Assertingthat the deal meets all of FERC's merger approval criteria, andWestar Energy Inc.asked the agency to sign off on Great Plains' plan to acquire Westar forapproximately $12.2 billion, including about $3.6 billion of assumed debt.
Thetransaction will provide a number of public interest benefits but have noadverse effect on competition, the companies said in an application filed July 11 with FERC.
Amongother things, the deal will create "a larger and financially strongerMidwestern utility" with greater liquidity, improved access to capitalmarkets and a "more diversified generation portfolio with a largergeographic footprint," Great Plains and Westar said. They insisted thatthe transaction passes the commission's horizontal market power screens "inall respects in all relevant markets" and raises no vertical competitionconcerns.
Underthe deal, Westarwill become a direct, wholly owned subsidiary of Great Plains, and Westar'ssubsidiaries, including KansasGas and Electric Co., WestarGenerating Inc., PrairieWind Transmission LLC and Kanstar Transmission LLC, will becomeindirect subsidiaries of Great Plains "consistent with Westar's ownershipinterest in each entity prior to consummation of the transaction,"according to the application. The companies noted that both Kansas Gas andElectric and Westar Generating are wholly owned by Westar, which also holds a50% undivided interest in Prairie Wind Transmission and Kanstar Transmission.
Whenthe companies first announcedthe deal in late May, they explained that the $8.6 billion cash-and-stocktransaction will result in Westar shareholders receiving $51 in cash and $9 inGreat Plains common stock, which represents total consideration of $60, perWestar share. They said the combined company will have more than 1.5 millioncustomers in Kansas and Missouri, almost 10,000 miles of transmission lines,more than 51,000 miles of distribution lines and nearly 13,000 MW of generatingcapacity.
Intheir merger application at FERC, Kansas City, Mo.-headquartered Great Plainsand Topeka, Kan.-headquartered Westar acknowledged that their generationoverlaps in the Southwest PowerPool Inc. balancing authority area but said a full delivered pricetest analysis of that market supports experts' conclusion that the merger wouldraise no horizontal market power concerns. The only generation owned by the applicantsoutside SPP is Great Plains subsidiary KCP&LGreater Missouri Operations Co.'s 308-MW , whichalthough within the MidcontinentIndependent System Operator Inc.'s footprint "is pseudo-tiedand, thus, wholly dedicated to SPP," according to the filing.
Verticalmarket power similarly is not a concern since neither company owns or controlsany interstate natural gas pipeline facilities, gas distribution facilities orphysical coal supplies, Great Plains and Westar said. Moreover, they noted thatfunctional control of their transmission facilities has been transferred to SPPand service over those facilities, with the exception of that offered undercertain grandfathered agreements, is provided pursuant to the grid operator'sopen-access tariff.
Thetransaction also will not have any adverse impact on rates, Great Plains andWestar said, since most of the utilities' FERC-jurisdictional sales are made atmarket-based rates or fixed stated cost-of-service rates that cannot bemodified without a Federal Power Act Section 205 filing, with the balance madeat formula rates that include protocols "designed, in part, to ensuretransparency." Moreover, they agreed to hold transmission, wholesale powerand wholesale distribution service customers harmless from any rate effects ofthe transaction for five years unless they can demonstrate that merger-related savingsare equal to or exceed the transaction-related costs.
GreatPlains and Westar asked FERC to sign off on the merger, without conducting anevidentiary hearing, by Nov. 1.
Inaddition to FERC, the companies must gain approval from the U.S. Nuclear RegulatoryCommission and the Kansas Corporation Commission and must comply with anyapplicable requirements under the Hart-Scott-Rodino Act. They a merger application withthe state regulator in late June. (EC16-146)