2 Utilities to Merge Operations in West in $2.2-Billion Deal

Two major electric utilities, Pacificorp and Utah Power & Light, are planning a $2.2-billion stock-swap merger that would create a geographically broad-based enterprise selling electric power across much of the West.

The deal announced late Wednesday by the Portland, Ore., and Salt Lake City companies takes place at a time of upheaval in the utility business and widespread predictions of an industrywide shakeout.

Analysts said the proposed merger, which would create the nation’s 22nd-largest utility, was also spurred by financial difficulties at Utah Power & Light and other conditions peculiar to the new partners, which are said to have well-matched territories and facilities.

The plan, subject to shareholder and regulatory approval in several states, was interpreted as good news for Utah Power & Light, but some analysts questioned whether Pacificorp paid too much. UP&L; shares rose $3.625 to $30.125, while Pacificorp dipped 87.5 cents to $35 Thursday in New York Stock Exchange trading.

UP&L; shareholders will exchange each of their shares for a Pacificorp share valued between $32.25 and $38. Based on that range, and UP&L;’s 58.6 million common shares outstanding, the swap would be valued at $1.9 billion to $2.22 billion. UP&L; shareholders would own 40% of the common equity of Pacificorp.

How Firms Stack Up

Pacificorp, a diversified utility whose electric business is conducted by Pacific Power & Light, has 670,000 customers in California, Oregon, Washington state, Wyoming, Idaho and Montana. UP&L; has 516,000 customers in Utah, Idaho and Wyoming.

Executives for the two companies noted that Pacificorp ‘s peak electricity demand occurs in winter, and its transmission lines tend to run east and west, while UP&L;’s demand load peaks in summer, and its power lines run north and south.

The greater operating efficiencies and the combined assets will enable UP&L; to delay construction of a new power plant until the late 1990s, the company said. Pacificorp, considered a low-cost producer, said it would now be able to sell surplus power to the Southwest.

UP&L; said it will be able to cut rates 5% to 10% to its customers over the next four years, while the combined companies will offer “stable rates . . . over the long term.”

Deregulation of the utility industry and the heightened competition that will result has prompted some utility watchers to predict a wave of mergers and consolidations as utilities try to position themselves for the future. Salomon Bros. says 150 utilities will merge into about 50 in the next five years.

UP&L; also would benefit by getting help with its recent problems, such as a $60-million rate refund mandated following a Utah Division of Public Utilities investigation into mismanagement of the utility’s coal operations. The company had been discussing a merger with several companies in recent months.

“I don’t think this has much to do with deregulation,” said James V. Smith, utilities analyst at Duff & Phelps in Chicago. “In light of the problems at Utah, I would think that had a strong influence on their willingness to merge.”

In the 12 months ended June 30, UP&L;’s profit fell to $95 million, or $1.45 per share, from $148.7 million, or $2.29 per share, the previous year. The latest year included a $43.7-million after-tax charge for the coal-mining operation refund.