The Kansas Corporation Commission voted on Wednesday that a proposed merger of Kansas City Power & Light and Westar Energy was not in the public’s best interest, imperiling what would have been a $12.2 billion combination of utilities.
The three-member commission — Pat Apple, Shari Feist Albrecht and Jay Scott Emler — all agreed with an earlier staff recommendation against the proposed deal.
The commission staff had argued that the merger would have cost too many Kansas jobs and would saddle Great Plains Energy, the parent company of KCP&L, with too much debt.
The commission’s ruling said the proposed transaction was too risky.
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Both companies said they were disappointed with the ruling and added they were considering what steps to take next.
It was a striking decision by the Kansas Corporation Commission, which usually approves these types of deals; the commission gave its blessing to two other acquisitions in the last six months. Also, the three commissioners overseeing the agency were appointed by Republican Gov. Sam Brownback, a supporter of free-market principles who in written testimony encouraged the deal to go through.
Last year, Great Plains Energy announced its plan to buy the Topeka-based Westar. To pull it off, Great Plains would buy $8.6 billion of Westar’s equity and assume $3.6 billion in debt.
The 51-page decision handed down Wednesday said KCP&L and Westar have long histories of providing efficient service in Kansas and conceded that a merger makes sense when viewed in terms of their geographic proximity.
“But not this merger,” the ruling noted. “The proposed transaction is not a merger of equals, but an acquisition with an excessive purchase price, requiring (Great Plains Energy) to take on significant debt.”
Great Plains and Westar had argued that the combined companies could serve 1.5 million customers more efficiently than two separate companies. KCP&L officials predicted that the deal would result in $2 billion in savings over a 10-year period.
The utilities, both publicly traded on the New York Stock Exchange, said investors welcomed the acquisition, and they pointed out that a $2 billion equity offering last year was met in less than 12 hours.
KCP&L serves most of the Kansas City metro area not served by publicly owned utilities, such as those in Independence and Wyandotte County. Westar serves the western edge of Johnson County and much of eastern Kansas.
“We are disappointed with the order from the Kansas Corporation Commission,” Great Plains spokesman Chuck Caisley said in a written statement. “KCP&L and Westar have served customers in Kansas and Missouri for more than 100 years as neighboring utilities and as a combined company would create significant operational efficiencies and cost savings that would benefit our customers and communities. We will review the order and consider next steps.”
Westar also sounded its reservations with the commission’s decision.
“Obviously, we are disappointed, but also know that we need to review all the details of the Commission’s order before considering next steps,” said Westar spokeswoman Gina Penzig.
Politicians and civic boosters had cheered the possibility of the Great Plains-Westar deal, ranging from Kansas City Mayor Sly James to Joe Reardon, president and chief executive of the Greater Kansas City Chamber of Commerce.
But since applying for the acquisition last year, several outside parties ranging from environmental groups like the Sierra Club to other utilities like the Kansas City, Kan., Board of Public Utilities to watchdog groups like the Citizens’ Utility Ratepayer Board opposed the merger.
In all, 28 parties spoke out against the deal in testimony before the Kansas Corporation Commission while Great Plains and Westar were left to stick up for themselves.
Great Plains and Westar described some of the opposition, as well as commission staff, as keen on criticizing the deal without offering solutions that could make the transaction work.
The Kansas Corporation Commission’s ruling turned that argument against the utilities.
“Unfortunately, the transaction was presented to the Commission as a take it or leave it proposal,” Wednesday’s ruling said. “Repeatedly, (Great Plains and Westar) advised the Commission that any significant safeguard that would protect consumers, such as maintaining a separate, independent Westar Board of Directors, would halt the transaction.
“Therefore, the proposed transaction could not be salvaged and the Commission is left with no choice but to reject the proposed transaction.”
The ruling points out that the $4.9 billion acquisition premium that Great Plains would have paid in the acquisition exceeded the company’s market capitalization — its value on the stock market — by $100 million.
David Nickel, consumer counsel of the Citizens’ Utility Ratepayer Board, applauded the KCC’s ruling.
The Citizens’ Utility Ratepayer Board is a Kansas agency that serves as a utility consumer advocate. Nickel said that while some aspects of the merger made sense — KCP&L and Westar have joint ownership of some facilities like the Wolf Creek Nuclear Generating Station in Burlington, Kan. — he was not persuaded by the utilities’ claims of savings for consumers.
“Take into consideration that KCP&L and Westar are both financially sound right now,” Nickel said. “The first point the commission made in their deliberation today is the financial condition of the consolidated entity is not as strong as the parties as they exist today. That’s a ready sign of danger for a ratepayer.”
Andrea Crane, an expert that had been retained by the Citizens’ Utility Ratepayer Board, testified earlier this year that the merger could cost 638 jobs, which spoke to another concern raised by regulators about the effects of a combination. Great Plains employs about 3,000 workers, while Westar has about 2,700.
Both utilities have a 15-day period during which they can file a request for consideration by the commission. They also have the option of appealing the decision in an appellate court.