STATE OF CONNECTICUT

PUBLIC UTILITIES REGULATORY AUTHORITY

In The Matter of Joint Application of Iberdrola, S.A.,

Iberdrola USA, Inc., Iberdrola USA Networks, Inc.,
Green Merger Sub, Inc. and UIL Holdings Corporation
For Approval Of A Change Of Control

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Docket No. 15-03-45

June 12, 2015

REPLY BRIEF OF IBERDROLA USA NETWORKS, INC., IBERDROLA USA, INC.,

IBERDROLA, S.A., GREEN MERGER SUB, INC. AND UIL HOLDINGS
CORPORATION IN SUPPORT OF CHANGE OF CONTROL
Iberdrola USA Networks, Inc. (Networks), Iberdrola USA, Inc. (IUSA), Iberdrola,
S.A. (Iberdrola), Green Merger Sub, Inc. (Merger Sub) and UIL Holdings Corporation
(UIL)1 (collectively, the Applicants) submit this reply brief to the Connecticut Public
Utilities Regulatory Authority (the Authority or PURA) in support of their application filed
on March 25, 2015 in the above-captioned docket (the Application) seeking approval pursuant
to Conn. Gen. Stat. 16-47 for a change in control of UIL (as defined in the Application, the
Proposed Transaction). This reply brief responds to the initial briefs submitted by the Office
of Consumer Counsel (OCC), the Attorney Generals Office (AG), the Connecticut
Industrial Energy Consumers (CIEC) and The Alliance for Solar Choice (TASC).
I.

EXECUTIVE SUMMARY
The Authority should approve the Proposed Transaction based on the Applicants

demonstrated managerial, technological and financial suitability and responsibility, evidence that

UIL, while joining in the Application to the Authority to support the requested approval, is not an
applicant within the meaning of the Authoritys regulations under Conn. Gen. Stat. 16-47.
See Conn. Agencies Regs. 16-47-2 and 16-47-4. UIL is instead an affected company.

the UIL Utilities2 will continue to provide safe, adequate and reliable service following
consummation of the Proposed Transaction and the many benefits of the Proposed Transaction,
including numerous commitments the Applicants have offered throughout the proceeding.
The Applicants have listened to comments, questions and concerns raised by the parties,
Authority staff, the Chairman and the other Commissioners. While no realistic risks have been
effectively supported by evidence in the record, the Applicants nonetheless have proposed many
commitments and benefits, including ring-fencing, other financial protection measures and
specific and material benefits that add to the already strong profile of the Proposed Transaction
and demonstrate the Applicants commitment to the Proposed Transaction, the UIL Utilities and
their customersnow and into the future.
In total, the Applicants have agreed to 43 commitments, including a variety of ringfencing measures, other financial protection measures and economic benefits to customers, as set
forth in detail in Attachment B hereto. At a high level, these commitments include:

$5 million in rate credits (Applicants commitment #6);

$2 million for an economic development fund (Applicants commitment #7);

A distribution base rate freeze for all of the UIL Utilities (Applicants commitment #5);

Immediate storm coordination plan (Applicants commitment #4);

A renewables study valued at $400,000 (Applicants commitment #1);

Scholarship programs (Applicants commitment #2);

Additional charitable contributions beyond UILs historical levels (Applicants

commitment #3);

No recovery of transaction-related costs, acquisition premium, or goodwill, rate-neutral

accounting for the transaction, and no tax elections related to the Proposed Transaction

Capitalized terms not defined herein correspond with those defined terms in the Applicants
Brief.

that would reduce accumulated deferred income tax balances (Applicants commitments
## 8-13);

Many ring-fencing protections, including restrictions on debt, liabilities, guarantees,

money pools, dividends, credit ratings, and tax impacts (Applicants commitments ##
14-26); maintenance of separate books and records and financial statements, as well as
availability thereof to the Authority (Applicants commitments ## 27-30); notifications
to the Authority (Applicants commitments ## 31-34); and commitments to compliance
with law and acknowledgement of the Authoritys jurisdiction (Applicants
commitments ## 35-38);

Holding company management meetings held within UIL Utilities service territories
(Applicants commitments ## 39-40); and

Cost allocations and savings tracking and reporting (Applicants commitment ##41-43).

The Applicants commitments have been minimized by the other parties as insufficient, and the
benefits of the Proposed Transaction either ignored or mischaracterized to try to argue that a
benefit is actually a risk. However, the Applicants believe that their numerous and thoughtful
commitments stand on their own merits and demonstrate that the Applicants are willing to work
with regulators and stakeholders in a comprehensive and collaborative manner.
In contrast to the Applicants well-tailored, legally-supported approach, the OCC, the
AG, CIEC and TASC request well over one hundred conditions. Many of these requested
conditions have nothing to do with the Proposed Transaction, many are cut-and-pasted from
Exelon and Fortis transactions without regard to whether they apply here, many have never been
adopted in any jurisdiction, many exceed PURAs jurisdictional authority to impose, many are
duplicative or vague and many reflect bad policy. For convenience of review, the Applicants
response to each condition requested by other parties is set forth in a table in Attachment A,
which includes cross-references to their previously-requested conditions (as some of the
condition numbers have changed) as well as cross-references to the Applicants commitments, to
the extent applicable.

The OCC, the AG, CIEC and TASC would have this Authority ignore the relevant facts
and law when making its decision in this proceeding. Specifically:

Ignoring the Proposed Transaction that has been presented to the Authority for its review,
the OCC, the AG and CIEC question the structure of the transaction as well as the
consideration provided to UIL shareholders for their shares and incorrectly assume that
the Proposed Transaction is similar to other transactions involving different parties in
different states;

Ignoring applicable law, the OCC, the AG and CIEC are in effect asking the Authority
to apply laws and policies other than Connecticuts own statutory and regulatory
paradigm;3

Ignoring evidence in the record, the OCC, the AG and CIEC seek to rely upon
hypothetical, unrealistic scenarios to cast the Proposed Transaction as risky; and

Ignoring the scope of this proceeding, TASC and the OCC ask this Authority to impose
conditions that are unrelated to the Proposed Transaction, but instead relate to statewide
policy regarding distributed generation.
The OCC and the AG continue to cast aspersions with respect to the Applicants

commitment to local management, but their statements both ignore the extensive and unrebutted
evidence in this proceeding that Networks, IUSA and Iberdrola have a demonstrated
commitment to local management with respect to all of their utility businesses and reflect a basic
lack of understanding of corporate decision-making structures, including those that currently
exist and function effectively (by the OCCs and the AGs own admission) between UIL, as the
holding company, and the UIL Utilities, as the regulated utility subsidiaries. Further, the OCC

For example, other parties would have the Authority apply the Maryland, DC, Delaware, and
Arizona laws that apply to the Exelon-PHI and the Fortis-UNS transactions, the Wisconsin Utility
Holding Company Act, the Public Utility Holding Company Act of 1935 that was repealed a
decade ago, and Mr. Hemplings own merger policy that has not been adopted in any jurisdiction
in the country.

and the AG rely upon hyperbole or other transactions from other proceedings in other states
rather than facts.4
The OCCs and the AGs positions have remained inflexible throughout the course of this
proceeding5. Their theme is either to reject or overly burden the Proposed Transaction without
basis. They also make no attempt to show any nexus between their conditions and the evidence
in the record or to tailor their conditions as required by Connecticut law.
Specifically, Conn. Gen. Stat. 16-47(d) requires that conditions be necessary or
appropriate. 6 Commissioner Caron noted that the applicants were offering the Proposed
Transaction as a total value package. Apr. 22 Tr. 150:10. Chairman House also expressed that
conditions should address risks but should not be unreasonably burdensome. May 15 Tr. at
43:22-44:4. Accordingly, conditions should not be imposed merely because another company
offered them in an application or in settlement in a different transaction in a different state.
Instead, as contemplated by Connecticut law, conditions should only be included to address
realistic risks specific to the Proposed Transaction presented to this Authority and should be

Indeed, multiple portions of both witnesses pre-filed testimonies (repeated in oral testimony and
in the OCCs brief) are similar (and in some cases verbatim) to the testimonies they gave in
different states with different transacting parties under different regulatory paradigms. For
example, Mr. Smith admits to taking nearly all of his proposed conditions verbatim from other
proceedings. See OCC Late Filed Exhibit 26; May 14 Tr. 260:16-24 (Smith); compare Direct
Testimony of Ralph C. Smith on Behalf of the Office of Consumer Council, Attachment RCS-2
with Attachments RCS-4 through 11.

CIECs proposed conditions and arguments are similarly unreasonable, but CIEC did not submit
initial testimony and bases its proposals largely on the OCC witnesses testimonies and positions.
TASCs proposed conditions are also unchanged but are limited to distributed generation issues
that are unrelated to this proceeding.

Conn. Gen. Stat. 16-47(d) provides that The Public Utilities Regulatory Authority shall
investigate and hold a public hearing on the question of granting its approval with respect to any
application made under subsection (b) or (c) of this section and thereafter may approve or
disapprove any such application in whole or in part and upon such terms and conditions as it
deems necessary or appropriate . . . .

narrowly tailored to reduce the risk of unnecessarily and unreasonably burdening business
functions.
The Applicants respectfully request that the Authority approve the Proposed Transaction,
as proposed and with the Applicants 43 commitments discussed herein.
II.

APPLICABLE LAW AND STANDARD OF REVIEW

A.

The OCCs and the AGs Efforts to Expand the Scope of the Plain Language
of 16-47 Should Be Rejected.

