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From the Publisher's Desk...

Yet Another Utility Merger Set to Hurt Us

“This will be a seamless transition with rates that are no higher as a result.” Who among DC utility customers can recall a similar promise just two years ago? That one was from the people at Pepco trying to convince us that their merger (more like a takeover) with Exelon was going to be a wonderful thing. We opposed that vehemently (to no avail, of course) for a variety of reasons.

So also are we opposing this new give-away, this time by Washington Gas (WGL) which has agreed to be acquired (they call it a merger, but , it too, is a takeover) by AltaGas, Ltd., a Canadian company. And the dubious claim quoted above, as reported by the Washington Post in its January 25, 2017 news story, was from none other than Adrian Chapman, WGL’s president and chief operating officer. So, of course, we ought to feel relieved!

Unfortunately, not really. In a nutshell, here’s why:

In its filing with the DC Public Service Commission (PSC) , which is the body that will be the decider, the Office of People’s Counsel (OPC) is making the case that , as summarized in its September 29th press release, “the proposed merger could result in the credit rating of Washington Gas being downgraded, which could lead to higher rates for consumers. OPC believes the direct economic benefits to ratepayers would be very limited and almost entirely restricted to WGL and AltaGas’s proposal to provide a one-time bill credit to District ratepayers totaling $12.25 million. (Emphasis ours.)

What this so-called benefit would mean for the average DC customer would be about half of what had been touted by Pepco two years ago as a biggie for its customers — then somewhere in the range of $50+ or thereabouts! As we sarcastically commented in our November 2015 editorial, “Around here that might buy dinner for two. . . .” –- though, after tax & tip, highly doubtful at the end of 2017. Can Mr. Chapman suggest where we can go for an affordable dinner date? Probably not.

From everything we have been able to discern, this whole deal appears to be designed to benefit the stockholders of both companies and not us ratepayers. In our view, based on reporting by the Washington Business Journal (WBJ) in its November 27th news story, here’s why:

“. . . the increased profitability of WGL Holdings means a better deal for AltaGas, which agreed to pay $88.25 per share. The net income from WGL Holdings will likely double what AltaGas has reported previously. For the first nine months of the year, AltaGas reported $141 million in net income.”

However, aside from this, the WBJ’s report also sheds light on why the People’s Counsel is so concerned about a credit rating downgrade:

“WGL Holdings had spent about $2.3 million in legal and other fees related to the merger in fiscal 2017, according to SEC filings. But it’s likely those costs will continue to increase as the company works through the acquisition process.

“AltaGas has seen its stock drop since announcing the deal in January, falling from around $34 per share to a bottom of $27.33 per share in September, although that has since climbed to about $29 per share.

“Why? It’s always hard to read investors’ minds, but the all-cash deal requires AltaGas to take out additional debt with the expectations of future returns as well as work to sell off additional assets in preparation for the impending purchase. That debt combined with an uncertain regulatory landscape might have scared off investors, who might fear a long approval process would only drive up the costs of the merger.”

The Public Service Commission is expected to announce a public hearing soon, maybe before the end of the year. That could mean a final ruling by mid-2018. On the other hand, as was pointed out by the WBJ’s reporter Andy Medici, “ It’s worth noting, however, that the PSC could take as long as it wants on a decision. D.C.-based Pepco Holdings Inc.’s proposed $6.8 billion sale to Chicago-based Exelon Corp. dragged on for more than two years, wading through a series of decisions and reviews that finally ended in regulatory approval over the objections of local consumer groups and agencies, including the OPC.”

While this may be the final outcome, we believe DC ratepayers need to speak out loud and clear so that the PSC will know that should it approve this anti-customer proposal it will have done so against the public’s wishes.