Commission OKs ScottishPower-PacifiCorp Merger
October 6, 1999 (1999-043)
Contacts: Ron Eachus, Chairman, 503 378-6611; Roger Hamilton, Commissioner 503 378-6611; Joan H. Smith, Commissioner, 503 378-6611; Marc Hellman, Administrator, Finance/Policy Analysis Division, 503 378-6355; Ron Karten, Public Information Officer, 503 378-8962
Salem, Ore. – The Oregon Public Utility Commission today approved the merger of Oregon-based PacifiCorp and Scottish Power plc (ScottishPower), finding that net benefits will result from up to $51 million in merger credits and higher network performance and customer service standards.
In addition, the Commission adopted provisions, including a requirement that all financial records be kept at PacifiCorp’s headquarters in Portland, to address risks from the acquisition by a foreign-based company.
ScottishPower’s original application focused primarily on service quality improvements with some cost savings if they materialized. However, the company modified the application by executing five stipulations, including an overall stipulation with the PUC staff and the Citizens’ Utility Board that provided for the $51 million credits over four years.
The company agreed to exclude all costs of completing the merger from PacifiCorp’s utility accounts and hold Oregon ratepayer’s harmless by not raising rates beyond what would otherwise be the case absent the merger. The Commission can also require the company to file a new rate case by March 1, 2004, if the Commission believes the company is overearning.
"I know much of the public was worried about the takeover of an Oregon based company by a foreign-based one, but we’ve provided safeguards to protect Oregon customers, as well as assure that the future benefits promised by ScottishPower will be there," Commission Chairman Ron Eachus said. "The issues are basically the same, whether the new parent is based in Houston, New York, or Glasgow."
Merger credits of $12 million will be provided in each of the first three years beginning in 2001 and $15 million in 2004. The company may offset $9 million in 2003 and $12 million in 2004 if equivalent merger-related cost savings are achieved and incorporated into rates.
ScottishPower committed to decrease power outage frequency and duration by at least 10 percent by the end of five years. It also agreed to pay customers $50 if it missed any of eight customer guarantees, including restoring interrupted service within 24 hours.
PacifiCorp will operate on a stand-alone basis after the merger and the Commission will continue to have the same regulatory oversight that it would have absent the merger. The Commission required PacifiCorp to keep its own accounting system separate from Scottish Power at its Portland headquarters and to provide the Commission with access to records on any transaction between PacifiCorp and ScottishPower.
In other stipulations regarding conservation and low-income programs ScottishPower committed to $6 million a year in spending on conservation programs for three years and to file a revised low-income weatherization tariff within 60 days. Cost recovery is subject to Commission approval. In addition, it will also contribute $400,000 in shareholder money to identify cost-effective ways of helping low-income customers lower their electric bill.
ScottishPower and PacifiCorp also committed to develop 50 additional megawatts of renewable energy within five years. This commitment will need to be reconciled with passage of SB 1149, which has its own renewable resource provisions.
"ScottishPower has committed to being a good partner to communities and a good steward of Oregon’s priceless environment," said Commissioner Roger Hamilton. "Our approval of this merger reflects our confidence that customers are better served as a result and that electric power is truly an international business."
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Key Provisions of Stipulations
Stipulation Supporting Approval of the Application
1. This stipulation contains a number of key provisions and conditions:
Provides for up to $51 million in merger credits. The company commits to credits worth $12 million in each of the first three years beginning in 2001, and $15 million in 2004, the fourth year. Nine million dollars in year three and $12 million in year four can be offset if equivalent merger-related cost savings are incorporated into base rates. The approximate value to customers during this first four-year period is a rate credit of 1.7 percent.
The basis of the merger credits reflect in part ScottishPower’s projections of cost efficiencies that could result from the merger;
Requires the company to file a transition plan within six months that details changes in operations to achieve cost efficiencies;
Provides for ScottishPower to exclude all costs of completing the transaction from PacifiCorp’s utility accounts, and to hold customers harmless from a higher revenue requirement than if the merger had not occurred;
Allows the Commission to require PacifiCorp to file a rate case by March 1, 2004, if the Company’s earnings fall outside a zone of reasonableness;
Requires the company to notify the Commission before transferring more than 5 percent of PacifiCorp’s earnings to ScottishPower over a six-month period and before declaring a special or regular cash dividend from PacifiCorp;
Provides that the company will not seek a higher cost of capital than would be justified absent the merger and requires the company to maintain a minimum common equity ratio;
Requires the company to maintain its records at its headquarters in Portland, Oregon, separate from ScottishPower; assures that the Commission will have access to all records needed for regulatory oversight of the company;
Requires that PacifiCorp will operate on a stand-alone basis after the merger, although it will be indirectly wholly owned by ScottishPower. The Commission will continue to have essentially the same regulatory oversight over PacifiCorp that it would have absent the merger;
Provides for the Commission to have access to the records of ScottishPower pertaining to transactions between PacifiCorp and all of its affiliated interests, and grants the Commission jurisdiction over affiliated interest transactions;
Provides protections to prevent increased costs from inappropriate cost allocations or affiliated interest transactions; and
Provides a procedure for enforcement of the merger conditions. If the Commission finds that either ScottishPower or PacifiCorp has violated one or more conditions, it may seek penalties in circuit court.
2. Stipulation relating to Customer Service Quality (Network Performance Standards and Customer Guarantees)
Regarding Network Performance Standards, the company agrees to decrease power outage frequency and duration by at least 10 percent at the end of a five-year improvement period.
3. Stipulation relating to Conservation Programs
Regarding customer guarantees, the company agrees to pay $50 for missing any of the following eight "customer guarantees":
Restoring interrupted customer service within 24 hours (with some exceptions);
Keeping agreed-upon appointments;
Turning on power within 24 hours (where construction and permits are not required);
Providing estimates for service installation within specific deadlines;
Responding to most customer billing inquiries immediately, but for those requiring investigation, within 10 days;
Conducting meter tests and providing both results and verification to customers within 15 days;
Giving two-day notification for planned outages, and;
Power quality complaints answered or investigated promptly (specific times).
The company also agrees to report its Customer Guarantee performance to the Commission on a quarterly basis.
The company agrees to spend $6 million/year on conservation programs in Oregon for three years following the merger. The company may apply to recover its conservation program costs through customer rates. This amount is more than PacifiCorp’s spending on conservation in 1998. Of this, $500,000/year will be budgeted for low-income weatherization programs.
4. Stipulation Relating to Low-Income Weatherization
The company agrees to work with other parties to this agreement to submit proposed changes to PacifiCorp’s current low-income weatherization program. Any changes would have to be approved by the Commission.
5. Stipulation Relating to Low-Income Customers
The company will identify cost-effective programs that provide sustained benefits to low-income customers through reduction of energy usage and improvement in customers’ ability to pay current and past electric bills. The company has committed $400,000 of shareholder money to these programs.
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