Topeka Top officials with Western Resources Inc. and Public Service Co. of New Mexico said Thursday that they cannot complete their merger under recent orders by state utility regulators.
The companies said they would try to rewrite the terms of the deal to make it more palatable to the Kansas Corporation Commission.
The statement came a day after the KCC rejected Western Resources' request for a $151 million rate increase. Instead it ordered Western to reduce rates by $22.7 million.
A week ago, the KCC rejected Western's plan to reorganize itself. Western had sought to split its regulated and unregulated firms, then merge its regulated KPL and KGE utilities with PNM, the New Mexico utility.
In the rate case, the KCC said Western had been over-earning. In the reorganization case, it said the deal would have saddled ratepayers with debt from nonutility business ventures. In both orders, the KCC accused Western management of ignoring the interests of ratepayers.
Wittig breaks silence
In a news release Thursday, David Wittig, Western's chairman, president and chief executive officer, offered his first comment in response to both KCC actions.
"We believe that we understand the KCC's concerns with the current transaction and are hopeful that we can reach agreement with PNM on alternative terms that will permit the transaction to move forward and provide the benefits that we believe the combination will bring to our customers and shareholders," he said.
Western also announced plans to ask the KCC to reconsider both orders in an effort to preserve the company's right to appeal the regulatory body's decisions. Western has 14 days to ask the KCC to reconsider its orders and, if such a request is rejected, 30 more days to challenge them with the Kansas Court of Appeals.
PNM chief executive Jeff Sterba said the merger between PNM and Western probably could not happen "if the KCC orders remain in effect."
But in their joint statement, Western and PNM vowed to continue throughout the next several weeks discussing modifications to the transaction "that will make it possible to obtain necessary regulatory approvals."
Both the KCC and New Mexico Public Regulatory Commission would have to approve any merger.
Western is Kansas' largest provider of electricity, serving 635,000 customers across the state. Through KPL, it serves 345,000 customers in northeastern Kansas including Lawrence. PNM is New Mexico's largest utility.
KCC likes what it hears
Rosemary Foreman, KCC spokeswoman, said the commission welcomed the companies revisiting their agreement.
"It sounds like they plan on talking over the next few weeks," she said. "We're supportive of them talking and working out a merger agreement that would be beneficial to the customers of Kansas and the companies."
As far as the KCC's orders, she said, "The commission is confident that those decisions are the right decisions, and balanced."
Under the KCC's rate order, KGE customers would see a $41.2 million, or 6.6 percent, decrease in electric rates. KPL customers would see their rates increase by $18.5 million, or 3.3 percent.
Walker Hendrix, consumer counsel for the state agency that represents consumers, said he was heartened by the tone of the Western-PNM release, describing it as nonconfrontational.
He said there were ways that Western could merge with PNM and reduce the debt on the utilities. The debt had been cited as a concern by the KCC.
Western could sell its 45 percent ownership of ONEOK, one of the largest natural gas distribution companies in the nation. That would raise about $1 billion and could pay off debts from bad management decisions, Hendrix said.
Western's stock rebounded in trading Thursday on the New York Stock Exchange after three days of declines. It closed at $17.80 a share, up 80 cents.
PNM's stock rose Wednesday and continued to gain Thursday. It closed $30.31, up 64 cents.