Lawmakers Call SEC on Carpet Over Utilities

"Although the transaction provides immediate benefit to the new investors, existing shareholders and senior management of UniSource, the transaction introduces a new level of risk to the regulated utilities," the staff determined. "Staff concludes that the buyout, as proposed, could impair the financial status of the regulated utility."

UniSource expects to satisfy the commission's concerns and secure approval for the transaction in the end. The company faces a commission hearing on the matter June 21. It must also seek permission for the transaction from, among others, the SEC.

Old Questions

In the meantime, congressmen Dingell and Markey are already questioning the SEC's oversight of KKR following two earlier utility buyouts. They wonder whether the SEC has improperly excluded KKR's utilities from regulation in the past and whether -- even after further review -- it will continue to do so.

"Does the SEC believe utility assets located in Ohio, Michigan and Arizona would actually meet PUHCA's 'integrated public utility system' test?" the lawmakers question. "Is the SEC intending to rely on the reasoning it used to approve the merger of American Electric Power (AEP Quote) and Central & Southwest -- the same reasoning struck down by the Court of Appeals?"

Two years ago, an appeals court ordered the SEC to reconsider an AEP merger that didn't appear to comply with PUHCA rules. But the SEC has so far taken no major action on the matter.

Dingell and Markey expressed frustration.

"Why has it taken two years for the SEC to respond to an order by the court in this matter -- a major judicial reversal of what is perhaps the largest PUHCA transaction in decades -- while it expedites no-action letters?" they asked. "It has been suggested to us that the SEC and its staff simply chose to ignore the court's remand of the AEP-CSW merger in the hope that Congress would simply repeal PUHCA and thereby render the entire case mute. Is this true?"