Mo. Supreme Court upholds merger of two K.C.-area utilities

JEFFERSON CITY, Mo. -- The Missouri Supreme Court on Tuesday upheld the merger of two Kansas City-based utilities, ruling that the possible concerns about gift policies and private meetings were not sufficient reasons to reject it.

Utility regulators approved the bid by Great Plains Energy Inc. to acquire Aquila Inc. in 2008. The company provides electricity to more than 800,000 customers in Missouri and Kansas through its subsidiaries Kansas City Power & Light and the former Aquila network.

Regulators' approval of the deal prompted a legal challenge from several industrial energy users and from the Missouri public counsel, who represents customers before the state Public Service Commission. The energy users argued that the Public Service Commission should have allowed evidence about the utilities' corporate gift policies, arguing that the policies would be less stringent and could affect rates.

The state public counsel raised concerns about private meetings with regulators and utility executives that were conducted before permission was sought for the deal. The public counsel said the meetings gave the utilities an unfair advantage and that the commissioners involved should have recused themselves.

Great Plains Energy has said the deal will save $744 million over five years through combining facilities, bulk purchasing and improved interest rates. It said gift policies allowed gratuities of nominal value and are consistent with those of other utilities while the meetings with regulators were intended as a heads-up.

The five-member Public Service Commission approved the utility deal by a 2-1 vote.

One commissioner recused himself from the merger case because of concern about his participation in the private meetings, and another did not participate in the vote. The state Supreme Court on Tuesday upheld regulators' order approving the deal.

In its ruling, the Supreme Court said the meetings between company executives and regulators created an appearance of impropriety but that there was no evidence it led to actual bias. The high court found fault with how the Public Service Commission handled evidence about the gift polices, but after reviewing the evidence concluded that excluding it did not significantly affect consideration of the deal.

"The court finds that while the evidence as to Great Plains' gift policy should have been admitted, its exclusion was not prejudicial as the gift policy could not have substantially impacted the weight of the evidence evaluated to approve the merger," wrote Judge Laura Denvir Stith in the court's opinion.

The Public Service Commission had said evidence about the gift polices was irrelevant to the proposed merger and therefore was allowed to be excluded.

David Woodsmall, a Jefferson City attorney representing the industry energy users, said the Supreme Court's ruling about how regulators are to handle evidence was good but that it was surprising that the court then decided to evaluate the effect of the evidence.

"We won, but we lost," Woodsmall said.

Missouri Public Counsel Lewis Mills said he thought the private meetings before regulators considered the deal were more improper than not, and that it would have been difficult to present evidence about the discussions in a private meeting.

Great Plains Energy said the merger was in the best interest of customers, shareholders and the company.

"As a result of the acquisition, customer satisfaction in areas formerly served by Aquila has increased significantly," spokeswoman Katie McDonald said. "Combining these two companies has also resulted in significant operational cost savings and will continue for the next decade, which customers and shareholders will directly benefit from."

Since the considering the merger, the Public Service Commission has developed new ethics rules that include communication between regulators and utility officials during rate cases and in the time before they are filed. Many discussions must be disclosed, commissioners now are required to keep public calendars and the public counsel is to be invited into meetings.

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Case is Praxair Inc. vs. Missouri Public Service Commission, SC91322

Online:

Courts: http://www.courts.mo.gov

Public Service Commission: http://www.psc.mo.gov