NGI The Weekly Gas Market Report
The $270 million marriage of UtiliCorp United and St. Joseph Light & Power (SJLP) is on the rocks following an incident UtiliCorp said might be a breach of St. Joseph’s contract obligations under the merger agreement.
UtiliCorp believes that a fire that occurred at St. Joseph’s Lake Road Power plant in June constitutes a material adverse affect on St. Joseph, which would be a violation of its merger agreement unless the utility could remedy the problem within 45 days. On Sept. 15, UtiliCorp suspended ongoing merger transition team meetings pending resolution of the matter.
Following a meeting of its board of directors on Sept. 20, St. Joseph advised UtiliCorp that the impact and projected costs of the Lake Road plant fire are not “material” for purposes of the merger agreement, that SJLP remains in full compliance with the merger agreement and that SJLP sees no reason why the merger with UtiliCorp cannot be completed promptly following receipt of Missouri Public Service Commission approval.
SJLP further told UtiliCorp that while it is willing to meet with UtiliCorp as soon as possible to clarify any confusion on the part of UtiliCorp regarding the fire, SJLP intends to pursue any and all appropriate remedies available to SJLP to ensure its shareowners the benefits of the merger.
“We were disappointed to receive the recent inquiry from UtiliCorp and disturbed by UtiliCorp’s decision to suspend [merger] transition team meetings,” said St. Joseph CEO Terry F. Steinbecker. “The fire was a one-time event and the unit was returned to service within weeks with no disruption of service to our customers. We have applied for regulatory approval to defer the costs and seek recovery over a five-year period in SJLP’s next general rate case. We continue to believe the merger with UtiliCorp is beneficial to shareowners of both SJLP and UtiliCorp and we intend to take the action necessary to ensure that the merger is completed,” he said.
However, UtiliCorp said the issue still needs to be resolved. “A great deal of solid, responsible work has been accomplished by both companies in preparing to complete the terms of our merger agreement, and the transition effort is on track and on schedule. However, a very serious issue awaits resolution involving the financial and operational implications of [the fire],” the company said in a statement. “UtiliCorp has asked St. Joseph Light & Power to provide a detailed explanation regarding the materiality of this incident, and remains hopeful that a satisfactory response will be forthcoming.”
According to the merger agreement, UtiliCorp is obligated to pay SJLP $23/share and assume about $80 million in debt (see NGI, March 8, 1999). SJLP serves 6,300 gas customers and 61,500 electric customers in 10 counties in northwest Missouri. UtiliCorp’s Missouri Public Service serves 193,000 electric customers and 44,700 gas customers in the western half of the state. The combined company would be the state’s fourth largest gas distributor and third largest electricity distributor.
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