Regulatory commitments and conditions which ensure that the public interest is served balance the interests of customers, shareholders, and other stakeholders. In contested proceedings, these interests can sometimes be in opposition to one another. This can both make the regulatory commission’s job more challenging, and put the buyer in the position of being unable to go forward with the merger if conditions are imposed that would harm certain fundamentals of the transaction.
Some stakeholders take the initial position that a merger that will benefit shareholders must be at the expense of customers. There is no inherent tension between the interests of shareholders and customers. A utility’s success rests on serving its customers well and satisfying its regulators. In this regard, the interests of shareholders, customers, and regulators are aligned, particularly in the long term.
I was recently asked by a commissioner what the harm was in adding conditions to a proposed merger that were used in a different merger in a different jurisdiction. That is an excellent question. It brings us back to the purpose of regulatory commitments and to the importance of balancing the interests of stakeholders. Merger commitments are intended to highlight the unique benefits of the proposed transaction and protect customers from potential risks created by that transaction. Merger commitments that were employed based on the facts and circumstances of one merger are not necessarily appropriate for another merger with different facts and circumstances. Some intervenors take a “more is better” approach, but conditions which change the underlying economics, risk profile, or complexity of a transaction or the post-transaction entity can actually cause harm by jeopardizing a transaction that might otherwise create benefits for customers of the utility and be in the public interest. Most Commissions have implicitly recognized this by avoiding imposing conditions which would disrupt the balance of customer, shareholder, and other interests and thus cause the transaction to not move forward.
 Utility merger agreements typically contain a “regulatory out” provision which allows the transaction to be terminated without recourse if an unacceptable regulatory order is received. In addition to a merger being rejected by the regulator, this could include a condition to an approval order which changes the economic bargain or other balance agreed to by the buyer and seller.
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