Gas merger sparks debate

Sandra Mattavous-Frye is the People's Counsel. (photo courtesy of the Office of the People's Counsel)

The proposed merger of Washington Gas and Canadian energy company AltaGas has generated controversy over whether the move will be in the interests of District customers.

The merger between WGL Holdings (the parent company of Washington Gas) and AltaGas is currently before the Public Service Commission of the District of Columbia, which has the power to approve or reject the move. The D.C. Office of the Attorney General (OAG) and Office of the People’s Counsel (OPC) have both filed briefs objecting to the deal.

“OPC has looked at this very carefully, and it’s important because what we’re looking at is an acquisition by a new company of a gas company that has been in operation for over 100 years,” People’s Counsel Sandra Mattavous-Frye said. “The new company does not have the depth of experience or expertise that obviously Washington Gas has in operating in this locality.”

Mattavous-Frye said the law requires the commission to determine whether there are measurable benefits to consumers and whether there is harm from the merger. She said the status quo is not acceptable. Rather, consumers have to be put in a better position than before the merger.

“When we evaluated the benefits, they were paltry at best,” Mattavous-Frye said. “You can say it’s a benefit, but the actual value of the benefit was so de minimis that it didn’t really curry or carry any weight. And that was in sharp contrast to the benefits that shareholders would reap.”

Brian Edwards, director of corporate communications for WGL Holdings, said customers could expect to see benefits from the merger, including a one-time $150 rate credit for residential heating customers. Edwards said there are $39.7 million in potential benefits to D.C. area customers.

“Washington Gas is a strong company, and has been a strong company in D.C. and the region since its founding 170 years ago,” Edwards said. “And it will be an even stronger company in partnership with AltaGas. There will be more resources available to the community, there will be more resources available for workforce development, there will be more resources to grow jobs.”

Despite these assurances, OAG and OPC both have concerns about the weaker financial position AltaGas is in. AltaGas has a lower credit rating than Washington Gas, and Mattavous-Frye said the merger is likely to decrease Washington Gas’ credit rating.

This lower rating has the potential to increase borrowing costs, which Robert Marus of OAG said would likely be passed onto customers. The companies have released materials about the merger which say there will be no rate increases as a result of the merger.

“AltaGas has made it clear in their filings with the D.C. Public Service Commission that Washington Gas will continue to be a strong utility after the merger,” Edwards said. “And AltaGas is committed to holding Washington Gas harmless and to ensuring that the credit rating issue is not an issue for operations. And they have committed to maintaining a strong credit rating going forward.”

Mattavous-Frye said the potential solutions the companies have proposed to shield consumers from the financial issues at AltaGas would not be necessary if the merger was not happening.

Another issue that has raised concerns is the fact AltaGas is a Canadian company. Marus said under the North American Free Trade Agreement, AltaGas could file a challenge to block any regulation that undermines their legitimate investor expectations. This could potentially be used to avoid the District’s environmental regulations, Marus said.

According to the brief the companies filed with the commission, there have been at least 16 acquisitions of U.S. utilities by Canadian companies in the past decade. In none of these cases have commissions said Canadian ownership was an issue, the brief said.

There has also been disagreement over whether AltaGas has sufficient cyber security measures and whether it has made sufficient environmental commitments. Mattavous-Frye said Washington Gas has had issues with leakage and deteriorating infrastructure, something it has been spending a lot of money to fix. She questioned whether the new company is going to address the issue sufficiently. Materials released by the companies say $4 million will be allocated to “more quickly repair non-hazardous gas leaks.”

Mattavous-Frye said the companies made substantial changes to their proposal in the brief they filed with the commission. She characterized the changes as essentially revising the application.

“This is not the first occurence where a utility who is proposing to acquire one of our existing utilities in a merger has waited until the last minute to put forth what their real offer is,” Mattavous-Frye said. “And that’s a policy that should not be encouraged. They need to come to the table with their best case, rather than waiting until the very end and expecting the parties and the commission to come on board without having an opportunity to thoroughly vet those proposals, the real proposals.”

She also said the changes are vague and it is hard to determine what are long-term and achievable proposals.

“I think the opposing parties presented a very strong case and I think that that’s why the applicants so substantially revised their application,” Mattavous-Frye said.

A decision from the commission is expected in April and the merger will close after final regulatory approval is received in all jurisdictions, Edwards said. Approval is still pending in Maryland while the deal has been approved in Virginia.