The OCC, the AG and CIEC would have the Authority ignore the plain language of the
statute pursuant to which Applicants submitted their Application, Conn. Gen. Stat. 16-47, and
rely upon other state laws and regulations or the apparent legislative agenda of an OCC
consultant to expand the scope of Connecticut law. These approaches should be rejected. The
Applicants have satisfied the plain language of Conn. Gen. Stat. 16-47 and also demonstrated
that the Proposed Transaction is in the public interest. The AG further argues that the
Authoritys general obligation to ensure the public interest is met means that [a]t a minimum,
this means that the UIL operating companies will provide better utility service at lower rates
from day one. AG Brief, p. 2. This is not the relevant standard, this is not a rate case, and the
Applicants have committed that no rates would change as a result of the Proposed Transaction.
Instead, Section 16-47(d) of the Connecticut General Statutes focuses on the applicants
technological, managerial and financial suitability, as well as evidence that, following the change
in control, the utility will be capable of continuing to provide safe, adequate and reliable service.
Moreover, Section 16-47(d) also requires that any conditions to approval be necessary or
appropriate.7 The OCC witnesses, however, request conditions adopted by other state

The Authority has historically applied a carefully tailored approach to approvals of prior litigated
change in control proceedings involving Connecticut gas and electric utilities under Conn. Gen.
Stat. 16-47, including those involving Applicants. See, e.g., Energy East Decision; CNG and

commissions under different statutes and precedent that are not applicable under Connecticut law
or related to the Proposed Transaction. Many of the OCCs and the AGs proposed conditions
have not been shown to be necessary or appropriate under Connecticut law, including, for
example, requiring the creation of a new intermediate holding company (referred to as a special
purpose entity or SPE) or requiring the Authoritys approval for acquisitions outside of
Connecticut and outside of the United States.8
B.

The Repeal of PUHCA 1935 a Decade Ago Is Irrelevant to this Proceeding.

The OCC and the AG incorrectly argue that because of the repeal of the Public Utility
Holding Company Act of 1935 (PUHCA 1935), the Applicants would be free to acquire
additional companies without . . . limit. AG Brief, p. 22; see OCC Brief, p. 25-26.

However,

PUHCA 1935 freely permitted acquisitions of foreign utility companies pursuant to Section
32(c) and freely permitted acquisitions of exempt wholesale generators pursuant to Section
33(a)(2), as exemptions from regulatory review by the Securities and Exchange Commission
(SEC). Furthermore, PUHCA 1935 was repealed a decade ago and is therefore hardly a new
event. There have been dozens of utility merger proceedings across the United States since the
repeal, including in Connecticut.
SCG Decision. To the extent that the Authority would deviate from its past decisions and
practice, it must do so based on substantial evidence and reasoned decision-making.
8

The OCC seeks to alter the structure of the Proposed Transaction, including to interpose an SPE,
which is not permitted under Connecticut law. See OCC Brief, Exhibit A, pp. 1, 8. As explained
in the Applicants Brief (at 8), under Section 16-47(d) of the Connecticut General Statutes, the
Authority is required to review the transaction presented to it. See Conn. Gen. Stat. 16-47(d)
(stating that the Authority takes into account (1) the financial, technological and managerial
suitability and responsibility of the applicant, (2) the ability of the gas, electric distribution, water,
telephone, or community antenna television company or holding company which is the subject of
the application to provide safe, adequate and reliable service to the public through the companys
plant, equipment, and manner of operation if the application were to be approved . . . .)
(emphasis added). The OCCs conditions, such as those that mandate the creation of an SPE or
would require modifications to the transaction structure, have not been shown to be necessary,
much less appropriate, and would impermissibly alter the Proposed Transaction. See also Late
Filed Exhibit 25, Attachment 1, pp. 5-7.

C.

The OCCs Legislative and Policy Agenda Should Be Rejected.

What the OCC is really seeking is new legislation, which should be left to state and
federal lawmakers. See Direct Testimony of Scott Hempling on Behalf of the Office of
Consumer Counsel (hereinafter Hempling Pre-Filed Testimony) 125:5-126:6; May 15 Tr.
154:4-155:7. OCCs witness states that Connecticut should actively regulate the activities of
holding companies (e.g., amount of investment that a utility holding company can make in nonutility activities, capital structure of the holding company, business lines of the holding company,
and geographic reach of the holding company). Hempling Pre-Filed Testimony at 125:5-126:6.
However, the only example of such regulation he provides is pursuant to the Wisconsin Utility
Holding Company Act.9 It would appear he seeks to impose new utility holding company
legislation throughout the country. No jurisdictions have adopted his legislative or his merger
policy agenda, as Mr. Hempling readily admits.10

For example, Mr. Hempling admits at hearing that his proposed process for the Authority
reviewing and approving future acquisitions by a utility holding company has only been found
under the Wisconsin Holding Company Act, but adds that he believes it is necessary:
MR. VOCOLINA: And this particular scenario, specific scenario is something, an
approach, again, in a jurisdiction that youve seen previously?
MR. HEMPLING: No. Again, to be clear up until 2005 you didnt have to have this type
of conversation because the Holding Company Act created a very rigid, not completely
rigid, but a pretty serious limit. The second example, again, is the Wisconsin Holding
Company Act which says, 1 do what you want up to 25 percent of the total assets roughly
speaking, but above that youve got to get permission or its a no. Other than those two
examples, which I think are very useful, and other than rejections like the Montana
Commission and the California Commission, Im not familiar with this type of thinking
and I think thats a problem. I think that its necessary for commissions to be more
nuanced about their expectations and to take more control over the outcomes theyre
approving.
May 15 Tr. 173-174:10.

10

May 15 Tr. 110:23-111:1 (Therell be cross examination that causes me to agree that various of
my conditions have never been done before); see also May 14 Tr. 266:12-21 (Mr. Smith
admitting that Mr. Hemplings approach to sharing the control premium has never before been
adopted). When asked about the order in the May 28 hearing, Mr. Hempling acknowledged the
majoritys disregard of his testimony, see May 28 Tr. 234:18-21, but simply stated, [o]bviously,

Connecticut already has a robust and effective statutory and regulatory paradigm that
gives the Authority the necessary tools to protect customers. The Proposed Transaction must be
evaluated under existing law, rather the OCC consultants legislative and policy aspirations.
III.

CONTRARY TO THE OCCS AND THE AGS ARGUMENTS, THE

APPLICANTS HAVE DEMONSTRATED THAT THE PROPOSED
TRANSACTION PROVIDES SIGNIFICANT BENEFITS
Ignoring the evidence in the record, the OCC and the AG attempt to cast doubt on the

benefits of the Proposed Transaction. They describe gains from extensive energy industry
experience as illusory and noncommittal. AG Brief, p. 24; OCC Brief, p. 6. They characterize
benefits of increased financial strength as marginal, OCC Brief, p. 7, and overly focused on
short term results, id. at 3, see also AG Brief, p. 24. They conclude that the absence of a study
on synergies and ratepayer benefits indicates that the best interests of customers was not a
consideration for the Applicants. See OCC Brief, p. 2; AG Brief, p. 12. These characterizations
are incorrect and reflect a profound misunderstanding of the structure and purpose of the
Proposed Transaction, as well as its benefits.
The Proposed Transaction provides benefits to customers and the State of Connecticut in
both the short- and long-term, as discussed throughout this proceeding. For example:

Access to international best practices to allow the UIL Utilities to improve

performance and efficiency over the long-term;

Access to increased research and development resources to ensure that the UIL
Utilities utilize the latest technologies that enhance reliability and the resiliency of the
network over the long-term;

Ability to leverage purchasing power over goods, services and financings over the
long-term, including the ability to secure lower equipment costs and spread costs
across multiple entities as service demands increase;

I think the three commissioners who voted in the majority, all of whom I know and respect
greatly, erred, id. at 234:22-25.

Long-term financial support from a corporate parent that is financially stronger than
UIL is today; and

Broader ability to address electric and gas transmission and transportation

deficiencies and develop (or assist in the development of) renewable generation in the
region.11

As discussed below, the OCCs and the AGs doubts with respect to the demonstrated benefits
of the Proposed Transaction are unfounded.
A.

Best Practices and Benefits of Extensive Energy Expertise

The OCC and the AG characterize the benefits associated with Iberdrolas extensive
energy experience and UILs and the UIL Utilities increased access to best practices as a result
of the Proposed Transaction as superficial and inadequate. See OCC Brief, p. 7; AG Brief, pp.
24, 28. The OCCs witness Mr. Hempling even went so far as to state that such best practices
are achievable in the absence of the Proposed Transaction through simply going to conferences
and speaking to their peers.12 The OCC and the AG also maintain that UIL and the UIL
Utilities may already implement better practices than Iberdrola, and, at a minimum, have
demonstrated their ability to provide safe, adequate service in the State of Connecticut,
questioning the value added of Iberdrolas extensive and in depth energy experience. See OCC
Brief, p. 7, AG Brief, p. 28.
The OCCs and the AGs rhetoric is short-sighted and ignores the benefits of increased
access to proprietary information among regulated affiliates and increased resources for research

11

For a detailed summary of the benefits of the Proposed Transaction, see Applicants Brief, pp. 69.

12

See May 15 Tr. 141:1-6 (I argue that best practices are things that are the legal obligation of the
utility to begin with and they can achieve best practices by going to conferences, by speaking to
their peers, by being subject to regulatory performance standards that require best practices.)
(Hempling); see also May 14 Tr. 132: 17-22 (Utilities know in general how to perform
competently. Im referring to that place on the spectrum above competence toward excellence and
Im asserting that when a company has got all these other eggs in its basket there is a question
about whether its focus will be on excellence.) (Hempling).

