the merger? 14
The Electricity Journal
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Finall~ CSW raised the issue of the new comparability standard from the Federal Energy Regulatory Commission. "FERC's order represents a significant policy change and imposes conditions not previously imposed in recent FERC orders in mergers involving electric utility companies." CSW and E1 Paso have asked for rehearing on the comparabili~, but are unlikely to get it, according to FERC mavens in Washington. --Kennedy P. Maize
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the utility when the purchase decisions were made. Merton Lott, WUTC accounting advisor, defended the commission's action. "There was evidence that Puget didn't look at their current (1991) avoided cost in deciding to make the purchase. Their analysis was deficient; their record keeping inadequate." The commission was seriously concerned about the kind of process Puget followed, as well as the costs they compared their purchases with, said Lott. There was
PurchasedPowerSqueeze Wash. Regulators Hit Puget on its Procurement Record; "Unfair," Says Utility's CEO hat wider message is there for utilities and investors in the Washington Utilities and Transportation Commission's Sept. 26 decision to dock Puget Sound Power & Light Co. $1.6 million per year for imprudent practices in its power purchases? Certainly there was more smoke than fire. As the commission itself noted, it chose the least painful of three alternatives to express its displeasure with the company's practices, which it found severely wanting - - a judgment that Puget Power CEO Richard Sonstelie hotly disputes. The WUTC also chastised Puget for "not performing the proper analysis, using outdated information.., and keeping inadequate records" to permit evaluation of resource alternatives available to
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November 1994
also evidence that the company didn't consider dispatchability adequatel~ that it mishandled the cost of money issue, and that it ignored 'end effects' [considerations relating to the different lives of resource alternatives]," he added. The commission's order also warned Puget in the future to make its case in the hearing room, not in public forums. It scolded the company "for mounting an unusual political and public pressure campaign designed to manipulate the outcome of this case
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outside the courtroom-like setting where all parties are present and the public is able to witness the proceedings." The order noted tartly that "Efforts to "backdoor' the decision by involving the governor or legislators in direct contact with commissioners outside the record are clearly unethical and violate state law. The company and its advisors surely know this is illegal and unethical." Commenting on the large number of shareholders that testified at the hearing, the order suggested that they would have been better advised "to ask Puget's legal counsel, officers, and board of directors why the company failed to make its decisions in a manner that would allow it to demonstrate prudence, particularly after numerous commission orders reminding the company such a demonstration would be required." P ' v e n the Puget board of direc[-tors got a warning. The WUTC order said it expected the Puget's governing board to be much more attentive to the utility's power supply planning. The WUTC observed, "For acquisitions of this cumulative magnitude, we would expect the Puget board of directors in the future to be better informed about resource acquisitions and their costs, and more involved in the decision process." Why did the commission take the unusual step of lecturing the board about its duties? The direcS~ News, p~e79 15
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McGraw Professor at Illinois Institute of Technology and founding president of the Gas Research Institute; William A. Nierenberg, director emeritus of Scripps Institute of Oceanography; Frederick Seitz, president emeritus of Rockefeller University and former president of the National Academy of Sciences; S. Fred Singer, professor emeritus of environmental sciences at the University of Virginia and first director of the U.S. weather satellite service; and Chauncey Starr, founding president of the Electric Power Research Institute. ~~ s scien,t~ts," they told i ' l W i r t h , we are deeply disappointed by the political nature of the IPCC documents and by the misleading information conrained in them. By greatly exaggerating risk, they raise public fear of even minor changes in climate .... The costs of... drastic and hasty actions [the documents may prompt] would almost certainly diminish economic growth and our competitiveness on the world scene, with no noticeable effects on climate. The back-up studies, as can be readily demonstrated, do not support such a response." The scientists' letter called "triply false" the very first statement in the offending IPCC release - that "[c]urrent research supports earlier findings that the world's climate is at serious risk .... " The scientists' letter says that the special report, in fact, leaves climate discussion to a report to be pubfished in 1995. November 1994
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They note also that the "earlier finding" referred to - - presumably the "Policymakers Summary" of the IPCC's 1990 report - - also was not supported by that report. An appendix to the letter compares the IPPC "Policymakers Summary" which predicted "a rate of increase of global mean temperature ... of about 0.3 C per decade" with the report itself, which found a global trend since 1979 of -0.03 C per decade - - "not significantly different from zero."
