PacifiCorp has produced no new acquisitions since its friendly merger with Utah Power & Light 18 months ago and continues to face rejection in its wooing of Pinnacle West Capital Corp. of Arizona.
But a Salt Lake-based executive for the Portland, Ore., energy company said the reason PacifiCorp persists is that such acquisitions make financial sense for shareholders and customers alike.Arizona-based Pinnacle West has spurned four PacifiCorp merger offers in seven months. The object of PacifiCorp's affection is Pinnacle West's subsidiary Arizona Public Service Co., which serves 600,000 Arizona electricity customers.
PacifiCorp's most recent proposal was a $1.82 billion bid last month for Pinnacle West stock at $21 a share. PWCC stock was selling for $13 when the offer was made and now hovers around $16 a share.
Verl R. Topham, who handles mergers at PacifiCorp in addition to running UP&L, has been the moving force behind the attempted acquisition of electric-utility properties in the southwestern United States.
Such acquisitions, he said, increase the amount of electric power available for wide distribution by PacifiCorp transmission systems without having to build additional generating facilities.
Acquisition of Arizona Public Service, he said, would immediately make available an additional 600 megawatts of power to PacifiCorp-UP&L customers without any new construction.
The acquisition would require PacifiCorp to spend between $50 million and $100 million to build additional transmission lines between Arizona and Utah to fully tap into that power.
But those costs - both financially and environmentally - would not be nearly as high as those involved in building a new coal-fired plant, Top-ham indicated.
By comparison, it cost UP&L and its customers $457 million to build the Hunter No. 3 plant in 1983. That plant has a capacity of only 400 megawatts of power annually.
"We've seen advantages of the UP&L-PacifiCorp merger materialize, and we know the same kinds of advantages exist if we were to acquire Pinnacle West," Topham said.
He was referring to the merger's effect on a continuing series of rate decreases for Utah electric customers that began two years ago. Top-ham said a merger with Pinnacle West could continue that trend for Utah customers by increasing UP&L's overall system efficiency.
Arizona customers would similarly benefit, Topham suggested.
But Pinnacle West's management has said publicly that the corporation is worth more than PacifiCorp has offered, and it's taking steps to increase value.
"We continue to negotiate and evaluate our options," Topham said. "We have not given up the fight."
He described PacifiCorp's position as one of supporting the belief that such mergers combine valuable resources and increase overall system efficiencies among companies.
He said the bottom line in the industry today is that single companies cannot afford to remain separate and aloof.
Such combinations increase geographic size of service areas, which in turn create different climatic demands for electricity. The addition of Arizona Public Service's service area would expand PacifiCorp's "summer peak" demand for electricity, due to air conditioning and irrigation in Utah and Arizona, in addition to a "winter peak" demand found in its Pacific Northwest service areas.
By stretching out power demand over a greater portion of the calendar year, electric distribution and transmission systems become more efficient, Topham said.
Also, he said, the acquisition of a company such as Arizona Public Service offers a greater number of electricity sources for UP&L and the rest of PacifiCorp to draw from for its traditional service areas.
Arizona Public Service is preparing to bring its Palo Verde nuclear-power plant on line soon, Topham said.
"We see that plant as providing an opportunity for us to offer power to our customers as well as Arizona customers at a far cheaper cost than Arizona Public Service can," primarily due to the projected economies of scale resulting from a merger, he said.