10

and development as the landscape in such industry changes. The record shows that
conferences and peers could not possibly replicate the kind of information sharing that is
incentivized among a family of utilities. See generally Late Filed Exhibit 11; see also Late Filed
Exhibit 25, Attachment 1; May 14 Tr. 61:4 to 66:11.13
Furthermore, as explained in the Applicants Brief (at 24-26), the evidence in the record
demonstrates that the UIL Utilities will benefit from the strength and breadth of Iberdrolas
expertise in the energy industry worldwide. See, e.g., Response to AC-13; Late Filed Exhibit 25,
Attachment 1, Appendix B, p. 1; May 28 Tr. 122:11-123:6 (Azagra); April 22 Tr. 143:6-144;16
(Azagra). Such access to best practices will help the UIL Utilities adapt to new service demands
and constraints as the energy sector, which Mr. Hempling admits, is constantly evolving. See
May 15 Tr. 104:13-105:10 (Hempling).
Moreover, as explained in the Applicants Brief (at 27), UIL and the UIL Utilities will
benefit from Iberdrolas extensive investment in research and development, which totaled over
EUR 170 million in 2014 alone and is far greater than the level of investment that UIL could
ever realistically implement on its own. See May 28 Tr. 39:3-8; 122:11-12 (Azagra). As
Chairman House stated, the challenge is to ensure that UIL is a provider of essential services for
our citizens going forward. May 28 Tr. 37:7-9 (emphasis added).
B.

Benefits from Economies of Scale

The OCC and the AG disregard the benefits customers will derive from the UIL Utilities
joining Networks and IUSAs large regulated utility network in the United States. While the
OCC and the AG attempt to construe Iberdrolas size as a negative, arguing that the UIL Utilities
may be too small a part of Iberdrolas portfolio to matter to Iberdrola, see OCC Brief, p. 38, AG
13

It is unrealistic to imagine that utilities will share significant amounts of proprietary information
with one another. See April 22 Tr. 143:22-144:19 (Azagra).

11

Brief, p. 13, they offer nothing to rebut the benefits resulting from increases in size and enhanced
purchasing power. For example, increased purchasing power is realized through the fact that
IUSAs size provides increased leverage in equipment and services negotiations. See May 28 Tr.
114:17-25 (Kump); April 22 Tr. 141:21-142:3 (Azagra). The Applicants describe the other
benefits of increases in size and enhanced purchasing power in detail in their Brief (at 18). OCC
witness Ralph Smith even admitted that gains from economies of scale are potential benefits of
the Proposed Transaction. May 28 Tr. 192:25-193:6 (also raising the possibility of
diseconomies without factual support).
The OCC also dismisses the opportunities for UILs and the UIL Utilities employees as
unnamed, OCC Brief, p. 44, and states that investing in employees is something utilities are
supposed to do. OCC Brief, p. 55. To the contrary, the benefits are indeed specifically
identified. International leadership programs with the International Institute for Managerial
Development (IMD) and ESADE and the Iberdrola Global Energy MBA program provide
further opportunities for employees. Late Filed Exhibit 25, Attachment 1, Appendix B, pp. 3-4.
Iberdrola has the resources and the reach to provide more career opportunities than those
currently offered by UIL. With these increased career opportunities, Iberdrola can better attract
high demand talent in areas such as engineering and IT much more effectively than smaller
companies like UIL. See May 28 Tr. 123:22-124:25 (Torgerson).
C.

Benefits of Increased Financial Strength

Both the OCC and the AG ignore the gains from UIL and the UIL Utilities joining a
financially stronger energy holding company, focusing instead on risks that hypothetically could
materialize if this strength were to erode. See OCC Brief, pp. 8, 39; AG Brief, pp. 21-23, 25.
They provide no concrete examples of how or when this significant financial strength could
disappear or what might happen as a result, but simplistically assert that financial strength could,
12

theoretically, change in the future, see May 15 Tr. 148:1-9, OCC Brief, pp. 8, 39; AG Brief, p.
26. As Mr. Kump testified, it would take billions of dollars of additional debt for IUSAs
leverage to increase to UILs current debt to capital ratio of 56%, May 28 Tr. at 86:9-17. Not
only is such an outcome highly unlikely in the ordinary course, but Iberdrolas express long-term
corporate and financial strategy is focused on continuing to reduce leverage, which will further
increase financial strength. See Late Filed Exhibit 25, Attachment 1, p. 3.
The AG states that UIL and the UIL Utilities have been able to fund their capital
expenditures and so the Proposed Transaction is not needed. As Mr. Kump explained: We're
not questioning whether UIL can raise money, it's at what cost and how efficiently can we []do
that as part of a bigger group and on a stand-alone basis.14 IUSAs lower debt profile and better
credit ratings mean that equity and debt should be more accessible and at better terms and
conditions to UIL and the UIL Utilities than those that they could obtain on a stand-alone basis
today.15 Most immediately, this means that UILs five-year, $1.8 billion capital expenditure plan

14

May 28 Tr. 119:3-6 (Kump). The AG also argues incorrectly that Applicants failed to
demonstrate that UIL and the UIL Utilities had difficulty raising capital during the economic
crisis. AG Brief, p. 26. To the contrary, Mr. Nicholas testified that when we hit the crisis times,
like we did in 2008, there were times when access to capital was very limited or nonexistent for
us, and having this better balance sheet and a global partner will greatly facilitate that. Apr. 22
Tr. 16:11-16; see also May 14 Tr. 151:15-24 (NICHOLAS: Well as I testified I believe on the
first day of the hearings, we had to put off some of that financing. And so while we were able to
successfully go out in May, we pushed that out from a planned earlier issuance on the equity side.
And on the debt side we actually had to line up a backup line of credit because we had several tax
exempt issues that were coming due. It was uncertain whether those markets were going to be
open and so we had to line up, again, a backup line of credit.). Further, Mr. Azagra testified that
while most utilities had problems accessing capital during the economic crisis, Iberdrola was not
like everybody else and was able to provide financial support to its utilities. May 15 Tr. 120:1118.

15

Application, p. 17. See also May 28 Tr. 115:21-116:7 (And I think besides the purchasing
power, the access to capital would be better with a bigger, stronger company. And, you know, we
do have limits on capital as the size of company we are or we're going out and issuing equity,
having to raise more debt, and having a bigger company, you know, you can talk about the money
pool, you can move funds around more readily, so you may not be borrowing as much and saving

13

for the UIL Utilities can be funded without requiring a new UIL equity issuance. Application, p.
17.
The OCC misunderstands the sources of equity that will be available to UIL and the UIL
Utilities. In his pre-filed testimony and on cross-examination, Mr. Hempling stated that UIL
would rely solely upon Iberdrola for its equity funding. Hempling Pre-Filed Testimony 58:1021; May 15 Tr. 145:15-147:12. Mr. Sutphin then asked Mr. Hempling whether IUSA would
have independent access to capital as a listed company on the New York Stock Exchange
(NYSE), and Mr. Hempling responded: Yes. Thats a good point. Thats a good point.
They would have access to capital . . . . May 15 Tr. 147:13-18. Mr. Azagra provided additional
detail, explaining that UIL and the UIL Utilities will now have a new dual option for equity in
the form of: (1) equity infusions from Iberdrola (with its approximately $10 billion in access to
liquidity in the near term); and (2) equity offerings from a publicly traded IUSA that is larger and
financially stronger than UIL.16
The record evidence weighs in favor of finding that a larger, financially stronger, publicly
traded U.S. holding company like IUSA (that has a strong equity relationship with one of the
largest utility holding companies in the world) should become the owner of UIL, which would
help put the UIL Utilities in a better position to withstand any future economic uncertainty and
meet the increasing demands of an evolving industry.
D.

Additional Calculable Benefits

The OCC and the AG also seek to dismiss the Applicants additional, more readily
calculable commitments which provide more than $10 million of quantifiable customer and
for consumers that way. So I think the capital-raising aspects are going to be significant for us.)
(Torgerson).
16

May 28 Tr. 121:1-10. Despite the evidence in the record, the OCC continues to assert incorrectly
in its brief that the sole source of equity for the UIL Utilities will be Iberdrola. OCC Brief, p. 8.

14

community benefits (including, among other things, a $5 million rate credit to help low-income
customers pay off arrearages17 and a $2 million economic development fund) as not enough.18
Given that Conn. Gen. Stat. 16-47 does not expressly require applicants to demonstrate that
benefits from a proposed change in control be quantifiable financial benefits, the OCCs and
AGs assertions should be summarily dismissed.
E.

No Synergy Study is Required

The OCC criticizes the Applicants for not conducting a synergy study and claims that this
indicates that customers are not a priority of the Proposed Transaction. See OCC Brief, p. 2; AG
Brief, p. 12. CIEC makes the statement that it must be inferred that large corporations merge
because of opportunities for synergies without providing any support for this overly simplistic
assertion that ignores the evidence in the record regarding the purpose of the Proposed
Transaction. CIEC Brief, p. 4. Contrary to the OCCs and CIECs claims, no synergy study is
required to meet the standard of review, and it would not make sense to conduct a synergy study
for a transaction such as the Proposed Transaction that is not focused on obtaining synergies.
The applicable statutory standard in Connecticut does not require a synergy study or a
showing of any synergies. Instead, the law requires a showing that the Applicants are
financially, managerially and technologically suitable and responsible and that the UIL Utilities
will be able to continue to provide safe, adequate and reliable service following consummation
of the Proposed Transaction. Conn. Gen. Stat. 16-47(d). The Applicants have made that

17

Staff asked whether the $5 million to assist low income customers to pay off arrearages was in
the UIL Utilities own interest. Mr. Nicholas clarified that our hardship uncollectible[s] are
trued up through the system benefit charge, so the company really doesnt it helps with
uncollectibles overall, but that benefit actually will go to all customers with an otherwise lower
system benefit charged. May 28 Tr. 140:12-18.

18

OCC Brief, p. 56; AG Brief, p. 5. The OCCs witness Hempling denigrated the value of these
concrete benefits and appeared to want to instruct the Authority on its obligations. See May 28
Tr. 232:5-24.

