Microsoft word - hempling-2-2-13-final.docx

Only  by  articulating  their  own  vision  of  a  merger—of  excellent  performance  and  corporate  and  market  structures  most  likely  to  produce  that  excellence—can  regulators  ensure  that  a  merger  is  likely  to  produce  a  result  that  is  in  the  public  interest.  by Scott Hempling liabilities, revenues, expenses or operations. And the 1% in unregulated business is all M sole utility subsidiary of the publicly performed for energy customers in and MGE’s regulated utility business represents Baltimore, Maryland area. It is one of over 20 subsidiaries owned by the publicly traded holding company Exelon Corporation, which Scott Hempling is an attorney and expert witness
with an international practice. This essay and others by the estimable Mr. Hempling may also be found at his website, www.scotthemplinglaw.com. A sought utilities serving in Illinois and Pennsylvania. after speaker and analyst, he is an adjunct professor of Exelon’s other affiliates do one or more of law at Georgetown University Law Center and the the following: invest in fossil-fueled, nuclear, former Executive Director of the National Regulatory Research Institute. He earned a B.A., cum laude, from solar, and wind generation; sell in wholesale Yale University and a J.D., magna cum laude¸ from and retail competitive markets in some or all Georgetown Law.Center. He has taught, advised, and of the Mid-Atlantic, Midwest, and South and represented utility regulators and practitioners West (14 states total); and/or conduct energy throughout the United States and abroad.   trading. Obligations incurred by the energy trading business—a CEG operation—led to The objective answer is this: No one knows, “CEG’s real-life, near-death experience in and few think about it. Over a century, we September 2008[,] demonstrat[ing] all too have tried everything, from permissiveness to vividly how vulnerable BGE is if, and when, prohibition and back again. In electricity and (Oct. 30, 2009) (approving, with conditions, wheeling acquisitions of scattered systems in Electricité de France’s partial acquisition of the 1920s, to (b) the Public Utility Holding holding company to a “single integrated public-utility system,” to (c) PUHCA’s repeal B down from the holding company; in in 2005. other words, it is owned by a company that is In telephone, we have zig-zagged from (a) the national Bell System’s 60-year near-monopoly Exelon Corporation (which in turn is owned over phones and phone-calling, to (b) the MGE contributes nearly 99% of its holding company’s revenues, BGE contributes only combinations of Bell’s former building blocks allowed by the Telecommunications There is today no coherent national policy on utility corporation whose sole reason for utility mergers. Among regulators, there is being was to use its generation, transmission, no common vision for how a community’s and distribution assets to serve a single local dependence on the local utility monopoly service territory. BGE looks different today should square with its executives’ plans to because of two factors: its business choices profoundly 20 years of incremental decisions can change a company. Most utilities today telecommunications industries. Anyone can reside within a larger corporate family, due to two decades of near-continuous actions to regulatory reviews but not subject to any clear affair. Agencies issue approvals in reaction to become a BGE, dropping from a 99% role to utility requests, the holding company painting its self-portrait on the commission’s canvas, fourth tier, one out of 20 affiliates, what shading at the edges to close the sale. Only the rare decision reflects a regulatory vision • Will the non-utility business risks raise Diego Gas & Electric merger. In 2007 the Montana Commission disapproved the NorthWestern Corp.-Babcock & Brown • Will those non-utility businesses distract Infrastructure coupling: two decisions that utility management from its obligation to boiled down to this question: “Who needs climate change, reliability of service, and terrorism risk? Readers of a certain age will remember humorist Art Buchwald’s 1966 column, • Will the utility be the loser in family predicting America’s corporate landscape: “[E]very company west of the Mississippi will known as Samson Securities. Every company east of the Mississippi will have merged distinguish mergers that promote the public under an umbrella corporation known as the interest from those that undermine it. Is the Delilah Co. It is inevitable that one day the merger motivated by efficiency, innovation, president of Delilah would meet and discuss insulation from competition, and control of merging their two companies.” ‘If we could get together,’ the president of Delilah said, ‘we would be able to finance your projects and you would be able to finance ours.’ policymakers should position themselves. ‘Exactly what I was thinking,’ the chairman Only by articulating their own vision—of of Samson said. ‘Our only chance of survival performance excellence, of the corporate and in this country is to diversify; and if we market structures most likely to produce that merged, we wouldn’t have to worry about excellence, and of the merger policies most unfair competition. . . . [I]t certainly will likely to produce those structures—can make everyone’s life less complicated.’” See But a century of experience tells us that Editor’s note: This essay is the first in a
series on mergers in the utility industries. Mr. performance. (See the CEG–EDF story Hempling welcomes readers’ reactions and ideas. Find him at shempling@scotthemplinglaw.com.

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