UNS buyout gets mostly cheers at hearing

2014-06-17T00:00:00Z 2014-06-17T09:28:20Z UNS buyout gets mostly cheers at hearingBy David Wichner Arizona Daily Star Arizona Daily Star

The planned buyout of Tucson-based UNS Energy Corp. by Canadian utility giant Fortis Inc. won the endorsement of key parties at formal hearings on the deal that opened Monday.

But the parent of Tucson Electric Power Co. and its suitor still faced some questions about the $4.3 billion deal, including queries about the recent closure of a UNS office in Nogales.

Under a deal announced in December, Fortis would acquire UNS Energy in a cash deal worth $60.25 per share, or about $4.3 billion including the assumption of about $1.8 billion in debt.

In a settlement agreement unveiled in May, Fortis has agreed to 66 conditions, including agreeing to provide $30 million in customer billing credits over five years, as well as an immediate equity injection of $220 million.

Besides giving shareholders a premium on their shares, UNS says joining Fortis would improve its access to capital needed to fund a move away from a reliance on coal, including the planned purchase of a gas-fired plant in Gila Bend, as well as boost investment in other infrastructure improvements.

“While things always change, I would argue that all the changes going on in the electric utility industry will require significant capital,” said Phil Dion, senior vice president of public policy and customer solutions for UNS Energy.

The Canadian utilities giant has said it would retain local management and allow local control of company operations, as it has done with other acquisitions, Dion noted.

“Yeah, they are far off, and they’re going to stay far off,” Dion said.

Fortis has also agreed to avoid any layoffs at UNS for four years, at the request of unions representing about 1,000 workers.

UNS wants the Arizona Corporation Commission to approve the merger by mid-September so the deal can close by Oct. 1, Dion said. An administrative law judge is conducting the hearings in Tucson and will make a recommendation to the five-member state utility commission.

An official of the Residential Utility Consumer Office, a state watchdog agency, said the agency believes the deal will leave UNS and its utility subsidiaries in better shape than the status quo.

RUCO lawyer Daniel Pozefsky cited the billing credits and capital injections, which will help give TEP and sister rural utilities UNS Energy Services (UES) better access to capital at better rates.

“There’s very little not to like in this,” Pozefsky said, adding that he does not believe local control will become an issue.

But not everybody was on board with the merger deal and settlement.

Mike Massee, deputy city attorney for Nogales, said UES electric’s recent closure of the only UES bill-paying office in the border community is in violation of the utility’s franchise agreement with the city.

TEP and UES have gradually closed local payment offices in recent years as more customers use online payment services. The Nogales payment office was the last in the UES service area to close, UNS spokesman Joe Barrios said, adding that safety was also a concern for the Nogales office and its small staff.

But Massee said the closure of the payment office has created a hardship on the many Nogales residents who operate mainly with cash and must pay a service fee to pay through local retailers. UES has rejected the city’s requests to keep the office open, he said.

With Fortis Chief Financial Officer Barry Perry on the witness stand, Massee asked how the Nogales office closure could be an example of good customer service.

Perry said he was aware of the issue but not the specific circumstances or related talks, and that Fortis would leave the issue to local management.

“Obviously, we haven’t resolved the issue, there’s still some work to do,” Perry said, referring further questions to UNS management including CEO David Hutchens, who is scheduled to testify today.

Several members of the public urged Fortis to expand the UNS utilities’ renewable-energy and energy-efficiency programs — state-mandated programs that would be continued at current levels under the settlement.

Susan Waites, a semi-retired public school teacher and Sierra Club member, said she recently took advantage of a $450 rebate on air-duct sealing offered under a TEP energy-efficiency program.

“I would hope that under Fortis, that (program) would expand,” Waites said.

Some speakers said that UNS energy’s plan to replace about a third of its coal-fired generating capacity with natural gas is a good step.

But though gas burns cleaner than coal, the hydraulic fracturing, or “fracking,” process increasingly used to recover gas poses serious environmental risks, others said.

“The fracking being done (in Canada) proves Canada is not environmentally friendly,” Tucson resident Beryl Baker said, citing reports blaming fracking for earthquakes and water pollution.

“The $30 million (in billing credits) is a drop in the bucket that will soon evaporate into higher rates,” Baker said, adding that she feels Canadian owners would not be as responsive to local ratepayers.

The public hearings continue at 9:30 a.m. today in room 222, 400 W. Congress St. To view a webcast of the proceedings, go to www.azcc.gov.

Contact Assistant Business Editor David Wichner at dwichner@azstarnet.com or 573-4181.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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