15

showing and have also shown more generally that the Proposed Transaction is in the public
interest.
Furthermore, the driving force of the Proposed Transaction was to achieve growth, rather
than reduce headcount. See Response to AG-7; May 14 Tr. 23:19-23:2. As Mr. Azagra testified:
And I go back to the benefits. The more you do in terms of
development, and I think Iberdrola, USA is bringing in materially
more growth opportunities than UIL, if you have those companies
doing businesses here, I think for me the benefit is not cost cutting
or firing people or synergies and that's it, I think it's creating jobs.
So you want to benefit from that. That's a value creation, and that's
what we've been doing in New York and Maine which is to grow.
And the more we grow in the U.S., the more the businesses and
back-up office and services that provide those new projects
basically will be performed out of those territories where we do
business, and we can see that both in Maine and New York.[19]
Rather than engage in employee reductions, the primary focus of the Proposed Transaction is to
grow reflecting UILs recognition that it will need to increase in size to keep up with its service
demands and commitment to innovation. See May 14 Tr. 154:8-19 (Torgerson).
Together, UIL and IUSA determined that there was a strong potential for growth
associated with the Proposed Transaction, as well as improvements in balance sheet strength,
access to equity, and total network size and geographic composition, as well as more general
benefits such as increased access to best practices, employment opportunities, research and
development, purchasing power and flexibility on the ability of the UIL Utilities to spread costs
throughout a larger entity. See Response to OCC-86. As Mr. Richard Nicholas testified, it is not
reasonable to ignore the benefits of being part of a much larger organization, with a much
19

April 22 Tr. 159:6-23 (Torgerson); see also April 22 Tr. 223:2-18 (Torgerson) ([W]e've done a
lot of analysis looking at what the future benefits will be as a result of the merger, and the merger
was done based on how do we grow this business, how do we increase the size and the scope to
be more effective in the utility industry, and that was the basis for it. It was more of a strategic
look at why we should combine. That was what we were focused on. And it wasn't looking at
synergies, it wasn't looking at cost reductions.).

16

stronger financial base, with best practices globally, just because these benefits do not have a
dollar sign next to them. See April 22 Tr. 220:19-25.
IV.

CONDITIONS PROPOSED BY OTHER PARTIES BEYOND THOSE

COMMITMENTS PROVIDED BY THE APPLICANTS ARE NOT TAILORED
TO ADDRESS REALISTIC RISKS AND SHOULD BE REJECTED
In addition to demonstrating that the Applicants have the financial, technological and

managerial suitability and responsibility to ensure that the UIL Utilities will continue to provide
safe, adequate and reliable service, the Applicants have committed to a collection of 43
commitments that address comments raised during this proceeding and that will provide
numerous benefits to UIL, the UIL Utilities and the State of Connecticut. These commitments
include:

$5 million in rate credits (Applicants commitment #6);

$2 million for an economic development fund (Applicants commitment #7);

A distribution base rate freeze for all of the UIL Utilities (Applicants commitment #5);

Immediate storm coordination plan (Applicants commitment #4);

A renewables study valued at $400,000 (Applicants commitment #1);

Scholarship programs (Applicants commitment #2);

Additional charitable contributions beyond UILs historical levels (Applicants

commitment #3);

No recovery of transaction-related costs, acquisition premium, or goodwill, rate-neutral

accounting for the transaction, and no tax elections that would reduce accumulated
deferred income tax balances (Applicants commitments ## 8-13);

Many ring-fencing protections, including restrictions on debt, liabilities, guarantees,

money pools, dividends, credit ratings, and tax impacts (Applicants commitments ##
14-26); maintenance of separate books and records and financial statements, as well as
availability thereof to the Authority (Applicants commitments ## 27-30); notifications
to the Authority (Applicants commitments ## 31-34); and commitments to compliance
with law and acknowledgement of the Authoritys jurisdiction (Applicants
commitments ## 35-38);

17

Holding company management meetings held within UIL Utilities service territories
(Applicants commitments ## 39-40); and

Cost allocations and savings tracking and reporting (Applicants commitments ##4143).
Despite this collection of commitments and the benefits associated with them, the OCC,

the AG, TASC and CIEC have proposed well over 100 conditions (85 of which come from the
OCC alone) based on concerns that are unsupported by the record and unnecessary to ensure that
the Proposed Transaction satisfies the applicable statutory standard. These conditions are largely
taken from offers made by other companies in other states involving other transactions,20 or
reflect requested conditions that have never been adopted in any jurisdiction and should be
rejected to the extent they go beyond the commitments made by the Applicants.21 Below are
general responses to categories of conditions that have been proposed in this proceeding. For
convenience, a response to each individual condition is provided in Attachment A.
A.

Conditions Related to Limiting Management Discretion Are Not Based on

Any Realistic Risk, Would Hinder Efficiency and Should Be Rejected.

The OCCs and the AGs management conditions, which are solely based upon the New
York Management Audit, have no merit and should be rejected.

20

For example, OCC witness Smiths proposed conditions are cutand-pasted from Exelon and
Fortis transactions in other states without regard to the specifics of the transaction at hand. See
OCC Late Filed Exhibit 26; May 14 Tr. 260:16-24 (Smith); compare Direct Testimony of Ralph
C. Smith on Behalf of the Office of Consumer Counsel, Attachment RCS-2 with Attachments
RCS-4 through 11.

21

The OCCs other witness, Mr. Hempling, admits he is not a financial expert, he is not a
management expert and that he is not qualified to speak about matters beyond his areas of
expertise, see May 28 Tr. 241:10-13, May 15 Tr. 144:3-6, 150:24-151:15, 152:20-153:2, yet all of
his proposed recommendations are either financial or managerial in nature. His recommendations
are extreme, have never been adopted in any state and should be rejected here as well.

18

1.

The New York Management Audit does not present residual concerns
regarding managerial suitability, but instead reflects successful
collaboration with regulators in New York to implement constructive
operational and structural changes at the New York Utilities and their
intermediate holding companies.

The OCC and the AG raise concerns regarding IUSAs and Iberdrolas managerial
suitability by pointing to a management audit report involving the NY Utilities that was
conducted by a third party and accepted by the New York State Public Service Commission
(NYPSC) in 2012 (the Management Audit Report). OCC Brief, pp. 12-14; AG Brief, pp.
16-17. The OCC and the AG, however, ignore the evidence in the record on this matter and
make allegations based on inaccurate statements.
Contrary to the assertions by the OCC and the AG, the Management Audit Report not
only identified areas for improvement (as any audit would do), it also identified areas of
strength at IUSA and the NY Utilities, including the following:

22

the overall structure in the U.S. is utility focused, and that the U.S. management is fully
utility-engaged;

the operations and maintenance budgeting processes are effective;

their programs for Smart Grid, renewables, and Demand Side Management review and
support are properly structured and implemented;

the Companies have a sound plan for dealing with the aging gas infrastructure;

NYSEG and RG&E have a well-defined supply risk management approach;

the Companies have a diverse gas supply asset portfolio;

the Companies perform effective, unbiased administration of retail choice;

the Companies are effective at training workers;22

IUSA uses appropriate, well-structured, cascading goals and targets to measure

performance;
Specifically, the auditor lauded the Companies effective worker training, and their reasonable
flexibility in using workers under labor contracts. Response to EN-7, Attachment 1, p. 5.

19

there is a sound ethics and compliance program; and

there is a sound linkage among goals, performance measures, and incentive

compensation.

Response to EN-7, Attachment 1, pp. 4-6.

With respect to areas of the consultants recommendations, the OCC concedes that all 72
of the recommendations that were adopted by the NYPSC have been implemented. OCC Brief,
p. 12; see also Response to OCC-29. This belies the OCCs claim that there is no evidence
that IUSA and Iberdrola have addressed findings related to corporate structure and governance,
OCC Brief, pp. 12-13, because findings in the Management Audit Report related to corporate
structure and governance ultimately resulted in 13 recommendations that were part of the 72
recommendations that the OCC acknowledges were already implemented. See Response to EN7, Attachment 2, pp. 6-7; Response to EN-7, Attachment 1, pp. 23-24. The OCC and the AG
also fail to acknowledge that certain of these recommendations addressed findings related to
transparency as well.23
The OCC also discusses certain findings from the report completed by the Moreland
Commission that was established by the Governor of New York to investigate utility
preparedness and response to storms since 2008 following Hurricane Sandy. OCC Brief, pp. 2022; see also Response to EN-9. The New York Utilities have since worked with the NYPSC to
take action to address the concerns raised by the Moreland Commission and filed an updated
Electric Utility Emergency Plan in less than six months after the issuance of the Moreland
Commissions report. See Response to EN-9; Late Filed Exhibit 15, Attachment 1.
23

OCC Brief, p. 14; AG Brief, p. 17; see Response to EN-7, Attachment 2, pp. 20-26
(Recommendations 2.5 and 2.6). The AG also cites a statement in the Management Audit Report
where the audit expressed concern about potential future cost cutting without evidentiary support.
AG Brief, p. 17. The AG ignores the evidence in the record that reflects that, since the
Management Audit report was issued, staffing levels at the New York utilities have increased,
rather than decreased. See Response to OCC-191.

20

As shown by the responses to the New York Management Audit and Moreland
Commission, IUSA and Iberdrola are committed to working with their regulators to identify
opportunities for improvement and to execute implementation plans quickly and effectively. See
Response to EN-7, OCC-29 and OCC-53.
2.

The OCCs and the AGs conditions would unreasonably interfere

with the manner in which the UIL Utilities are effectively and
efficiently managed, without justification.

