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FERC Staff Urges Approval of Merger of Oregon and Utah Utilieis

September 29, 1988

WASHINGTON (AP) _ The staff of the Federal Energy Regulatory Commission on Wednesday urged approval of the merger of two large electric utilities in the West, if the new company would auction off rights for others to use some of its transmission lines.

Such auctions are highly unusual, and the commissioners ordered the staff to present more specifics of the conditions to be imposed on PacifiCorp of Portland, Ore., parent company of Pacific Power & Light Co., and Utah Power & Light Co. of Salt Lake City.

Chairman Martha Hesse said the commissioners probably would not discuss the merger again, but would vote by checkoff on a new proposal expected next week.

In another proposal to merge San Diego Gas & Electric Co. with Tucson Electric Power Co., the commission Wednesday ordered hearings by an administrative law judge.

The Utah-Pacific merger would create the nation’s 13th largest utility with nearly 1.2 million customers and $2.9 billion in revenue, about $1 billion from non-utility operations, in California, Oregon, Washington, Idaho, Montana, Wyoming and Utah.

Shareholders and all state utility regulatory bodies already have approved and the Justice Department and Federal Trade Commission have raised no objection.

But a FERC administrative law judge in June recommended rejection because of, among other reasons, the ″strategic dominance″ of the new company over transmission lines that would ″substantially lessen competition″ for bulk power sales in much of the West.

PacifiCorp spokesman Ed Grosswiler said on behalf of both companies that the auction proposal was a surprise and ″difficult to analyze.″ He said the companies were ″encouraged that they’re willing to approve it on the right conditions.″ In Portland, spokesman Glenn Gillespie said, ″Our decision on whether to go ahead with the merger would depend on a careful assessment of any conditions.″

Utah Power spokesman Dave Mead said in Salt Lake City that some were disappointed at FERC’s inaction, but the issues raised ″gave us a direction to take to move toward final approval.″

″We remain optimistic that the merger will be ultimately approved,″ Mead said.

One reason analysis is difficult is the two vacancies on the commission that could be filled by a vote of the Senate this week. The positions of the nominees, Elizabeth Moller and Jerry Langdon, on auctions is unknown.

Ms. Hesse has favored such innovations and the other two sitting members are split.

The administrative law judge, George Lownes, said the Utah company does not let others use its lines because it cannot charge what it believes would be an adequate fee. Instead, it buys power cheaply from other companies to the north and simultaneously sells power at a higher price to companies to the south.

The companies have said they could save $500 million over the first five years, but Lownes said they had not proved that and he concluded many merger benefits - such as coordination of Utah’s peak summer air conditioning load with Pacific’s peak winter heating load - could be obtained by buying and selling to each other without merging.

The companies also said they would reduce rates to Utah’s customers by 5 percent to 10 percent over the next four years.

The companies offered to carry power for others if the new company could base charges on what it would lose by letting others use its lines. But the proposal did not survive staff criticism that such rates mean monopoly profits and the auction proposal was advanced instead.

The staff draft was not made public. Staff member Michael Hornstein told the commissioners the merged company would be required ″to set aside certain excess transmission capacity and to auction it off to certain competitors, and to construct additional capacity.″

Contracts emerging from the auctions would be for five years. The staff dropped a proposal to let successful bidders resell transmission rights.

Commissioner Charles Trabandt said it was unclear whether the commission has the power to require conditions, or whether it must give a simple yes or no answer. If it cannot require conditions, ″Our only option is to reject the merger,″ he said.

Trabandt said conditioning the merger on a capacity bidding plan was ″absurd in the extreme,″ partly because the small companies and municipal systems worried about access would always be outbid.

Commissioner Charles Stalon said he favored auctions, and saw ″no other way to mitigate the anti-competitive aspects coming out of this″ than by limiting the merged company’s control of transmission lines in some way.

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