Diverse Strategies, Common Purpose: Selling Public Franchises for Private Gain

          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 excerpt a book chapter. Last month's excerpt, of the Preface, is available here. This month is Chapter 1. I hope this essay series, and the book, will stimulate a community-wide discussion on this crucial topic.

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          A utility gets its earnings from a unique market position—a monopoly position, embodied in an exclusive franchise granted and protected by state law. Selling control of that monopoly position brings gain to the seller, new earnings to the buyer. The parties sell and buy a public franchise for private gain. Customer benefits, if any, are incidental.

 

Merger purpose: Monetize the government-granted franchise

          In a truly competitive market, a successful company gets its market position by merit. Its assets, executive leadership and employee knowledge, financed with dollars risked by investors, combine to provide a service that its customers prefer over its competitors'. And this market position comes with no guarantees. To maintain it, the company must keep beating its competitors. 

         Contrast your utility. It got its market position not by merit but by government favor. As long as it performs prudently, it keeps that market position—a monopoly position that comes with the right, protected by statutory and constitutional law, to receive a fair return on its prudent, used-and-useful investments. That monopoly market position has high value. In a utility merger, the buyer and seller each aim to unlock that value.

         The target's goal: Sell franchise control to get gain. When a company seeks acquirers, state corporation law imposes a fiduciary duty: get the highest price. The utility’s board becomes an auctioneer, pushing bidders to raise their bids until all but one drop out. Utilities’ proxy statements—SEC-required filings explaining these transactions to voting shareholders—regularly document how their boards picked the company offering the highest price.1

Services

Testimony, Papers, and Presentations

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.
The testimony relates to AltaGas’s proposed acquisition of WGL Holdings, Inc. and Washington Gas Light Company.

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

Now Available on Kindle

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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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