The OCC and the AG have proposed a series of conditions (many of which are cut and
pasted from certain Fortis and Exelon cases) that demonstrate a lack of understanding with the
way the UIL Utilities are managed and that would unnecessarily restrict and interfere with the
management of the UIL Utilities. There is no basis for these conditions to be imposed, and the
Authority should reject them.
The OCCs witness Mr. Hempling admits that these management-related conditions
would interfere with the management of the UIL Utilities.24 He explains that these management
conditions are intended to hamstring management. May 28 Tr. 230:18-231:4. Such
conditions are overbroad and imprecise, undermine the efficiency of the UIL Utilities operations
and, rather than being based on specific evidence related to the Proposed Transaction, actually
ignore the evidence in the record.25

24

May 28 Tr. 230:18-25. He also indicated that You know, Counselor, I think the Companys
onto something here. This wasnt my favorite condition, and I have no problem admitting that,
and its really part of the discussion I was having with Commissioner Caron, and I believe with
Mr. Vocolina before. May 28 Tr. 260:14-19. Mr. Hempling also admits that he wrote it for
purposes of getting their attention . . . . May 28 Tr. 260:21-23, 261:1-2.

25

For example, OCCs condition 1 references an Executive Committee even though neither
Networks nor IUSA have one, while condition 2 mandates that UILs monthly meeting with
IUSAs CEO through IUSAs Management Executive Committee even though IUSA has no
such committee. OCC Brief, Exhibit A, p. 1. Condition 1 further mandates that UIL continue to
respond to local conditions as it does today without defining what that means (or, apparently,
without considering that UIL may seek to improve how it responds beyond how it does it today),
id., while condition 4 requires that a statement of Corporate Governance Principles and a

21

The OCCs proposed conditions also ignore the evidence in the record regarding UILs
current practices and the proposed governance structure following the Proposed Transaction.
For example, OCC condition 1 proposes that UIL continue to establish priorities and respond to
local conditions as it does today, OCC Brief, Exhibit A, p. 1, but, as Mr. Torgerson testified, the
OCCs emphasis on decisions exclusively being made at the utility level as stated in condition
65, is inconsistent with UILs practices today, as the OCCs view ignores the role of UIL in
overseeing decisions made by the UIL Utilities in accordance with its fiduciary duty. May 28 Tr.
25:18-26:13 (Torgerson).
The OCC and the AG also expressed a concern that Mr. Torgerson will be less able to
safeguard the interests of the UIL Utilities as CEO of IUSA because IUSA is bigger than UIL,
AG Brief, p. 13, OCC Brief, p. 91, and that he will be distracted by hunting for new
acquisitions throughout the United States. May 15 Tr. 105:11-21 (Hempling). This concern is
unsupported by the record. First, the OCC and the AG state that UILs management is high
quality today and that same management acquired CNG and SCG in 2010 and worked to acquire
Philadelphia Gas Works in 2014. See May 14 Tr. 155:4-156:3. There is no reason to speculate
that senior management will not continue to function at a high level. In fact, UILs management
will be gaining access to significantly more resources and best practices, including management

Delegation of Authority be drafted, but does not designate by whom or explain what either are,
id. at 2. Requirements like condition 2 that mandate specific meetings between parties, OCC
Brief, Exhibit A, p. 1, or conditions 1 and 65 that provide specific processes for budgetary
approvals, id. at 1, 23, restrict the flexibility of UIL and Networks to work with their utilities to
respond quickly and efficiently to changing circumstances, see May 28 Tr. 22:24-23:5
(Torgerson). They also ignore the roles played by the senior management and the board in UILs
corporate structure today to ensure that the decisions of the UIL Utilities are sound. Id. at 25:2026:13 (Torgerson). Furthermore, the evidence shows that UIL and Networks each have regular
meetings with their regulated utilities. See May 28 Tr. 70:4-6 (Kump); May 14 Tr. 77:21-78:9
(Torgerson).

22

and technology resources. See, e.g., Late Filed Exhibit 25, Attachment 1, Appendix B, p. 1;
Response to AC-13.
In addition, the Applicants have committed not to change the headquarters or local
management of UIL or the UIL Utilities as a result of the of the Proposed Transaction, see
Application p. 12, and keep all operating decisions at the utility-level. See the Applicants Brief,
pp. 20-21 for more details regarding Applicants commitments to local management.26
B.

The AGs Proposed Conditions Related to Specific Reliability and Service

Targets Are Not Related to the Proposed Transaction or Any Risk Related to
It and Should Be Rejected.

The AG proposed arbitrary performance targets for improving reliability and customer
service metrics as additional conditions to approval of the Proposed Transaction, including a
mandated 5% improvement in UIs SAIDI, SAIFI and CAIDI statistics within three years of the
consummation of the Proposed Transaction and a plan to reduce call center statistics and
customer complaints of the UIL Utilities by 5% over the same time period. AG Brief, pp. 34-36.
Yet there is nothing in the record to indicate that any of these reliability and service categories is
currently a problem. These conditions should be rejected.
First, UIL and the UIL Utilities have an excellent reliability and customer service track
record, and are capable of providing safe, adequate and reliable service to their customers today
without mandated improvement targets.27 The Applicants have repeatedly stated that they will

26

Despite the OCCs and the AGs assertions to the contrary, Applicants commitments to local
management provided herein are consistent with Iberdrolas history of relying upon local
management in the countries and regions in which they operate. See Response to OCC-27. For
example, nearly all of the IUSA senior management team are locally-based, U.S. citizens, and
nearly all of the members of the senior management teams of its operating utilities in the United
Kingdom, Mexico and Brazil are locally-based citizens of the country in which they operate.
Late Filed Exhibit 25, Attachment 1, p. 9.

27

See Responses to EN-3 and CA-3; May 28 Tr. 127:13-15 (Kump). In fact, the OCC agrees that
the UIL Utilities have been and are expected to be able to provide safe, adequate and reliable
service. OCC Brief, pp. 10-11.

23

work to maintain UILs and the UIL Utilities service quality over the near-term following
consummation of the Proposed Transaction, but note that best practices may provide incremental
changes that enhance reliability and service quality over the intermediate term, while necessary
capital investments in aging equipment and in new capital expenditures on gas and electric
projects, supported by the financial strength and purchasing power of IUSA, will ensure
reliability over the long-term. See Responses to CA-3 and CA-6; Late Filed Exhibit 25,
Attachment 1, Appendix B, p. 1.
Second, Networks and IUSA have strong commitments to the service and performance of
their regulated utilities. For example, since their acquisition by Iberdrola in 2008, the New York
and Maine Utilities have received a significant number of awards for superior performance,
including from EEI and JD Power, and CMP and RG&E were ranked among the most trusted
utility brands in the nation according to a 2014 study conducted by Cogent Reports. Application,
p. 21, n.15. They have also met or exceeded approximately 40 annual customer reliability and
service standards, including meeting their respective state-mandated electric reliability targets for
CAIDI and SAIFI, Application, p. 21; Response to EN-11; Response to RA-2, p. 1, among other
improvements, see generally Late Filed Exhibit 11. Networks and IUSA have invested
significantly in infrastructure to ensure that the New York and Maine Utilities continue to
provide safe, adequate and reliable service over the long term. See Applicants Brief, pp. 2930.28
While the UIL Utilities, as well as Networks, IUSA and their regulated utilities, are
always looking for ways to improve reliability and customer service, there are no instances of

28

Furthermore, Networks practices such as the red circuit analysis for reliability metrics and
improvements, May 14 Tr. 61:12-24 (Kump), and the achievements of IUSAs engineering and
project management team, May 28 Tr. 114:17-21 (Kump), among others, are transferrable to the
UIL Utilities and do add real value. See Applicants Brief, pp. 24-26.

24

reliability or service concerns and the UIL Utilities current service quality has not been at issue.
Arbitrarily setting a percentage reduction in reliability and customer service metrics as a
condition of approval of the Proposed Transaction lacks any evidentiary basis. Since this
condition is untailored, duplicative of current regulations and fails to mitigate any identified risk
related to the Proposed Transaction, it should be rejected.
C.

Additional Ring-Fencing and Other Financial Protection Conditions Are Not

Based on Any Risk Related to the Proposed Transaction and Should Be
Rejected.
1.

Allegations of financial risks associated with the Proposed

Transaction are unrealistic and lack evidentiary support.

The OCC and the AG have attempted to recast benefits of the Proposed Transaction as
somehow exposing the UIL Utilities to unsubstantiated financial risks. For example, both the
OCC and the AG claim that IUSA has a riskier financial profile than UIL simply because it has
utility subsidiaries that operate in Maine and New York, primarily contracted renewable
generation facilities throughout the United States and certain other affiliates (subsidiaries of
Iberdrola) in other countries. However, all of the evidence in the record shows that IUSA has a
stronger financial profile than UIL. The OCC and the AG also express unsupported concerns
regarding the potential for affiliate abuse, but these allegations assume that there is or will be a
violation of existing rules and laws regarding affiliate transactions; however, there is nothing in
the record to support such an assumption.
Despite IUSA having a significantly stronger financial profile than UIL, the OCC has
called for the Authority to condition its approval of the Proposed Transaction upon the
imposition of 50 conditions related to ring-fencing, as well as numerous others related to
financial protections, based on what-if scenarios that are unsupported by evidence in the record.
The categories of potential risk alleged by the OCC and the AG range from IUSAs affiliation
25

with entities that operate in other countries, that own and operate generation (including nuclear
generation), that own and operate renewable generation in the United States, that own and
operate utilities outside of Connecticut, as well as currency exchange rate exposure. Each of
these categories is addressed in turn below.29
a.

