Mergers, Acquisitions & Divestitures

Regulated Utility M&A

On behalf of a regulatory agency, members of the Firm served as engineering, economic, and financial advisors in the acquisition of a utility service area by a regulated electric and gas utility. Members of the Firm provided professional services in:
  • Reviewing the engineering of new demand and energy metering systems; Capacity and reliability planning for the combined service area;
  • The sources and uses of funds in the acquisition of utility assets related to the acquired service area;
  • The accounting for and recovery of costs related to the acquisition;
  • The long-term plan to blend costs and rate structures between the combining service areas;
  • The determination of whether the acquisition was in the public interest;
  • The development of a master purchased power agreement to provide capacity to serve the transferred service area;
  • The preparation and filing of expert testimony;
  • Settlement negotiations; and
  • The development of a regulatory order approving the acquisition.
Members of the Firm provided professional services in the areas of utility planning, M&A due diligence, finance and regulatory accounting, expert testimony, and settlement negotiation leading to an agreement between the utility and the regulator that achieved regulatory approval of the acquisition and quantifiable benefits to the affected ratepayers.

Entergy/ITC Holdings Transmission Divestiture Transaction

On September 12, 2012, Entergy and ICT Holdings (ITC) filed a joint application with the Council of the City of New Orleans (Council) in Docket No. UD-12-01 for approval to transfer ownership of Entergy’s transmission facilities (15,500 circuit miles) in the four state region covering Arkansas, Louisiana, Mississippi, and Texas to ITC. Entergy proposed to divest its transmission assets to ITC through the use of a Reverse Morris Trust transaction. Members of the Firm reviewed the joint filing, conducted extensive discovery and filed expert testimony on behalf of the Council concerning the proposed transaction. Major issues upon which Member’s of the Firm testified included:
  • the Council’s loss of regulatory control over Entergy New Orleans, Inc.’s and Entergy Louisiana, LLC’s transmission businesses relative to storm planning
  • storm recovery
  • operations and rate setting
  • the prospect of significant retail rate increases resulting from expected Return on Equity impacts
  • MISO Transmission Pricing Zone cost risk
  • no sharing of gain with ratepayers
  • overall costs and benefits of the proposed transaction
In testimony, Member’s of the Firm asserted that the proposed transaction was not beneficial to retail ratepayers and recommended that the Council find the proposed transaction to not be in the public interest. On December 13, 2013, Entergy and ITC formally withdrew their applications from the Council, the Arkansas Public Service Commission, the Louisiana Public Service Commission, Mississippi Public Service Commission, and Public Utility Commission of Texas thereby cancelling the proposed transaction.

County of Los Alamos, New Mexico – Water Utility Acquisition

Members of the Firm performed studies assessing the feasibility of the County acquiring certain water production assets and operations of the U.S. Department of Energy (USDOE) which historically have provided water supply for both the County and the Los Alamos National Laboratory. Major project tasks included: assessment of County staffing requirements and interface impacts upon existing County utility operations; development of a capital financing structure concerning the proposed acquisition; development of retail rates and cost of service; determination of capital improvement project requirements; and performance of an economic/financial analysis the proposed acquisition. ERG staff participated in followup discussions and negotiations with USDOE.

Central & South Corporation – El Paso Electric Merger Proceeding

On behalf of the City of Las Cruces, New Mexico, expert testimony was sponsored by a member of the Firm before the FERC in two separate dockets in the Central & Southwest Corporation (CSW) - El Paso Electric Company Merger Proceedings. The testimony addressed transmission access, pricing and comparability issues. In particular, testimony centered around the proposed use of El Paso Electric’s HVDC Eddy County Tie by CSW post merger, which would severely limit Las Cruces’ ability to affect long term reliable power supply necessary to serve its electric system customers.

Duplicate Electric System Development Support

Members of the Firm assisted the City of Las Cruces, New Mexico, in investigating alternatives for electric supply to the City. In particular, members of the Firm performed a comprehensive feasibility study which investigated the City’s development of a duplicate electric system to provide service as a competitive supplier within the City. ERG’s services included: the development of demographic and economic profiles of the City to assist the City Council in its selection of those sub-areas to be served by the City's duplicate electric system; the development of a conceptual design of a new distribution system that could be built in a phased approach to achieve maximum load serving capability while maintaining the present electrical system reliability at the lowest capital cost per kilowatt; development of a comprehensive Competitive Request for Proposals for wholesale power supply from area utilities, independent power producers, cogenerators and renewable resource providers for a 15 year term; and, development of comprehensive Competitive Request for Proposals for operations and maintenance services to the newly constructed electric system. In addition, members of the Firm provided assistance to the City in evaluating the availability and cost of long-term firm power supply and in evaluating the availability and cost of securing the services of an outside contractor to operate and maintain the electric distribution system. A preliminary resource plan and retail rate schedules were developed as part of the engagement.

