Relevant Document:SJW Group StatementTakeaways
- Connecticut’s Public Utility Regulatory Authority, or PURA, said that SJW Group’s proposed acquisition of Connecticut Water Service, or CTWS, would saddle customers with “significant and unacceptable long-term risks,” in a draft decision issued yesterday, Dec, 3, that proposed denying the deal.
- PURA identified an array of issues in the proposed order, including financial concerns regarding the company’s ability to raise equity, the high amount of debt that SJW Group would assume in the transaction, and a potential downgrade of its credit rating.
- According to one practitioner involved in the review, it is unlikely that the commission will substantially change its decision, given the “important nature” of the proceeding. However, PURA did reverse its draft decision in a 2015 proceeding in which Avangrid purchased three utility companies.
- It also remains unclear if the companies will propose a settlement to remedy the issues identified by PURA in the draft decision. According to two people involved in proceedings, who asked not to be identified, it would be highly unlikely for the companies to attempt to settle.
- CTWS spokesperson Dan Meaney told Reorg M&A that the companies plan to fight the draft decision. He said the final order, which will be issued on Dec. 17, may be different than the proposed order released yesterday.
Connecticut’s Public Utility Regulatory Authority, or PURA, said that SJW Group’s proposed acquisition of Connecticut Water Service, or CTWS, would saddle customers with “significant and unacceptable long-term risks,” in a draft
decision handed down yesterday, Dec. 3, that proposed denying the deal.
PURA identified an array of issues, including financial concerns regarding the company’s ability to raise equity, the high amount of debt that SJW Group would assume to complete the transaction, and the potential downgrade of the company’s credit rating post transaction. “There are multiple risks associated with the proposed Transaction, including financial and managerial risks, as well as local control, which indicate the Transaction is not in the public interest,” PURA stated.
The regulatory body also accused SJW of “growing its business for its stockholders” instead of pursuing the public interest of Connecticut customers. It further stated that the transaction does not prevent SJW from “draining dividends” from CTWS to support other operations; nor does it prevent SJW from restricting capital allocations to CTWS, which would harm Connecticut customers.
One regulatory practitioner involved in the proceeding told Reorg M&A that the order was “pretty definitive” and it is unlikely that the commission will substantially change its decision. “I don’t necessarily see them changing their mind on the overall decision based on this record, the circumstances of the transaction, and the events transpiring to date,” the practitioner said.
“PURA will know how important its decision is and whatever that decision is, I am guessing they have given it a lot of thought and made a decision that they want to stick by,” the practitioner added. While PURA did reverse its draft decision in a 2015 proceeding in which Avangrid purchased three utility companies, that matter was different because the companies were invited to refile, the practitioner said. “Here they denied without prejudice.”
In the prior case, the company agreed to a settlement through the Office of Consumer Counsel, or OCC, and PURA approved the settlement with conditions. It remains unclear if the companies will propose a settlement to remedy the issues identified by PURA in the draft decision.
According to two people involved in proceedings, it would be highly unlikely for the companies to attempt to settle. One of those sources, who is also familiar with the OCC, told Reorg M&A that the companies could “theoretically” enter into a settlement with OCC, but in the previous Avangrid case, the issues identified by PURA were very specific.
The person said that it is more likely that the companies use the remaining schedule to attempt to mitigate regulators’ concerns through written exceptions on Dec. 6 and during oral arguments on Dec. 10. The person said that the exceptions and oral arguments may affect PURA’s final decision, which will be issued on Dec. 17.
It is also unlikely that the companies will pull and refile their application, since they already did so in Connecticut after CTWS announced its go-shop process, the source told Reorg M&A.
The draft decision, which proposed denying the deal, shocked people involved in the proceedings, who called it “unprecedented.”
“It was a three-ring circus,” the person familiar with OCC process told Reorg M&A. “You had the emotions, legal wranglings, the pushback, and the go-shop process … It’s like nothing I have ever seen before. Utility is always the quiet stuff.”
In a response to Reorg M&A’s inquiries, CTWS’ spokesperson Dan Meaney said the companies plan on fighting the draft decision. He noted that the final decision could be different than the proposed decision released yesterday.
“SJW Group and Connecticut Water are confident that the combined company will have the financial strength and managerial suitability to provide safe, adequate and reliable service and that the combination is in the public interest,” Meaney said.
Reorg M&A’s previous coverage of the transaction is
HERE.
-- Kathryn Haake