The scientists are not alone in their criticism. The journal Nature tweaked the IPPC panel for "[c]ommunication by press release and 'Executive Summary.'" Scoffed the editorial "Unanimity? Nobody denies that carbon dioxide is a greenhouse gas, but argument persists in the research community about the effects on climate. To be persuasive, IPCC must show that it has given these issues the respectful considerations their origins command. Sadly, we shall not know for some
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time whether that essential obligation has been discharged." --Kennedy P. Maize and Robert O. Marritz
Merger DevelopsWobbles Bankruptcy Court Lifts Ban on City's Grabfor El Paso Lines; CSW Loses Appetite
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s the Central and South West Corp.-E1 Paso Electric Co. merger express going off-track? It's not been a good few months for Dallas-based CSW and bankrupt E1 Paso Electric Co., as they try to complete their nuptials. CSW outlined the problems in a frank letter to E1 Paso in mid-September, noting that a series of events could constitute "material adverse effects" and deep-six the deal. Heard between the lines of the letter was the sound of gears clattering into reverse. First, there's the city of Las Cruces problem. The New Mexico city of 60,000 looks serious about becoming a municipal utility and dropping E1 Paso as its electricity supplier. E1 Paso's rates are among the highest in the nation, dragging d o w n the city's economy at a time when it should be booming. In late August, voters in the city approved a takeover of E1 Paso's distribution facilities in the city by a 2-1 margin. Earlier the city negotiated a favorable purchase power contract with Southwestern Public Service Co. to supply the city's 55 MW load, beginning in 1966. SPS had ear13
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lier been a strong suitor to merge with ailing E1 Paso, but lost out to CSW. Now both companies seem to have lost their appetite for the merger. The Sept. 14 letter from Fred Meyer, CSW's general counsel, to Eduardo Rodriguez, El Paso's general counsel, noted that Las Cruces constitutes eight percent of E1 Paso's gross revenues. A "favorable resolution of this dispute is a material element of CSW's bargain with E1 Paso Electric," wrote Meyer. "Merely delaying a 'litigated settlement' with Las Cruces beyond the termination date under the merger agreement would not be a satisfactory resolution of this matter. CSW will not close this transaction unless this matter is favorably and timely resolved." Meyer's letter noted the thenupcoming ruling in federal bankruptcy court in Austin, where Las
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Cruces had filed a motion to lift the automatic stay that goes into effect when bankruptcy protection is granted, so that the city could proceed to condemn E1 Paso's property. CSW had filed a brief with the court, much to E1 Paso's chagrin, arguing that granting the stay could kill the merger. Then CSW got the jolt it feared, as the court in late September agreed with the city's motion and lifted the sta~ effective Jan. 1,1995. Clint Vince, a Washington lawyer who represents Las Cruces, called the court's bench ruling "a significant advance for Las Cruces." But CSW was concerned about more than the loss of Las Cruces. From Meyer's letter, the company appears to be fearful that E1 Paso is disintegrating before CSW's eyes in other respects as well. "In addition the city of Las Cruces," he said, "the Departments of the Air Force and the Army within
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the last several months have requested proposals related to the provision of electric service to Holloman Air Force Base and White Sands Missile Range, respectively. The potential for losses of further customers could also constitute material adverse effects which would make it impossible to close the transaction." eyer also pointed to the steam generator problems at the Palo Verde nuclear plant, the giant boat anchor of a plant that is pulling down every utility in the region that owns a piece of it. He noted that "it is uncertain how long the units may be operated before significant expense may be required with respect to the replacement of these generators .... The significance of these problems will have to be determined before CSW will close the transaction." CSW also said it is concerned that the merger rate case at the Texas Public Utility Commission is not going well, with the city of E1 Paso proposing a rate cut and the TPUC staff proposing only a small hike and arguing that the merger is not in the public interest. Meyer said that "the failure for whatever reason to obtain a finding that the proposed merger is in the public interest or the inability for whatever reason to obtain a rate path substantially in the amount described in the disclosure statement will constitute a failure of the regulatory closing conditions in the merger agreement."
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Second thoughts about the merger? 14
The Electricity Journal
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Finall~ CSW raised the issue of the new comparability standard from the Federal Energy Regulatory Commission. "FERC's order represents a significant policy change and imposes conditions not previously imposed in recent FERC orders in mergers involving electric utility companies." CSW and E1 Paso have asked for rehearing on the comparabili~, but are unlikely to get it, according to FERC mavens in Washington. --Kennedy P. Maize
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the utility when the purchase decisions were made. Merton Lott, WUTC accounting advisor, defended the commission's action. "There was evidence that Puget didn't look at their current (1991) avoided cost in deciding to make the purchase. Their analysis was deficient; their record keeping inadequate." The commission was seriously concerned about the kind of process Puget followed, as well as the costs they compared their purchases with, said Lott. There was
PurchasedPowerSqueeze Wash. Regulators Hit Puget on its Procurement Record; "Unfair," Says Utility's CEO hat wider message is there for utilities and investors in the Washington Utilities and Transportation Commission's Sept. 26 decision to dock Puget Sound Power & Light Co. $1.6 million per year for imprudent practices in its power purchases? Certainly there was more smoke than fire. As the commission itself noted, it chose the least painful of three alternatives to express its displeasure with the company's practices, which it found severely wanting - - a judgment that Puget Power CEO Richard Sonstelie hotly disputes. The WUTC also chastised Puget for "not performing the proper analysis, using outdated information.., and keeping inadequate records" to permit evaluation of resource alternatives available to
W
November 1994
also evidence that the company didn't consider dispatchability adequatel~ that it mishandled the cost of money issue, and that it ignored 'end effects' [considerations relating to the different lives of resource alternatives]," he added. The commission's order also warned Puget in the future to make its case in the hearing room, not in public forums. It scolded the company "for mounting an unusual political and public pressure campaign designed to manipulate the outcome of this case
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outside the courtroom-like setting where all parties are present and the public is able to witness the proceedings." The order noted tartly that "Efforts to "backdoor' the decision by involving the governor or legislators in direct contact with commissioners outside the record are clearly unethical and violate state law. The company and its advisors surely know this is illegal and unethical." Commenting on the large number of shareholders that testified at the hearing, the order suggested that they would have been better advised "to ask Puget's legal counsel, officers, and board of directors why the company failed to make its decisions in a manner that would allow it to demonstrate prudence, particularly after numerous commission orders reminding the company such a demonstration would be required." P ' v e n the Puget board of direc[-tors got a warning. The WUTC order said it expected the Puget's governing board to be much more attentive to the utility's power supply planning. The WUTC observed, "For acquisitions of this cumulative magnitude, we would expect the Puget board of directors in the future to be better informed about resource acquisitions and their costs, and more involved in the decision process." Why did the commission take the unusual step of lecturing the board about its duties? The direcS~ News, p~e79 15