City of Montrose, Colorado – Municipalization Feasibility Study

Members of ERG performed a study investigating the technical, economic and financial feasibility of the City of Montrose’s acquisition of the electric distribution assets and operations of the Delta-Montrose Electric Association located with the City limits. Upon completion of the study, ERG recommended that the City not proceed with any further acquisition activities owing to a lack of economic/financial feasibility.

Focused Strategy Development Workshops

For the City of Evanston, Illinois, Members of the Firm developed and presented a series of in-depth workshops for City Alderman, City Energy Commission members, and key City staff centered around an investigation into the full gamut of electric service options which might be afforded the City, its businesses and residents resulting from emerging electric competition in Illinois. In this regard, ERG staff presented workshops on the present state of the electric utility industry, electric franchise options, municipalization, retail open access issues, federal and state regulatory and legislative activities, competition, deregulation and restructuring issues.

Acquisition Of The Colorado Electric and Gas Assets and Operations Of Aquila Corporation by Black Hills Corporation

Members of ERG represented the City of Pueblo, Colorado (City) in Docket No.07A - 108EG before the Colorado Public Utilities Commission (CPUC), concerning the proposal of the Aquila Corporation (Aquila) to sell their retail electric and gas assets and operations to the Black Hills Corporation (BH). Historically, the City has been a retail electric service area of Aquila. Working with the City’s Special Counsel, member’s of ERG provided independent review and analysis of the economic and financial aspects of the proposed transfer, future power supply issues and costs, future operations costs, staffing issues, potential reliability issues, the overall cost of the proposed transaction to retail ratepayers, recovery of an acquisition premium, ring fencing issues, and the forward going cost of the BH’s acquisition upon retail rates. Two members of ERG sponsored expert testimony on these issues in the CPUC proceeding. In addition, members of ERG played a leadership role in negotiating the transfer of Aquila’s franchise with the City to BH.

Electric System Acquisition Appraisal

The Cities of Floresville, Poth and Stockdale, Texas comprise the Floresville Electric Light & Power System (FELPS). Historically, Floresville has provided for all electric power operations and maintenance. In conjunction with a decision by the Cities of Poth and Stockdale to sell their electric system assets to Floresville, members of the Firm prepared an independent valuation and appraisal of the transmission, substation and distribution assets to be transferred as a test of the reasonableness of the purchase and sale price agreed to by the three cities. An Appraisal Report was prepared which considered the value of the electric system assets to be transferred on Original Cost Less Depreciation, Replacement Cost New, Replacement Cost New Less Depreciation and Going Concern bases.

Open Access Electric system Acquisition

Members of the Firm provided assistance to the City of Enid, Oklahoma in evaluating its options concerning future electric service including development of a preliminary valuation of Oklahoma Gas & Electric’s (OG&E) local distribution and substation facilities in support of purchase negotiations. ERG staff developed several alternative models including the establishment of an open-access system to afford City electric consumers the ability to freely choose power suppliers, development of a traditional vertically integrated municipal utility, and several other variations. ERG staff also developed and presented a workshop for Council members regarding current trends in the electric industry relative to competition and deregulation at the local, state, and national levels. A report was prepared on the results of the investigations including an opinion as to the feasibility of proceeding with the development of a municipally-owned electric system. Members of the Firm provided assistance to the City in the conduct of a formal appraisal of OG&E’s facilities and to the City’s Special Washington, D.C. Counsel in petitioning FERC for a stranded cost determination.

Expansion of Municipal Electric System

ERG was retained by the City of Aspen, Colorado to investigate the feasibility of the City’s acquisition of the electric assets and operations of the Holy Cross Electric Association (HCEA) that historically have provided electric service within certain portions of the City. In this regard, ERG staff developed a projection of future demand and energy for the City’s existing municipal electric system including potentially acquired customers. A valuation of HCEA’s electric system assets subject to acquisition by the City was performed. ERG staff also determined the costs and revenues associated with serving potentially acquired customers, as well as the economic/financial feasibility of the undertaking, and legal and regulatory aspects of the City’s proposed acquisition. A confidential report was prepared for the City Attorney concerning the analyses performed by ERG.

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