ORDER NO.95-635

ENTERED 6/23/95

(THIS IS AN ELECTRONIC COPY)

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UM 696

DISPOSITION: MERGER ALLOWED; STIPULATION ADOPTED

INTRODUCTION

On August 19, 1994, Washington Water Power Company (WWP), Sierra Pacific Power Company (Sierra Pacific), Sierra Pacific Resources, and Resources West Energy Corporation (Resources West) filed a joint application for an order from the Commission approving a proposed merger. Applicants request approval for WWP, Sierra Pacific, and Sierra Pacific’s parent company, Sierra Pacific Resources, to merge into a single new corporation, Resources West. WWP and Sierra Pacific would operate as separate utility divisions of Resources West. Applicants plan to effect the merger through an exchange of stock among their stockholders. The application requests that the merger approval include the transfer by applicants to Resources West of the following: outstanding debt obligations; certificates of authority and rights to allocated territory; tariff schedules and service contracts; and transactions with controlled corporations and affiliated interests. Applicants filed evidence to support their merger request with their application.

The application requests Commission approval under ORS 757.205, 757.410, 757.440, 757.480, 758.015, and 758.460.

Lowell Bergen, a Hearings Officer for the Commission, presided over a prehearing conference on November 16, 1994. Portland General Electric Company, Pacific Gas Transmission Company, the Northwest Conservation Act Coalition, the Utility Reform Project, and Idaho Power Company filed petitions to intervene and were admitted as parties.

FINDINGS OF FACT

WWP provides electric and natural gas utility service to retail and wholesale customers in Washington, Idaho, California, and Oregon. In Oregon, it provides natural gas service to approximately 54,000 customers in the northeast and southwest regions of the state.

Sierra Pacific provides electric, natural gas, and water utility services in Nevada and California. It does not provide utility service in Oregon.

Resources West has been created to be the surviving corporation to provide the utility services currently provided by WWP and Sierra Pacific. The purpose of the proposed merger is to increase operating efficiencies and reduce operating costs.

STIPULATION

On April 27, 1995, applicants and staff signed a stipulation recommending that the Commission approve the merger. The stipulation was included in staff’s testimony filed on April 28, 1995. In the stipulation, applicants make the following commitments:

1. To hold their Oregon customers of regulated services harmless from any adverse effects of the merger so that the post-merger rates to Oregon customers will be lower than they otherwise would have been if the merger had not occurred.

2. To flow through to their customers actual purchased-gas-related benefits through the Commission’s purchased gas adjustment (PGA) mechanism.

3. To flow through to their customers non-gas merger benefits during the years 1996--1999 by using the PGA mechanism.

4. To provide the Commission with semi-annual reports requested by the Commission’s staff, including information relating to Oregon's share of costs allocated or shared between states.

The Hearings Officer gave the parties an opportunity to comment on the stipulation. Idaho Power Company, Pacific Gas Transmission Company, and the Northwest Conservation Act Coalition filed letters stating their lack of objection to the stipulation.

Based on the commitments made in the stipulation and on staff's belief that ratepayer benefits will be higher than merger costs, staff recommends that the Commission adopt the stipulation and approve the requested merger. A copy of the stipulation is attached to this order as Appendix "A."

APPROVAL STANDARD

Commission rule 860-27-025 requires merger applicants to show that the proposal "will be consistent with the public interest." Similar language appears in the rule and statute relating to assignments of allocated territory and to guarantees of indebtedness. OAR 860-27-035 and ORS 759.560. Commission rule 860-27-025 guards against ratepayer disadvantage or detriment resulting from the merger. See Order No. 88-767, pp. 8-9, for additional discussion of the appropriate standard for approval of a proposed merger.

MERGER BENEFITS

Applicants and staff agree that applicants’ customers will benefit from the proposed merger in the following ways:

(1) Administrative and general expenses will be reduced by a labor force reduction, an increase in workload efficiencies and productivity, and a streamlining of processes;

(2) Gas purchase costs will be reduced because the combined system will be purchasing a much greater volume of gas and will have a higher load factor. The amount the merger will save Oregon ratepayers is difficult to estimate. However, applicants and staff estimate that the purchased gas cost savings will be $258,000 for 1996 and escalate to $722,000 by 1999. Applicants and staff estimate the non-gas merger benefits to be approximately $82,000 the first year and escalate to $342,000 by 1998.

The Commission agrees that the economies and efficiencies that result from consolidating common functions will benefit Oregon customers of WWP. Obviously, the amount of net ratepayer benefits resulting from the merger cannot be known now, but the estimates are reasonable. The Commission concludes that for Oregon's WWP ratepayers, the merger benefits will be greater than the costs of the merger. That conclusion, coupled with WWP’s' commitment to hold its Oregon customers harmless from any adverse effects of the merger, persuades the Commission to approve the proposed merger. The Commission will hold WWP to the commitment to insulate Oregon ratepayers from any harm resulting from the merger.

CONCLUSIONS OF LAW

1. The commitments made in the stipulation between staff and applicants will serve to protect WWP's Oregon customers. The stipulation is reasonable and should be accepted;

 

2. Benefits to WWP's Oregon ratepayers from the proposed merger will be greater than the costs of the merger;

 

3. The proposed merger and related transactions are consistent with the public interest.

 

ORDER

IT IS ORDERED that:

The application to merge, filed by Washington Water Power Company, Sierra Pacific Power Company, Sierra Pacific Resources, and Resources West Energy Corporation on August 19, 1994, is granted.

 

WWP is authorized to merge into Resources West, which will consummate the necessary stock transactions.

 

Upon the merger, Resources West is authorized to succeed to all of the rights and responsibilities of WWP under the public utility laws of Oregon and the orders of the Commission, including:

 

a. Assumption of all rights to allocated territory and all certificates of authority held by WWP at the time of the merger;

 

b. Adoption of all tariff schedules and service contracts of WWP on file with the Commission and in effect at the time of the merger;

 

c. Assumption of all authorizations issued prior to the date of the merger granting WWP approval to engage in transactions with controlled corporations and affiliated interests;

 

d. Assumption of all authorizations and approvals for the issuance of securities of WWP which, as of the date of the merger, have not been fully utilized;

e. Assumption of all outstanding debt obligations of WWP.

 

4. The approvals and authorizations listed above shall be subject to the commitments applicants made in the stipulation signed with staff on April 27, 1995.

 

 

Made, entered, and effective .

A party may request rehearing or reconsideration of this order pursuant to ORS 756.561. A request for rehearing or reconsideration must be filed with the Commission within 60 days of the date of this order. The request must comply with the requirements of OAR 860-14-095. A copy of any such request must also be served on each party to the proceeding as provided by OAR 860-13-070(2)(a). A party may appeal this order to a court pursuant to ORS 756.580.