Issues for State Utility Regulators
Mr. Kenneth Costello is Regulatory Economist/Independent Consultant. He has conducted extensive research and written on a wide variety of topics related to the energy industries and public utility regulation.
The year 2005 saw the repeal of the Public Utility Holding Company Act, allowing for consolidation of utility holding companies with electric and gas operations, as well as interest in U.S. utility assets by foreign companies/investors and private equity investors. Also repealed in the past were federal restrictions on holding company arrangements involving geographically dispersed, operationally unrelated utilities.
These liberalized conditions both complicate the state utility regulators' job of evaluating whether a proposal to merge a local utility with another entity is in the public interest and place the responsibility to protect utility retail customers from holding company acquisitions almost entirely on state utility regulators.
Rule of Reason Approach
The vast majority of state regulators apply a rule of reason approach, whereby they weigh the evidence before deciding, rather than outright approve or reject a merger proposal. They correctly view mergers with a highly critical eye. State regulators typically focus on the potentiality of a merger to affect their regulatory authority, customer rates, operating performance, service quality, financial viability and access to capital, and the local economy.