Dive Brief:

• The Kansas Corporation Commission on Wednesday voted 3-0 to reject the $12.2 billion acquisition of utility Westar Energy by Missouri-Based Great Plains Energy. 
• In their order, regulators said the utilities refused to accept "any significant safeguards that would protect consumers," such as an independent Westar board of directors, leading to the rejection.
• Critics of the merger claimed Great Plains overpaid for Westar by as much as $4.9 billion and worried the deal could expose ratepayers to undue financial risk.

Dive Insight:

Shareholders of Topeka-based Westar and Kansas City's Great Plains overwhelmingly approved their companies' plans to merge back in September 2016, with leadership promising that consolidated utility could streamline operations, saving customers $200 million annually. 

But warning signs began to surface even before the end of the year. In December, KCC staff recommended the rejection of the merger, saying it posed "an unacceptably high financial risk for both current and future customers and shareholders." 

At the time, Great Plains officials said they had no plans to change the merger proposal, and the KCC's final merger rejection this week accordingly mirrors many concerns laid out in the staff document. 

"Unfortunately, the transaction was presented to the Commission as a take it or leave it proposal," regulators wrote. "Repeatedly, the Joint Applicants advised the Commission that any significant safeguards that would protect consumers, such as maintaining a separate, independent Westar Board of Directors, would halt the transaction."

Regulators also questioned the purchase price for Westar, which consumer advocates in the proceeding argued was far too high. 

While regulators wrote that a merger "makes sense" based on the utilities' neighboring service areas, "the proposed transaction is not a merger of equals, but an acquisition with an excessive purchase price, requiring [Great Plains] to take on significant debt."

"The $4.9 billion acquisition premium exceeds [Great Plains'] $4.8 billion market capitalization by $100 million," they noted. 

Concerns about independent oversight and financial risk to ratepayers have been sticking points in a number of major utility merger dockets in recent years. In 2016, utility regulators in Washington D.C. cited similar issues in rejecting Exelon's petition to acquire Pepco, and oversight and risk concerns surfaced again last month when Texas regulators rejected NextEra's acquisition of Oncor. 

In some cases, however, these regulatory worries can be assuaged by altering merger provisions and sweetening the pot for ratepayers through investments and rate freezes. In D.C., Exelon was able to get the commission to approve its merger on the third try, and NextEra is reportedly in talks to revise its acquisition proposal in Texas.

As for Great Plains and Westar, the companies have 15 days from Wednesday to decide if they will appeal the decision at the KCC. If the deal is denied, Great Plains would still need to pay Westar a $380 million fee, the AP notes.