PURA gives final OK to UIL-Iberdrola merger

The headquarters of United Illuminating, one of UIL Holding's utility subsidiaries.

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The state Public Utilities Regulatory Authority gave final approval Wednesday to the $3 billion merger of UIL Holdings Corp. and a U.S. subsidiary of Spanish utility giant Iberdrola.

PURA commissioners voted 2-1 in favor of approving a draft decision issued last month.

The companies have said they hope to close the deal by the end of this month.

Iberdrola said the deal will create a diversified power and utility company with seven regulated utilities operating in four Northeast states and combined revenue of approximately $2 billion. The combined entity will also have the second-largest wind generation portfolio in the United States, the company said.

PURA’s final signoff comes after the regulator negotiated a series of concessions with UIL in September. That settlement followed an initial PURA ruling over the summer that found Iberdrola had not met public interest standards.

The combined entity, which will be 85-percent owned by Iberdrola USA, has committed to $40 million in ratepayer credits, $45 million in potential avoided cost recoveries related to infrastructure improvements, and $39 million in charitable contributions.

Also promised is an expenditure of at least $30 million to clean up a former power station in New Haven, the hiring of 150 workers in Connecticut over three years, and keeping UIL’s headquarters and operations in the state.

The proposed deal was first announced in February. UIL is the parent company for United Illuminating, Connecticut Natural Gas and Southern Connecticut Gas. It also owns Berkshire Gas Co. in Massachusetts.

Caron questions public benefits

While PURA Chairman Arthur A. House and Vice Chairman John W. Betkoski both said in a statement Wednesday that the merging companies' promises convinced them that the deal was in the public’s best interest, Commissioner Michael A. Caron wrote in a dissenting opinion that he thought the deal had insufficient public benefit.

Caron noted that Iberdrola USA — which has utility holdings in New York and Maine — used to own several UIL subsidiaries, before selling them to UIL in 2010. He wrote that the previous sale demonstrates “a lack of commitment to Connecticut.”

He also wrote that federal tax benefits Iberdrola will realize from the merger will not be passed onto ratepayers.

Caron wasn’t compelled by a number of promises connected to the deal.

He said infrastructure investments pledged by UIL in connection were already largely in progress, or would have happened in the near future. Similar to a provision in PURA’s 2012 approval of the Northeast Utilities-NStar merger, the UIL deal will also allow for the merged company to recover system reliability investments from ratepayers more quickly than normal, he said.

Caron was also unconvinced about UIL’s promise to freeze distribution rates (until 2017 for United Illuminating and 2018 for its gas companies). He said it’s unlikely the company would have asked for rate increases before then, regardless of the merger.

Caron also noted that the company’s pledge to clean up English Station has no deadline. He argued that the cleanup would have eventually become the responsibility of the company’s shareholders, so it doesn’t guarantee economic benefits to Connecticut.

And he noted that UIL said its 150 hires could be split among employees and contractors.

“In sum, the applicants’ commitments do little to ensure the advancement of the UIL utilities and many of the conditions could be accomplished without the proposed change of control,” he wrote. “Taken together, these risks outweigh the minimal public benefits provided in the settlement agreement.”