Foreign Operations

The OCC and its witnesses, the AG and CIEC focus on rhetoric and hyperbole to
characterize the benefits associated with being part of a larger, more diversified energy holding
company as risks simply because certain affiliates operate in other countries and are therefore
foreign. See, e.g., May 15 Tr. 70:3-10 (Smith). Despite their best attempts, the mere fact that
an affiliate might be located in another country does not mean that Iberdrolas investment in such
affiliate is somehow risky. The Applicants have already explained that Iberdrola has consistently
focused on regulated utility operations in countries with predictable and stable regulatory
frameworks (United States, United Kingdom, Mexico, Brazil and Spain) and that credit rating
agencies and the investor community view Iberdrolas global diversification in a positive light.
Applicants Brief, pp. 34-35.
The OCC also uses scare tactics in its brief to suggest that the holders of Iberdrola stock
are unknown and that they fundamentally differ from UILs current shareholders. OCC Brief,
pp. 47-48. However, in response to one of the OCCs own interrogatories (which OCC fails to
acknowledge), the Applicants explained that Iberdrolas shareholders are comprised of
approximately 74% institutional investors and 26% individual investors, and that these

29

The Applicants have already responded to each of these categories of supposed risk at length in
both Late Filed Exhibit 25 and Applicants Brief, pp. 33-39. Discussions herein are limited to
addressing specific points in the briefs of the OCC, the AG, CIEC and TASC.

26

percentages are almost identical to the current percentages of UILs shareholders (72%
institutional and 28% individual investors). See Response to OCC-23.
b.

Ownership of Generation

The OCC and the AG each make passing references to Iberdrolas non-U.S. nuclear
operations as a source of risk to the UIL Utilities. OCC Brief, pp. 10, 57; AG Brief, p. 22. As
the Applicants have explained in their Brief, these concerns are based on rhetoric rather than
facts. Applicants Brief, pp. 35-36. The Applicants have also provided significant information
in Late Filed Exhibit 25 about the safety and quality of Iberdrolas affiliates nuclear operations
in Spain and the limitations on liability related to such operations, none of which the OCC or the
AG have acknowledged. Furthermore, the record shows that ratings agencies view Iberdrolas
nuclear operations in a positive light. See Late Filed Exhibit 25, Attachment 1, pp. 3-4.
The Applicants have also already responded to concerns expressed by the OCC regarding
IUSAs generation-owning affiliates. See Applicants Brief, pp. 38-39; OCC Brief, p. 57.
Furthermore, the record is clear that IUSAs ownership of predominantly contracted renewable
generation provides for a stable, diverse portfolio of companies. May 28 Tr. 20:17-20 (Kump).30
c.

Currency Risk

The AG has also expressed concern about the fact that Iberdrolas affiliates operate in
three principal currencieseuros, U.S. dollars and pounds sterling. AG Brief, p. 23 (citing May
14, Tr. 137-38, 192-94). Specifically, the AG suggests that Iberdrolas policy of matching assets

30

As discussed below in Section IV.F.1, the mere fact that IUSA has affiliates that own and operate
generation does not mean that there will be affiliate abuse in violation of existing law regarding
affiliate transactions as the OCC and the AG would have the Authority believe. See May 15 Tr.
102:4-103:4 (Hempling); AG Brief, p. 31 (citing Hempling Pre-Filed Testimony, p. 15). Such
affiliation does not inherently subject the UIL Utilities to risk as alleged by the OCC and the AG.
Rather, affiliate contracts with regulated utilities are governed not only by applicable law, but
also Applicants robust internal policies designed to prevent affiliate abuse. May 28 Tr. 20:17-20
(Kump).

27

and liabilities to local currencies to the extent possible will somehow prevent Iberdrola from
injecting equity into UIL. Id. This assertion is misguided. Nothing about Iberdrolas policy
prevents or restricts Iberdrola from being able to inject equity into its U.S. subsidiaries that
operate in U.S. dollars. Mr. Azagra explained that equity from Iberdrola would be one of two
options for access to equity (the other being equity offerings from a publicly traded IUSA), May
28 Tr. 121:1-10. Iberdrola has also previously infused equity into the New York utilities. Late
Filed Exhibit 25, Attachment 1, Appendix B, p. 2. Furthermore, the Applicants have already
explained that currency fluctuations do not impact Networks utilities in the United States.
Applicants Brief, pp. 36-37; Late Filed Exhibit 25, Attachment 1, p. 7.
2.

The Applicants proposed collection of ring-fencing commitments is

robust and accomplishes the purposes of such measures.

The OCC has proposed an assortment of ring-fencing measures that it claims have been
agreed upon in the industry and are state-of-the-art. OCC Brief, pp. 57-58, 61. The OCC
boldly asserts without basis that its recommended approach constitutes the best and most
current regulatory thinking on these matters. OCC Brief, p. 70.31
Despite these sweeping claims, the OCCs proposed ring-fencing conditions are largely
cut and pasted from two other utility transactions involving different parties in different states
with different statutory and regulatory standards. See OCC Brief, pp. 57-71; OCC Late Filed
Exhibit 26, Attachment 1; compare Direct Testimony of Ralph C. Smith on Behalf of the Office
of Consumer Counsel, Attachment RCS-2 with Attachments RCS-4 through 11. The OCC also
admits that there is no single definitive list of ring-fencing mechanisms. OCC Brief, p. 61.

31

The OCC cites a non-public S&P document that is not in the record to support its claims. See
OCC Brief, p. 60, n.16. This late attempt to include extra-record evidence should be rejected.
Furthermore, the OCC continues to rely upon the wrong S&P documents this time pointing to
documents on project finance, rather than documents that reflect the relationship between utilities
and their holding companies. See Supplement to Smith Pre-Filed Testimony, Exhibit RCS-20.

28

The AG concurs with the OCCs concession, stating that each utility merger transaction is
different and should be judged on its own merits. AG Brief, p. 33. Indeed, collections of ringfencing measures are not one-size-fits-all, but instead, must be tailored to the specific facts and
circumstances of the transaction and parties.
In their Brief, the Applicants proposed a collection of 24 ring-fencing commitments that
are carefully tailored to perform the functions intended by the ring-fencing measures proposed
by other parties in this proceeding while taking into consideration the specific operational
circumstances of the UIL Utilities and structure of the Proposed Transaction. Even though the
financial risks identified by the OCC and the AG are overstated such that no ring-fencing
measures are necessary with respect to the Proposed Transaction, the Applicants proposed
collection of ring-fencing measures constitutes a substantially more robust collection of ringfencing measures than are typically imposed or offered in utility merger proceedings and than
have ever been implemented in Connecticut.32
The Applicants collection of ring-fencing commitments will give the Authority the
comfort of creating sufficient separation between the UIL Utilities and their parent companies,
reduce exposure to defaults of parents and affiliates and reducing the likelihood of any of the
UIL Utilities being drawn into a bankruptcy proceeding of a parent or affiliate. Conditions that

32

While the Applicants have proposed numerous commitments beyond those in the Application in
response to concerns voiced by the OCC and the AG, the OCC has failed to incorporate any of
the suggested revisions to ring-fencing measures that the Applicants provided in Late Filed
Exhibit 25. The ring-fencing measures proposed by the OCC (conditions 1-50) are exactly the
same as those originally proposed in Mr. Smiths Pre-Filed Testimony. The OCC has
demonstrated throughout this proceeding that they are unwilling to tailor their extreme conditions
to take into account the specific facts and circumstances of the Proposed Transaction and the UIL
Utilities (instead opting for reliance on conditions that are copied almost verbatim from other
proceedings in other states).

29

go beyond this carefully crafted collection of protections are superfluous and should be
rejected.33
D.

Conditions Requesting Greater Customer Benefits Are Unfounded,

Unnecessary under Connecticut Law and Baseless and Should Be Rejected.

The OCC proposes that the Authority condition its approval on the requirement that the
Applicants provide what would amount to an unprecedented combination of rate credits and
customer investment fund based on a unrealistic and misguided calculation that has never been
adopted in any jurisdiction. OCC Brief, pp. 92-99.
Mr. Hempling views the cash component of the consideration received by UIL
shareholders for their shares as a windfall and claims, without factual or legal support, that
customers of the UIL Utilities should receive an amount based upon the amount received by
shareholders.34 First, the evidence in the record is that UIL shareholders are not receiving cash
as a windfall, but rather are receiving a mixture of IUSA stock and cash as the fair value for
their UIL shares. See Response to FI-31. As the Applicants have explained,
When any shareholder purchases common stock in any
corporation, they assume the risk that the price of that stock will
increase or decrease based on the financial markets valuation of
the consolidated organization (UIL) over time. This valuation and
risk is incorporated in UILs stock price and reflects investors
perceptions of the current financial condition, operation, and
importantly, the future financial, operational, and strategic
33

For example, the OCC calls for the creation and insertion of a completely new corporate entity
(i.e., an SPE) based on the fact that such an entity was included as part of the transaction structure
proposed by Exelon and PHI in their initial application for approval. The way in which a
transaction is structured is a long, negotiated process that takes into account numerous factors that
are specific to each transaction. Neither the Applicants here nor the Authority can know all of the
reasons behind Exelons and PHIs decision to include such an entity. The Proposed Transaction
that is before the Authority in this proceeding, however, is not structured in that manner.

34

The OCC incorrectly accuses UILs Board of Directors of violating state law obligations by
approving the Proposed Transaction. OCC Brief, p. 30. The OCC, however, fails to cite to any
law to support such an accusation or to explain its assertion that a public utilitys obligation to
provide cost effective service is somehow in conflict with the obligations of a holding companys
board of directors to the holding companys shareholders.

