WRI, KCP&L Merger Set For Hearing
FERC last week put off making a final decision on the merger of
Topeka, KS-based Western Resources Inc. and Kansas City Power &
Light (KCP&L), citing potential competitive concerns. It set the
proposed combination of the Midwest electric utilities for an
evidentiary hearing on issues involving market power and customer
Staff said it was unable to reach final conclusions about the
competitive concerns of the proposed deal, given that much of the
"data and assumptions" underlying the partners' original merger
agreement, which was filed at FERC in September 1997, were outdated
by the time a revised agreement was submitted in August 1998
Specifically, the staff noted it had questions about the
information and assumptions used in the merger application's
competitive screen analysis. Further, staff said it needed
"additional information" from merger partners to determine whether
combining their power generation capabilities with interests in gas
transportation would give them an edge over competing generators in
the region. The concern is especially heightened considering that
the transportation facilities operate in the same geographic
regions as generators that compete with Western Resources'
utilities and KCP&L of Kansas City, MO, according to FERC staff.
Western Resources is involved in a strategic alliance with Oneok
Inc., which - in addition to its gas distribution business - owns a
large gas pipeline network in Texas and Oklahoma that has
interconnections with major interstate facilities. As part of the
deal, Western Resources acquired a 45% interest in Oneok in return
for turning over its gas assets in Oklahoma and Kansas to the
company in late 1997.
"Because the applicants' interest in [Oneok's] upstream pipeline
operations are located in the same geographic region as their
interests in downstream generation, we are concerned that the
merger may create or enhance the incentive and ability for the
merged company to frustrate competing generators' access to fuel
supplies, thereby exercising market power in generation," the FERC
Diana Moss, a senior economist with FERC's Office of Economic
Policy (OEP), sees potential competitive problems in the offing.
"You're merging firms that have generation and you're hooking them
up with a company [Oneok]" that has pipeline assets, she said. The
situation poses a "vertical concern" in the Kansas and Missouri
"We are not able to determine what the upstream gas
transportation market [would look] like in this particular case
[post merger] for lack of information" from the merger partners,
Moss said. It's unclear whether competing generators would be able
to access alternate gas transportation facilities, she noted.
Kansas and Missouri regulators also have expressed similar
concerns about the competitive aspects of the proposed merger and
have set the issue for hearing, FERC staff indicated.
Western Resources spokeswoman Robin Lampe dismissed any hint
that FERC's action might cloud the future of the merger. "I don't
think that's that unusual. It would be...unusual if they made a
decision this soon."
Western Resources owns two electric utilities - KPL and KGE -
which provide electric service to about 614,000 customers in
Kansas. KCP&L provides electric service to more than 445,000
customers in Missouri and Kansas. The utilities are seeking to
combine their operations into a new company - to be named Westar
Energy. The new company would have more than $8 billion in assets
and over 8,000 MWs of electric generation resources.