Opening statement by the Office of the Peoples Counsel in the WGL-AltaGas merger case

 

Good morning Chairman Kane, and Commissioners Phillips and Beverly.  My name is Arick Sears, an Assistant People's Counsel with the Office of the People's for the District of Columbia.  With me today is People's Counsel, Sandra Mattavous-Frye; Deputy People's Counsel, Karen Sistrunk; and Director of Litigation, Laurence Daniels; and Trial Supervisor, Travis Smith.


OPC, on behalf of DC ratepayers, has thoroughly reviewed and analyzed the Applicants' merger application.  Based on its review, OPC concludes the proposed merger fails to provide sufficient tangible benefits to DC ratepayers and is ultimately not in the best interest.  With a value of approximately $4.5 billion, including an acquisition premium of $476 million, the clear winners of this transaction are WGL and AltaGas' shareholders-customers were but a mere afterthought.  After spending a considerable amount of cash to acquire WGL, the companies now seek Commission approval of the transaction and offer only their bare “benefits” package for consumers valued at a small fraction of the overall deal.  Once again, this Commission is called upon to decide whether a proposed utility acquisition is in the public interest.  In order for the Commission to make such a finding, the Applicants must persuade the Commission, with clear and convincing evidence, that the proposed acquisition will not just do no harm but will provide direct, tangible, and traceable benefits that leave Washington Gas' customers in a better position than before the proposed acquisition.


To convince you that the proposed transaction is beneficial, the Applicants will point to their merger commitments, which they claim provide direct benefits to ratepayers and the economy, strong financial protections, and promote environmental quality and sustainability.  In reality, the proposed merger commitments fall woefully short, especially when considered against the risks inherent to AltaGas' decision to acquire WGL Holdings.


Of particular concern is the proposed acquisition's effect on Washington Gas' and WGL's credit ratings.  OPC witness David Dismukes explains that the rating agencies view the proposed merger as risky, particularly when considering the pre-merger and anticipated post-merger positions of WGL and Washington Gas.  While OPC witness O'Donnell explains that the credit ratings are expected to fall dramatically to be more in line with AltaGas' rating.  The downgrades will certainly increase the cost of debt, which will be recovered from ratepayers in the form of higher rates.  The Applicants claim the risk is offset by its hold-harmless provision regarding increased debt costs.  However, the commitment is littered with contingencies that render it meaningless and simply guarantee future litigation over the cause of increased costs.  OPC is not looking at this merger proceeding and its impact on DC consumers in a vacuum. The Office is mindful that the overall burden on DC ratepayers of energy costs, both natural gas and electricity, will substantially increase in the near future.


Additionally, there are concerns caused by AltaGas' status as a foreign company.  Should this merger be approved, AltaGas would acquire investor rights under the North American Free Trade Agreement (“NAFTA”), allowing it to challenge major policy changes, not in US courts, but through arbitration claims heard by NAFTA tribunals.  In sum, approval of this merger creates for this Commission the very real prospect of triggering billions in US state liability by the Commission simply executing its statutory responsibility to regulate Washington Gas.  While the District Government has recommended a waiver, OPC Witness Van Harten does not believe such an advance waiver may sufficiently insulate the Commission from potential regulatory chill.  The reality is this problem cannot be mitigated by a commitment or condition fashioned by this Commission-removing all concern requires the Commission to reject the proposed acquisition.


While these examples represent some of the more egregious issues OPC has with this proposed acquisition, the Office recommends the Commission critically review all of the Applicants' commitments by asking itself a series questions.

  • Do commitments that purport to provide quantifiable benefits lack important details or is the benefit encompassed within the commitment at all?
  • Does commitments that purport to provide a benefit simply maintain the status quo?  In other words, are the Applicants recasting pre-existing contract or regulatory requirements as benefits of the acquisition?
  • Is the commitment simply a risk-mitigation measure? (i.e., the ring-fencing commitments).   The Commission has previously stated that risk-mitigating commitments do not produce a benefit, and, although important, the sheer volume of risk-mitigation measures included in the set of commitments raises serious questions about whether the proposed acquisition in the public interest at all.
  • Is the commitment easily enforceable?  While the Applicants have included a commitment consenting to PSC jurisdiction, this Commission is all too familiar with challenges that can arise when attempting to enforce its regulatory authority.

Using these questions as a guide, OPC believes the Commission will clearly see the proposed acquisition's many deficiencies and therefore, we urge the Commission to reject the application for failure to satisfy the established public interest criteria.