30

prospects of the consolidated UIL. This risk is therefore not only

reflected by the return on equity of each regulated and unregulated
subsidiary of UIL, but on the projected future performance of
UILs businesses and other potential strategic initiatives that are
considered by investors.
Response to OCC-280. There is no basis for arriving at any customer benefit level based upon
looking at a portion of the fair value exchange to the holding company shareholders. Suggesting
that ratepayers share in the increase of UILs stock price is as nonsensical as holding ratepayers
accountable whenever UILs stock price decreases.
Second, while Mr. Hempling would have the Authority treat his extreme theory as a
rebuttable presumption, OCC Brief, p. 35, he has admitted that no regulatory authority has
ever found that benefits to customers should be measured by payments to shareholders: Ill be
absolutely straightforward and say, Im not aware of a commission, I dont know what
everybody has ever proposed, but Im not aware of a commission using this logic in a decision.
May 15 Tr. 167:15-21. Mr. Hempling admits that the payment to shareholders has zero
connection to rate base. May 15 Tr. 142:13-14. In fact, Mr. Hempling admits that I dont
know what the ratepayer has done to deserve this premium. The ratepayer has paid for service
all these years, and guess what? The ratepayer has received service all these years . . . .35
Both the OCC and the AG also mistakenly point to IUSAs current net operating losses
(NOLs) and production tax credits (PTCs) as representing potential sources of savings.
OCC Brief, p. 98-99; AG Brief, pp. 7-8. As a threshold matter, the calculations of so-called
35

May 15 Tr. 164:1-5. Further, there is no express requirement under Connecticut law that the
Applicants demonstrate economic benefit, let alone a particular level of economic benefit, and
therefore, Mr. Hemplings assertion that his theory should be given the weight of a rebuttable
presumption is baseless. Conn. Gen. Stat. 16-47 requires the Applicants to demonstrate that
they have the financial, managerial and technological suitability to ensure safe, adequate and
reliable service, and the Authoritys general requirement that the transaction be in the public
interest does not specify that benefits be economic in nature. Notably, each of the examples of
other proceedings that include a rate credit or customer benefits fund in the OCCs brief are taken
from voluntary settlement agreements.

31

annual tax savings provided by the AG are extra-record evidence that the Authority should
disregard. The AG fails to provide any of its calculations that it uses to arrive at the incorrect
extra-record calculation, which it states, incorrectly, represents an amount of annual tax savings
for an unspecified period of time. See AG Brief, pp. 7-8.
Moreover, these calculations are incorrect and meaningless, and demonstrate a
fundamental misunderstanding of the long-term implications of these tax incentives. At hearing,
Mr. Azagra agreed with the AGs simplified explanation that accelerated depreciation allows for
the offset of taxable income, May 14 Tr. 181:7-14, yet in its brief, the AG incorrectly uses UILs
book earnings to calculate supposed tax savings, AG Brief, p. 7-8. Mr. Torgerson and Mr.
Nicholas explained that the numbers the AG cited (and ultimately used in its brief) for taxable
income were really book earnings, which are different from taxable income. See May 14 Tr.
191:1-10. Furthermore, the OCCs and AGs argument is irrelevant as Mr. Torgerson and Mr.
Nicholas explained that UIL did not pay federal income tax last year because UIL was already in
a net operating loss position due to bonus depreciation. See May 14 Tr. 181:19-20 (Torgerson),
191:21-24 (Nicholas).
Furthermore, the underlying assertion that the net present value of such savings (to the
extent this figure can even be calculated with any sort of accuracy) should be translated into
immediate rate credits is incorrect, and demonstrates a fundamental misunderstanding of NOLs.
Tax benefits that lead to NOLs such as accelerated, or bonus, depreciation are simply a matter
of timing. Tax savings today are offset by greater tax liability down the road. Flowing through
resulting savings associated with these tax incentives on a net present value basis would ignore
the future implications of these temporary savings (i.e., in the future, they will convert to greater

32

tax liability). Accordingly, suggesting that IUSAs NOLs and PTCs represent a quantifiable
source of immediate savings for ratepayers is incorrect.
Finally, the focus of tax issues in this proceeding should be to ensure that the UIL
Utilities are not paying more taxes than they would otherwise pay on a standalone basis. That
issue is addressed entirely by the terms of the Applicants commitment number 26, which
requires that: The UIL Utilities will participate in a tax sharing agreement with IUSA and other
IUSA subsidiaries under which the UIL Utilities will not be liable for more than their respective
standalone liability for federal, state or local income taxes (emphasis added). The position of
the OCC and the AG is inconsistent with commitment number 26 and the protective aspects of
the tax sharing agreement.
E.

Conditions that Call for the Authority to Review Transactions Beyond its
Jurisdiction Should Be Rejected.

The OCCs proposed condition 57 would require the Authority to review acquisitions by
Iberdrola affiliates that could occur outside of the State of Connecticut, and indeed, outside of
the United States altogether. While the Authority should reject this condition on its lack of merit
and need not ever reach the issue of jurisdiction, this condition goes well beyond the statutory
authority of the PURA and also conflicts with the U.S. Constitution. The OCC provided a
flawed Constitutional argument in defense of this question, which, as discussed below, ignores
important Supreme Court and other judicial precedent on this issue. OCC Brief, pp. 82-86.
Although the OCC relies on the Seventh Circuits decision in Alliant Energy Corp. v.
Bie, 330 F.3d 904, 916 (7th Cir. 2003) as supporting its assertion that a state may limit a holding
companys acquisitions outside of the state, OCC Brief, pp. 84-85, it fails to mention that the
Alliant court is an outlier with respect to existing jurisprudence on the issue. Namely, Alliant
maintains that courts apply two distinct tests in evaluating state actions under the Commerce
33

Clause, the virtual per se rule and the Pike balancing test, Alliant, 330 F.3d at 911, while
ignoring an important third test, the extraterritoriality doctrine, which was introduced by the U.S.
Supreme Court in Edgar v. MITE Corp., 457 U.S. 624, 642-643 (1982), and later adopted in
Healy v. Beer Inst., Inc., 491 U.S. 324, 336 (1989) and Brown-Forman Distillers Corp. v. New
York State Liquor Auth., 476 U.S. 573, 582-83 (1986).
The extraterritoriality doctrine holds that the Commerce Clause precludes the
application of a state statute to commerce that takes place wholly outside of the States borders,
whether or not the commerce has effects within the State . Healy, 491 U.S. at 336 (internal
citations and quotation marks omitted); see also Brown-Forman, 476 U.S. at 582-83 (Forcing a
merchant to seek regulatory approval in one State before undertaking a transaction in another
directly regulates interstate commerce.). Alliant refused to apply the test because, in its view, it
was adopted by only a plurality of the Supreme Court in MITE (plurality opinion) and was
therefore not controlling. But Alliant cited only MITE, ignoring the later Supreme Court cases
of Healy and Brown-Forman, which squarely and explicitly adopted the extraterritoriality
doctrine espoused by the MITE plurality. The vast majority of circuit courts (including the
Second Circuit) have correctly acknowledged this Supreme Court precedent and applied the
extraterritoriality doctrine to statutes with extraterritorial reach.36

36

See, e.g., Am. Booksellers Found. v. Dean, 342 F.3d 96, 102-04 (2d Cir. 2003) (finding a
Vermont law to be per se invalid because it has the practical effect of requiring out-of-state
commerce to be conducted at the regulating states direction and directly regulated commerce
in other states); Natl Solid Wastes Mgmt. Assn v. Meyer, 63 F.3d 652, 659 (7th Cir. 1995)
([T]he [Supreme] Court will not hesitate to strike down a state law shown to have extraterritorial
scope and an adverse impact on commerce occurring wholly outside the enacting state.); Cotto
Waxo Co. v. Williams, 46 F.3d 790, 793-4 (8th Cir. 1995) (a state regulation is per se invalid
when it has an extraterritorial reach, that is, when the statute has the practical effect of
controlling conduct beyond the boundaries of the state. [A] statute has extraterritorial reach
when it necessarily requires out-of-state commerce to be conducted according to in-state terms);
Am. Beverage Assn v. Snyder, 735 F.3d 362, 373 (6th Cir. 2013) cert. denied, 134 S. Ct. 61
(2013) ([T]he Supreme Court recognizes a second category of regulation that is also virtually per

34

A recent application of the extraterritoriality doctrine is particularly on point. In State

of North Dakota, et al., Plaintiffs, v. Beverly Heydinger, et al., 15 F. Supp. 3d 891 (Minn. D. Ct.
2014), the Minnesota Next Generation Energy Act sought to limit purchases of electricity from
out-of-state coal generation in order to limit in-state carbon dioxide emissions, which is a matter
of state regulatory oversight and concern. The Minnesota Public Utilities Commission was
charged with the responsibility of enforcing the statute. The District Court found that the
Minnesota law violated the extraterritoriality doctrine and cited numerous circuit courts for
support, including two cases in the Second Circuit, reinforcing that the extraterritoriality doctrine
is binding law in most circuit courts in the country. Id. at 908-16 (citing American Booksellers
Foundation v. Dean, 342 F.3d at 100; National Electrical Manufacturers Ass'n v. Sorrell, 272
F.3d 104, 107-08 (2d Cir. 2001).
The proposed OCC condition violates the Dormant Commerce Clause because it would
allow Connecticut to regulate acquisitions that take place entirely out-of-state and do not provide
any services to Connecticut utilities or Connecticut customers.
F.

Conditions Already Reflected in Existing Law Are Unnecessary and a

Distraction and Should Be Rejected.
1.

Affiliate Restrictions

The OCC argues for several conditions relating to affiliate transactions. See OCC Brief,
pp. 41-42, 87-89. Transactions between electric and gas distribution companies and their
se invalid under the dormant Commerce Clausewhether the law regulates extraterritorial
commerce. A statute is extraterritorial if it directly controls commerce occurring wholly outside
the boundaries of a State [and] exceeds the inherent limits of the enacting States authority.
(internal citations and quotation marks omitted)); Am. Civil Liberties Union v. Johnson, 194 F.3d
1149, 1161 (10th Cir. 1999) ([The statute] represents an attempt to regulate interstate conduct
occurring outside New Mexicos borders, and is accordingly a per se violation of the Commerce
Clause.); Pac. Merch. Shipping Assn v. Goldstene, 639 F.3d 1154, 1178 (9th Cir. 2011) ([T]he
Commerce Clause prohibits state legislation regulating commerce that takes place wholly outside
of the states borders, regardless of whether the commerce has effects within the state.);
Instructional Sys., Inc. v. Computer Curriculum Corp., 35 F.3d 813, 824 (3d Cir. 1994)
(explaining the extraterritoriality doctrine).

