Dive Brief:

• Kansas regulators issued an order this week warning Great Plains and Westar that their application to merge may not comply with state rules on how purchase prices are determined to be fair and potential savings to customers under the merger. 
• Great Plains, which owns Kansas City Power and Light, announced in May its intention to purchase Westar for $12.2 billion. The companies have reached a settlement in Missouri to move the deal forward.
• But in Kansas, the companies' application omitted the phrase "in excess of book value" from a merger standard, leaving the plan open to challenge. 

Dive Insight:

Less than a month after Great Plains hashed out a deal with Missouri regulatory staff, Kansas regulators are challenging some aspects of the proposed deal. Considered the biggest utility merger of the year, the $12.2 billion deal may not be finalized if the participants don't follow through with some changes, regulators warned in an order. 

The Kansas State Corporation Commission this week issued an order that appeared to warn KCP&L and Westar that their application may be challenged. In a September filing, the staff raised concerns that the proposal failed to demonstrate cost savings resulting from the merger, saying "the Joint Application only refers to potential savings, but does not detail any savings that can be demonstrated from the merger." They requested that Westar and Great Plains submit evidence of savings from the merger and to provide evidence "that operational synergies and cost savings justify acquiring Westar for nearly $5 billion above book value." 

According to the order, the companies acknowledge they omitted the phrase "in excess of book value" from a merger standard which asks whether there are operational synergies that "justify payment of a premium in excess of book value." However, the companies are standing pat and told regulators they "do not believe the pre-filed testimony needs to be amended."

The SCC order also notes that staff expressed concern that the phrase "book value" appears only once in the entire application and supporting testimony.

So far, it is unclear what the impact will be. KCP&L and Westar have told the commission they understand the standard on which the application will be judged. That led the commission to write that "if the parties maintain that the Joint Application does not adequately address the merger standards, they may file for the appropriate relief."

In Missouri, Great Plains had contended the Public Service Commission does not have jurisdiction over the merger as Great Plains operates in Missouri, and Westar serves customers in Kansas. But commission staff were critical of the deal earlier this year.

Under an agreement with staff, the PSC would not exert jurisdiction in return for Great Plains’ guarantee that the acquisition would not increase costs or negatively affect service for customers of Great Plains’ subsidiary Kansas City Power and Light.