NGI The Weekly Gas Market Report
The war of words over the controversial Southwest GasCorp.-Oneok Inc. union escalated last week. It began with ChairmanCarl J. Kunasek of the Arizona Corporation Commission (ACC) firingoff letters to the two merger partners asking them to agree to letSouthern Union (SU), the unsuccessful suitor for Southwest Gas,intervene in the ACC proceedings involving the proposed merger.Both Southwest Gas and Oneok not only objected to the chairman’srequest, but also challenged Southern Union to prove “once and forall” its allegations that ACC officials – at the request of Oneok -illegally influenced Southwest’s choice of merger partner.
If they agreed to the chairman’s request, the two companiespointed out they would be in violation of the federal injunctionobtained by Oneok barring Southern Union from interfering in theSouthwest Gas-Oneok merger proceedings. But absent their consent,Kunasek indicated he might put the merger on hold until thecommission could “fully evaluate Oneok’s fitness” as a mergerpartner in light of all the controversy. Oneok denied allallegations.
In a letter to Kunasek last week, Southwest Gas President CEOMichael O. Maffie characterized Southern Union as “a rejectedsuitor engaged in a scorched earth campaign to undo this businessdeal [with Oneok] at virtually any cost…. It is unreasonable andunwarranted to allow SU to use the Commission’s proceedings toaccomplish what it has failed to do in three courts, throughlegitimate business proceedings in the marketplace and inSouthwest’s board room.” Southern Union has initiated action inthree different courts to block the Southwest Gas-Oneok union, butso far has been unsuccessful.
In a related letter to the commission, attorneys for SouthwestGas said they feared that Southern Union if allowed to intervene inthe ACC proceedings would use the forum to “delay, obfuscate andconfuse” for the sole purpose of “sabotaging the Southwest/Oneokmerger.” They cited three reasons why the Las Vegas, NV-based LDCcouldn’t agree to Kunasek’s request: its legal obligations to itsshareholders and Oneok; court orders restricting Southwest Gas’ability to agree to the request, and Southern Union’s conduct inconnection with this matter.
Southwest’s attorneys suggested that Southern Union be requiredto disclose immediately “any evidence that it has of anyimpropriety” connected to the merger, but without extending to thecompany intervenor status. “If necessary, the commission couldpropound written questions to Southern Union, as it did to Oneok.If Southern Union complies, the commission will have additionalinformation that it may consider…without delay.”
An administrative law judge (ALJ) at the Arizona commission isexpected to hold a hearing on the proposed Southwest-Oneok union onTuesday (Sept. 1) in Phoenix, AZ. The three-member ACC will likelyvote on up the merger either in late September or early October.But that’s “provided I am convinced that no abuse of regulatoryprocess has occurred,” said Kunasek.
The Commission had been scheduled to take up the merger in July,but it tabled it when Southern Union filed a civil lawsuit inArizona accusing Southwest Gas, Oneok and then-Chairman Jim Irvinof the ACC of conspiring to prevent Southern Union from taking itsmerger proposal directly to Southwest’s shareholders. This, inturn, prompted a criminal investigation by the FBI, the U.S.Attorney’s Office and the Maricopa County (AZ) Attorney’s Office,and has successfully stalled the ACC’s approval of the merger (SeeNGI, Aug. 23, 1999).
Southern Union of Austin, TX, turned to the courts after it lostout to Oneok, a Tulsa, OK-based LDC, in a fierce bidding war forSouthwest Gas – which serves customers in parts of Arizona, Nevadaand California. Last December, Southwest Gas chose Oneok as amerger partner, even though Southern Union bid higher for thecompany. Southwest Gas’ board of directors at the time expresseddoubts about whether Southern Union could finance the deal andobtain the needed regulatory approvals.
Both Southwest and Oneok threw down the gauntlet last week,challenging Southern Union to present evidence once and for all tosupport its allegations that Oneok conspired with others toillegally influence Southwest Gas in its choice of merger partner.
“Oneok has now been asked several times to provide informationto rebut charges based on innuendo and conjecture. We suggest it istime to ask the source of the innuendo and conjecture, SouthernUnion, to provide promptly – we suggest by this Friday [Aug. 27th]- any reliable or credible evidence it has to support itsaccusations,” wrote Michael M. Grant, an outside attorney for Oneokin Arizona, in an Aug. 25th letter to ACC Chairman Kunasek.Separately, Southwest Gas’ Maffie said Arizona regulators need toask Southern Union “where’s the beef?”
The Oneok and Southwest letters were in response to earliercorrespondence from Kunasek in which he said he had “realconcerns…about whether the parties to the proposed transactionhave been honest and forthcoming in their answers to my questionsabout the events leading up to the Oneok/Southwest filing” with theACC. The proposed merger is pending before regulators in bothArizona and California. It already has been approved in Nevada..
Susan Parker, John Norris
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