Federal utility regulators have issued an order authorizing transactions the merger of utilities affiliated with Iberdrola, S.A. and UIL Holding Corporation.
Iberdrola is a Spanish-owned utility holding company, owning electricity and natural gas systems and electric generation across four continents. Its direct wholly owned subsidiary Iberdrola USA holds all of Iberdrola’s energy-related operations in the United States through two intermediate holding companies. Iberdrola USA Networks, Inc., holds transmission owning public utility affiliates, including New York State Electric & Gas Corporation (NYSEG), Rochester Gas and Electric Corporation, Central Maine Power Company, Maine Natural Gas Company, and interests in Maine Electric Power Company. Iberdrola Renewables Holdings, Inc. owns and operates its generation segment in the United States through a number of indirect subsidiaries.
UIL is in the business of ownership of operating regulated utilities in Connecticut and Massachusetts. It owns and controls the United Illuminating Company, a business engaged in purchasing, transmitting, and distributing electric power to customers in southwestern Connecticut. United Illuminating owns a 50 percent equity interest in GCE Holding LLC which in turn owns two companies owning 187.6 MW dual-fuel generating plants in Milford and Middletown, Connecticut. UIL also owns natural gas local distribution companies in central and southern Connecticut and western Massachusetts, as well as Total Peaking Services, LLC which provides liquefied natural gas storage services.
On February 26, 2015, Iberdrola S.A. announced the boards of directors of Iberdrola S.A. and Iberdrola USA had approved a combination of Iberdrola USA with UIL Holdings in a friendly transaction, reportedly for about $3 billion. On March 25, 2015, Iberdrola and UIL applied to the Federal Energy Regulatory Commission for authorization under section 203(a)(1) and (a)(2) of the Federal Power Act (FPA) for a series of transactions in which UIL will become an indirect wholly owned subsidiary of Iberdrola USA and, in turn, a wholly owned subsidiary of Iberdrola.
In a Section 203 case, the Commission examines a merger’s effect on competition, rates and regulation, and the potential for cross-subsidization. Applicants must demonstrate that a proposed disposition or acquisition of jurisdictional facilities meets the standards of Section 203. In the Iberdrola-UIL case, the applicants stated that their subsidiaries' portfolios of generation, transmission, natural gas assets, and other jurisdictional facilities had only de minimis overlap, that the transaction would not adversely affect rates or regulation, or result in cross-subsidization of a nonutility associate company or pledge or encumbrance of utility assets for the benefit of an associate company.
On June 2, 2015, the Commission issued an order finding that the proposed transaction is consistent with the public interest and is authorized, subject to routine conditions. While other regulatory approvals may be required before the merger can proceed, securing prior authorization under Section 203 is an important milestone for the proposed deal.
According to Iberdrola, the combined company will have a 2014 pro forma EBITDA of approximately $2 billion, net income of $570 million, 3.1 million of points of supply, around 6.7 GW of installed capacity. Iberdrola anticipates that the company will become the US's second largest wind operator and one of the nation's largest utilities.