Will private ownership of electric utility benefit Pa. consumers?
By The Associated
HARRISBURG -- A unique and important test will begin in Pennsylvania now that state utility regulators have signed off on an Australian-led buyout of the publicly held parent of Pittsburgh's dominant electric utility, Duquesne Light Co.
The $1.6 billion acquisition, which is expected to close by early June, is the first in Pennsylvania in which a major electric utility will be taken private. If a flurry of utility buyouts around the country is any sign, it will not be the last in this state.
The trend is raising the same questions in Pennsylvania as it is elsewhere. Most revolve around whether the investment groups buying Duquesne Light can be trusted with a virtual monopoly over an everyday need for more than a half-million households and businesses.
"Are they accountable to their financial benchmarks and ratio-return requirements, or are they accountable to the communities that they serve?" said Mark T. Williams, a former energy company executive who teaches at Boston University's School of Management.
Sonny Popowsky, the state's utility consumer advocate, said there are two types of private owners: One that guts and flips a company for a quick profit, and another that is committed to long-term stewardship.
"The hope," Popowsky said, "is that Macquarie is in the latter category."
David Hughes of the Pittsburgh-based nonprofit ratepayer advocacy group Citizen Power said there is little track record for a utility's performance after such an acquisition.
"How does all this work when basically a group of hedge funds purchase a utility, and what is going to be the impact down the road on what is a vital public service?" Hughes said.
With Wall Street awash in cash, and many regulators willing to approve mergers and acquisitions, utilities are increasingly drawing interest from private investors.
State utility regulators don't always approve a deal. In recent years, regulators in Arizona and Oregon have rejected buyout bids of electric utilities, citing such things as dangerous debt levels or the investors' profit-driven profile.
In Montana and Texas, regulators and policymakers are currently wrestling with buyouts of utilities by private investors.
In Pennsylvania, the Public Utility Commission on Tuesday approved the buyout of Duquesne Light Holdings Inc., the utility's parent company, by six investment funds. The group is led by Macquarie Infrastructure Partners, which is managed by a New York-based subsidiary of the Australian financial services company Macquarie Group.
One of the six funds -- The DUET Group -- is publicly traded, and that's on the Australian Stock Exchange. A Macquarie spokesman declined to speak on the record, but press releases say Macquarie Infrastructure Partners focuses its investments in North America, owning stakes in the multistate water utility Aquarion Co. and four toll roads.
Hughes and others questioned what happens to Duquesne Light if the funds' other investments tank. In addition, they worried that a privately held owner is more likely to ignore power line maintenance to cut its costs, or to fleece ratepayers by passing down the cost of exorbitant fees it pays to sister companies.
The utility commission's chairman, Wendell Holland, pointed out that the investment groups had satisfied most objections to the deal by ratepayer advocates and others.
"The record showed that even with the acquisition, there would be an affirmative benefit to the public, that the quality of service would be maintained, reliability would continue and rates would remain reasonable," Holland said Thursday.
Commitments by the Macquarie consortium include postponing a base rate increase until at least 2010, keeping Duquesne's corporate headquarters in Pittsburgh, capping the utility's debt levels and meeting quality-of-service benchmarks.
In addition, Holland said the utility commission would have the same access to Duquesne Light's financial records under the private owners as it does now.
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