Washington Water Power Co. and Sierra Pacific Resources officials were regrouping Thursday after a surprise decision by federal regulators to delay their proposed merger by as much as a year.
Members of the Federal Energy Regulatory Commission said Wednesday they are unconvinced a combination of the two utilities is in the public’s best interest.
The commission questioned the validity of claims the union would produce $450 million in savings over the next 10 years. It ordered hearings to review major sticking points in the deal, which has been in the works for almost two years.
Larry Pierce, WWP vice president for business analysis, said the process will put off completion of the deal at least nine months and add significantly to the $13 million the Spokane company has already spent on the merger.
And hundreds of WWP and Sierra employees who have waited for months to find out whether they will a job after the merger and, if so, where, will remain on pins and needles.
“It’s a serious situation,” Pierce said. “We were taken totally by surprise.”
Tuesday, WWP officials said they expected favorable action by the federal commission either Wednesday or Dec. 13, when members meet for the last time this year.
Instead the commission set the hearings, which will be followed by a decision from an administrative law judge and subsequent review by the commissioners themselves before a final order finally emerges.
The commission has not held hearings on any of the other mergers it has reviewed recently, Pierce said, and there was no contact with that body’s staff to indicate the WWP-Sierra transaction would be any different.
The order issued by the commission Wednesday said members are concerned about access to transmission lines controlled by the companies, and how they intend to price that access as well as the power that moves along the wires.
In authorizing previous mergers, the commission has insisted on single-system pricing that ensures customers throughout the new company’s service territory are charged the same for wholesale services such as transmission from distant power plants.
But WWP and Sierra would continue to operate separately as divisions of a new entity, Altus Corp. They proposed two-zone pricing that would maintain the gap between WWP’s low costs and those of Sierra, which are substantially higher.
“Applicants claim that imposing a single-system rate would create inappropriate rate subsidies between customers of the two systems,” the commission noted in its order.
Members said they wanted a better explanation of how zonal pricing would work before accepting the companies’ proposal.
They also said additional study of access to the small transmission grid in the northern Nevada area served by Sierra is needed.
If the utilities tie up all the capacity, as they have proposed, big customers like gold-mining companies will not be able to buy power from other sources.
And the rates that would be charged for what access does become available “may be unjust, unreasonable, unduly discriminatory or preferential, or unlawful,” the commission said.
“We still think that two-zone rates are appropriate,” Pierce said in response.
If the federal commission insists on a single wholesale rate for shared services, he said, state commissions that regulate rates paid by residential and commercial customers may adopt the same position.
The result could be higher rates in Washington and Idaho, while rates in Nevada decrease.
The Nevada Public Service Commission demanded information on single-system pricing as a condition for its approval of the transaction, although members said they had no intention of implementing such pricing.
WWP officials have stipulated that any merger not divert the utility’s low-cost resources to customers outside its Washington-Idaho service territory, or otherwise harm customers or shareholders, Pierce said, adding “We still firmly believe in those.”
He said favorable action on the merger by all the state commissions involved should be proof enough it serves the public interest.