Merging parties divert franchise value from the customers who created it

          My third book, Regulating Mergers and Acquisitions of U.S. Electric Utilities: Industry Concentration and Corporate Complication, will be published by Edward Elgar Publishing in Fall 2020. (Click here for a Summary of Contents.) From February 2020 through March 2021, each monthly essay will digest a book chapter. This month’s digests Chapter 5. Prior months’ excerpts are available here.

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            I dedicate this month’s essay to the memory of one of my dearest colleagues. Steve Dottheim was for decades the Deputy General Counsel of the Missouri Public Service Commission.  His devotion to the cause of effective regulation (“the most fun you can have with your clothes on,” he’d say) was matched only by his devotion to his two nieces, his sister, his brother-in-law, the St. Louis Cardinals and the Negro Baseball Leagues. A mentor to many, one of the most decent, hard-working, ethical and self-deprecating people I ever knew, Steve had a sharp sense of humor, most often directed at himself. He had no patience for fools or their hearing-room baloney. He was a tough, accurate judge of people. I am but one of many whom Steve made a better lawyer and a better person.  Rest in peace, Steve.

 

            The June essay explained how electric utility mergers waste economic resources. They also divert value. In most mergers, the acquirer pays to the target shareholders a control premium—the excess of purchase price over stock market price. Routinely, regulators let the shareholders keep the entire premium, allocating none of it to customers. This lopsidedness ignores the real source of value in utility mergers—the customers.

 

The value of control: Leveraging market position

            When an individual investor buys stock, she buys only a sliver of the company. Her sliver gives her no influence, so she pays only the market price. In a utility merger, the acquirer buys more than stock; it also buys control. Control allows the acquirer to increase earnings in ways ordinary investors cannot: by controlling decisions on business priorities, infrastructure spending and rate increase requests; decisions on whether to accommodate or obstruct competitors; decisions on all ways to use the acquired utility as a platform for buying new businesses or entering new markets.

 

Services

Testimony, Papers, and Presentations

Surrebuttal Testimony of Scott Hempling on Behalf of Baltimore Washington Construction and Public Employees Laborers' District Council in the matter of an Application of Potomac Electric Power Company for Authority to Implement a Formal Multiyear Rate Plan for Electric Distribution Service in the District of Columbia
Hempling testimony to D.C. PSC (Feb. 2020)
Direct testimony before the Public Service Commission of Wisconsin in the Joint Application of Wisconsin Electric Power Company and Wisconsin Gas LLC, for Authority to Adjust Electric, Natural Gas, and Steam Rates
A layperson’s introduction to regulation created by Scott Hempling in support of The British Columbia Utilities Commission's inquiry into whether utility regulation should extend to utilities owned by indigenous nations.
This tesimony relates to the modification of rates, charges, and tariffs for retail electric service in Oklahoma.

Books by Hempling

Regulating Public Utility Performance

“[A] comprehensive regulatory treatise …. In all respects, it merits comparison with Kahn and Phillips."

Regulating Public Utility Performance:  The Law of Market Structure, Pricing and Jurisdiction

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Preside or Lead

Preside or Lead?
The Attributes and Actions of Effective Regulators

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Hempling Appearances

Energy Bar Association
Panel on Practice Principles for New Regulatory Lawyers


UDC Law School Panel
Is the Exelon Takeover of Pepco in the Public Interest?


Nigeria Electricity Regulatory Commission
3rd Judges’ Seminar


Telecom Forum
Asamblea Plenaria REGULATEL


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Testimonials

I highly recommend Scott Hempling. I have known him since 2003, since he was a consultant for the Hawaii Public Utilities Commission on various important and cutting-edge policy regulatory matters in Hawaii, through his time as the Executive Director at the National Regulatory Research Institute. His expertise, knowledge, and experience in all regulatory and energy matters is unmatched, and he would be a highly valuable resource and asset in any such endeavor.
— Carlito P. Caliboso, former Chairman, Hawaii Public Utilities Commission