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WRI, KCP&L Merger Set For Hearing

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 &amp Light (KCP&ampL), 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 protection.

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and assumptions" underlying the partners' original merger agreement, which was filed at FERC in September 1997, were outdated by the time a revised agreement was submitted in August 1998 [EC97-56].

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&ampL 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 order said.

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 power markets.

"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&ampL 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.

Susan Parker

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