The first regulatory filings have been made for the two proposed transactions that, if completed, will bring to an end the 90-year-old Aquila Inc.
Great Plains Energy Inc., its utility subsidiary Kansas City Power & Light Co. (KCP&L) and Aquila Inc. filed applications with the Missouri Public Service Commission and the Kansas Corporation Commission seeking approval of the proposed acquisition by Great Plains Energy of Aquila. Also, Black Hills Corp. and Aquila filed applications with the Public Utilities Commission of Colorado, the Kansas Corporation Commission, the Nebraska Public Service Commission and the Iowa Utilities Board for approval of Black Hills’ acquisition of Aquila’s electric and gas utility operations in Colorado, Kansas, Nebraska and Iowa.
The merger of Aquila and a subsidiary of Great Plains Energy, with Aquila becoming a subsidiary of Great Plains, was announced on Feb. 7, as was the Black Hills transaction (see Daily GPI, Feb. 8). The Wednesday filings are the first joint regulatory filings regarding the proposed transactions.
In their applications, Great Plains, KCP&L and Aquila said the transaction will benefit customers, communities and investors. In particular, Great Plains said it anticipates the transaction will result in significant synergies, economies of scale and efficiencies, which are currently estimated to be $500 million over the five-year period of 2008-2012, with costs to achieve (including transaction costs) of approximately $181 million.
In Missouri, the companies have requested that Aquila be authorized to use an additional amortization mechanism to maintain credit ratios once Aquila achieves financial metrics necessary to support an investment-grade credit rating. This mechanism is similar to the one used in KCP&L’s last rate case. Aquila and KCP&L also requested authorization to amortize transaction and incremental transition-related costs over five years, and to collectively retain for a five-year period 50% of any synergy savings resulting from the transaction.
The companies said they are not seeking to recover any acquisition premium. In Kansas, the companies requested similar regulatory treatment of costs and synergies only for KCP&L; no regulatory treatment was requested for Aquila as it will be selling its non-Missouri utility operations to Black Hills immediately before the merger closes.
Aquila further requested approval in Missouri to distribute to Great Plains Energy approximately $677 million of the proceeds from the sale of its utility operations outside of Missouri to Black Hills to fund substantially all of the cash portion of the merger consideration payable to its shareholders by Great Plains Energy.
Aquila is selling its five heartland utility businesses (four gas and one electric) in Nebraska, Colorado, Iowa and Kansas to Black Hills Corp. for $940 million in cash. And it’s selling its Missouri electric utilities — Missouri Public Service and St. Joseph Light and Power — to Great Plains for $1.7 billion in cash and stock plus assumption of $1 billion of Aquila debt.
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