Decision on Multibillion-Dollar Gas Company Merger Expected Any Day

By Josh Kurtz

The Maryland Public Service Commission is expected to rule within a matter of days on a proposed $6.4 billion merger between WGL Holdings Inc. – more commonly known as Washington Gas – and AltaGas Ltd., a Canadian company.

The Maryland Energy Administration and the companies themselves say the deal benefits ratepayers and will help the state meet its clean energy goals.

But the high-stakes merger has come under fire: from environmental leaders, who argue that the deal encourages natural gas fracking, which is banned in the state; from other energy providers, who claim the state is essentially setting up a slush fund to help the companies after they merge; and from the Office of People’s Counsel, the state’s utility watchdog, which claims it is too financially risky for consumers.

As the Public Service Commission nears its April 4 deadline for ruling on the proposal, most of the back-and-forth on the merger is available for viewing in bulky and arcane written filings before the PSC, which held public hearings on the plan last fall.

Under the proposed merger, which was announced in early 2017, AltaGas would buy WGL Holdings for $4.5 billion and would assume $1.9 billion of the company’s debt.

Maryland Energy Administration Director Mary Beth Tung

The state, Montgomery and Prince George’s counties, and the Laborers International Union of America, which represents pipeline workers, intervened in the proceedings to win benefits from the companies totaling $161.1 million. That so-called settlement, in official parlance, included $33 million from AltaGas, to be administered by the Maryland Energy Administration, “to kick-start gas expansion efforts throughout the state of Maryland,” and a $70 million commitment by Washington Gas to extend natural gas service to underserved areas in the state.

Under the settlement, AltaGas has pledged to fund energy efficiency programs that will help Maryland meet its carbon reduction goals. And every ratepayer would be provided with a $50 rebate after the merger is completed.

“This $161 million settlement, reached after considerable negotiation among the stakeholders, will benefit our citizens and foster economic development and infrastructure expansion in Maryland,” Gov. Lawrence J. Hogan Jr. (R) said in a statement in December after the state and other parties had reached their agreement. “Natural gas provides environmental benefits, reduces energy costs for residents and businesses, and the expansion of this valuable resource is another example of how Maryland is open for business.”

Mary Beth Tung, director of the Maryland Energy Administration, said all the parties undertook “a robust review of the merger.”

But the proposed settlement has caught flak on a variety of fronts.

In a filing with the PSC in late January, the Office of People’s Counsel, the state agency whose top lawyer is appointed by the attorney general, argued that consumers could be on the hook for at least $70 million of the newly-constituted company’s expansion plans in the state, and also suggested that AltaGas’ finances are shaky. It recommended, as it did during the public hearings last year, that the merger be rejected.

“The proposed merger exposes Maryland ratepayers to significant financial risks and is not consistent with the public interest, convenience, and necessity, including benefits and no harm to consumers, The Settlement does not eliminate the significant risk the acquisition will bring,” Michael L. Arndt, an Iowa-based utility rate expert, wrote on behalf of the OPC.

The People’s Counsel also suggested that because AltaGas is a Canadian company based in Calgary, Alberta, that aspects of the merger could violate provisions of the North American Free Trade Agreement, because it could give AltaGas could have greater competitive advantages than other companies.

AltaGas and WGL Energy, in a legal filing on March 1, dismissed that argument.

“There is no issue,” WGL’s in-house attorneys, and lawyers for Venable, LLP, representing AltaGas, wrote. “NAFTA does not provide additional substantive legal rights to AltaGas – post-Merger, AltaGas will have no greater substantive legal rights than WGL enjoys today.”

Direct competitors cry foul

In another filing opposing the merger, the Mid-Atlantic Propane Gas Association and the Mid-Atlantic Propane Dealers Association, direct competitors with natural gas providers, said they oppose “subsidized expansion of natural gas services.”

“Subsidized natural gas expansion is unfair to those saddled with the costs of the subsidy, which is granted to the utility and its new customers, because they receive no benefit from the expansion,” the trade groups wrote in their early February filing. They added that pushing to expand the use of natural gas puts the state in the position of “picking winners and losers,” and said the concept “violates the bedrock of the public utility principle that those who cause costs to be incurred should pay for those costs.”

In their March 1 response, AltaGas and WGL Holdings dismissed their rivals’ concerns, say they “unfortunately, reflect a misguided and under-informed response to the Settlement on behalf of a narrow interest.”

Meanwhile, environmental groups have suggested that encouraging more natural gas use will invariably lead to more fracking – if not in Maryland, where the practice has been banned, than in other states, which will ship fracked gas to Maryland.

“Governor Hogan is doing all he can – despite the state ban on fracking – to commit Maryland to the expanded use and transport of fracked gas,” an information sheet from the Chesapeake Climate Action Network reads.

The green group also cited NAFTA, arguing that AltaGas’ favored status could impede the development of wind and solar energy in Maryland.

“The AltaGas merger could actually create a long-term legal barrier to Maryland’s transition to a zero-carbon economy in the face of climate change,” CCAN wrote. “According to recent expert testimony before the Maryland Public Service Commission, submitted on behalf of the Maryland Office of People’s Counsel, the AltaGas settlement could give gas companies the right to sue the state under NAFTA rules if wind and solar power become a significant market threat to gas in the state in the future. Given that the Paris Climate Accords call for precisely that – a plummet in the use of carbon-based fuels – Hogan could be setting the state up for expensive legal battles and new clean-energy barriers at precisely the moment Maryland should be reducing greenhouse gas emissions, not locking future generations into gas use.”

But in their most recent filing to the PSC, AltaGas and WGL argue that natural gas will be a big environmental improvement over home heating oil or coal for residential and commercial heating and will help the state meet its greenhouse gas emissions goals. They also released a long list of political, business and community leaders who support the proposed merger.

“Quite simply, the combined company, adding AltaGas’s expertise and business, will be a strong, effective engine for powering the Maryland economy and serving customers,” the attorneys wrote.

When it issues its ruling, the Public Service Commission can approve the merger and leave the settlement agreement intact, or it can order changes to the settlement, and the companies would then have to decide whether to accept the proposed changes. The PSC can also reject the merger.

The D.C. Public Service Commission also has a say, and is scheduled to rule in May.

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