35

affiliates are heavily regulated both by this Authority as well as the Federal Energy Regulatory
Commission. See May 28 Tr. 20:20-24 (Kump); Late Filed Exhibit 25, Attachment 1, p.6. Both
the UIL Utilities and Networks utilities already maintain codes of conduct and internal
procedures to prevent any affiliate issues. See May 28 Tr. 20:14-20, 95:13-22 (Kump). Further,
the Applicants have expressly committed to comply with all applicable laws and regulations. See
Applicants Brief, p. 48 (condition 36) (addressing OCC condition 3); May 28 Tr. at 20:14-24
(Kump), 153:8-23 (Coretto). As such, delineating a series of conditions that are already
comprehensively addressed by law and practice is unnecessary and a waste of the parties and
the Authoritys time and resources.
The OCC has also been unable to present any realistic or coherent examples of the
potential for such abuses related specifically to the Proposed Transaction. Indeed, when pressed
on the matter, Mr. Hempling made several inaccurate statements:
I was focused on what was unique about this particular affiliate
relationship, which is that the company could use its control of
new pipelines that investing in in the Marcellus Shale area to
recover the cost and earned profit on those investments by forcing
the Connecticut gas subsidiaries to buy the Marcellus Shale gas.
And I think that mere interaffiliate rules that say higher cost of
market or lower cost of market don't help when you're in a context
if the competition in that market isn't sufficient, and so the
requirement of competitive bidding, so that you know the market
price, and the use of an independent monitor are supplements to
the bare interaffiliate rules that I thought were necessary in this
unique situation.
May 28 Tr. 256:10-25. First, Mr. Hempling confuses natural gas transportation (i.e., the
possibility that Applicants might invest in pipelines) with natural gas commodity supply (i.e., the
idea that a utility could be forced to buy the gas flowing through such pipeline). Second, Mr.
Hempling seems to assert that the Applicants currently have or will have market power in a
relevant market, which explicitly contradicts his earlier testimony that there are no market power
36

concerns present in the Proposed Transaction. See May 14 Tr. 122:24;123:1-9 (Hempling).
Finally, Mr. Hempling incorrectly states that the wholesale natural gas commodity supply market
is not competitive.
The OCC apparently relied on Mr. Hemplings errors in its brief when it then mistakenly
argued that Iberdrola could combine its control of a natural gas pipeline with its control of the
UIL Utilities to impede competition in the markets for transporting and selling gas. See OCC
Brief, p. 88. Again, such an argument should be rejected as incorrect. Natural gas pipeline
owners and operators do not own (and, indeed, are precluded from owning) the natural gas that is
transported in their pipelines. See In re Missouri Gas Energy, 140 FERC 61,135 at 61,644
(2012); Enron Energy Services, Inc., 85 FERC 61,221 at 61,906 (1998). As noted above, the
natural gas commodity supply markets are competitive, and the Proposed Transaction will have
no impact on such competition. As such, the OCCs proposed conditions related to affiliate
transactions should be rejected.
2.

Connecticut Management Audit

The AG argues that the Authority should condition approval of the Proposed Transaction
on a requirement that the Applicants undergo a management audit within a reasonable time after
the Proposed Transaction is consummated. AG Brief, p. 34. The OCC recommends that a
management audit be undertaken prior to the approval of the Proposed Transaction. OCC
condition 72. Under Connecticut law, the Authority may conduct management audits of the
utilities under its jurisdiction at any time. Conn Gen. Stat. 16-8(b)(2). As such, there is no need

37

to waste any time or resources considering whether or how to craft a condition related to a
general right that the Authority currently enjoys.37
G.

The Most Favored Nation Condition Is Unnecessary and Inconsistent with

Connecticut Law

The AG seeks what it describes as a most favored nations clause which would
condition approval of the Proposed Transaction on a requirement that Connecticut customers
receive benefits that are at least commensurate with any ratepayer benefits required by any
other approving regulatory body. AG Brief, p. 36. However, the only other state proceeding
related to the Proposed Transaction is before the Massachusetts Department of Public Utilities
(the DPU), and the DPU proceeding hearings are not scheduled until August. As such, the
DPU will review the acquisition as it relates to The Berkshire Gas Company, a relatively small
gas distribution utility, under its unique statutory framework, and will not make any rulings until
after the timeframe established by Conn. Gen. Stat. 16-47. The AGs request should be
rejected.
H.

Conditions Related to Interconnection of Distributed Generation Are Not

Based on Any Identified Risk or Issue in this Proceeding, Are Inappropriate
and Should Be Rejected.

TASCs twelve recommended conditions that the Authority impose on its approval of the
Proposed Transaction relating to the distributed generation interconnection process have not
changed substantively since their initial testimony filed in this proceeding. Other participants
have also proposed similar conditions. See OCC Brief, p. 51-52. Like many of the conditions
proposed by the OCC, TASCs conditions are based on conditions agreed to by the applicants in
the Exelon-PHI transaction in a settlement in another jurisdiction, see TASC Brief, p. 10

37

As for the OCCs recommendation that the Authority conduct a management audit prior to
allowing the consummation of the Proposed Transaction, such a request is unnecessary and
inconsistent with the required 120-day timeframe in Conn. Gen. Stat. Section 16-47.

38

(admitting that the conditions are derived from a settlement from a different transaction in a
different state), and have no relationship to any risk as a result of the Proposed Transaction.
TASC claims its conditions are relevant to this proceeding because the Applicants have
raised their renewable expertise as a positive attribute of the Proposed Transaction. However,
TASC has not identified any risk associated with the Applicants extensive renewable expertise.
Further, TASC has not made any claims regarding UIL and the UIL Utilities performance
related to such matters. Therefore, it is inappropriate to impose conditions on the approval of the
Proposed Transaction related to interconnection of distributed generation.
As the Applicants testified in this proceeding, to the extent the Authority is considering
whether to impose new interconnection requirements on interconnection applicants and the
Connecticut electric distribution companies (UI and Eversource), the appropriate forum would be
a reopening of Docket No. 03-01-15 so that all stakeholders, not just TASC, can have an
opportunity to participate and explore such issues fully. See May 28 Tr. 153:8-154:3 (Coretto).
Pursuing such issues in a general proceeding will also allow the Authority to maintain
appropriate confidentiality for security and competitive purposes with respect to certain relevant
confidential information (e.g., maps of circuits).
TASC also requests that stakeholders be permitted to participate in the study valued at
approximately $400,000 on efficient mechanisms to integrate renewable generation with
transmission and distribution facilities in Connecticut that the Applicants have committed to
provide. TASC misunderstands the purpose of the commitment to provide this study. The
Applicants offer is simply intended to provide the State directly with benefits from Iberdrolas
global energy expertise combined with the local knowledge of UIL and the UIL Utilities to help
the State consider methods for achieving its policy goals. This is not a chance for TASC or any

39

other entity to use this study as an opportunity to lobby the Authority for any particular position
on interconnection of renewable distributed generation. Accordingly, the Applicants request that
TASCs request should be rejected.
I.

Conditions Related to English Station Are Not Related to the Proposed

Transaction and Should Be Rejected.

The Authority has already rejected attempts to bring environmental issues at the site of
the former English Station generating facilities into this proceeding,38 as those issues are
unrelated to this proceeding and pending in other fora. Nonetheless, the AG seeks to have the
Authority revisit those determinations and impose conditions on its approval of the Proposed
Transaction related to English Station without addressing the Authoritys previous
determinations on this matter. See AG Brief, pp. 36-37. The AGs attempts to raise these issues
yet again should be rejected.
As the Authority found in its order denying the City of New Havens motion for
reconsideration of the Authoritys order denying it intervenor and party status, New Haven has
no legal rights, duties or privileges at issue in this proceeding. The proceeding is about a change
of control of UIL. Order on Motion 16 at 1; see also Order on Motion 21 at 1 (making similar
findings with respect to the current owners of the property). The Authority has explained that
[t]he liability of the United Illuminating Company (UI) for claimed environmental harm is not
at issue in this proceeding, Order on Motion 16 at 1, and [t]he Authority lacks subject matter

38

See Joint Application of Iberdrola, S.A., et al and UIL Holdings Corporation for Approval of a
Change of Control, Docket No. 15-03-45, Order on Motion 21, April 7, 2015 (regarding City of
New Haven Motion for Intervenor and Party Status); Joint Application of Iberdrola, S.A., et al
and UIL Holdings Corporation for Approval of a Change of Control, Docket No. 15-03-45, Order
on Motion 16, May 8, 2015 (regarding City of New Haven Motion for Reconsideration of Order
denying Intervenor and Party Status); Joint Application of Iberdrola, S.A., et al and UIL Holdings
Corporation for Approval of a Change of Control, Docket No. 15-03-45, Order on Motion 21,
May 21, 2015 (regarding Asnat Realty, LLC and Evergreen Power, LLC Motion for Intervenor
and Party Status).

40

jurisdiction to review, determine or enforce Asnat and Evergreens environmental claims that
UIL or its affiliates are liable for environmental contamination and remediation. Order on
Motion 21 at 1-2. Furthermore, given that the Authority has decided that these issues are beyond
the scope of this proceeding, the record is devoid of any evidence upon which the Authority
could base a condition such as that recommended by the AG.39 As such, the Authority should
not entertain conditions related to matters it has already decided are beyond the scope of the
proceeding and its authority and upon which it has no record evidence to decide.40
J.

Section 338(h)(10) Election

The AG claims that Iberdrola structures transactions in a manner that benefits

shareholders at the expense of utility ratepayers. See AG Brief, p. 21. As an example, the AG
notes the 338 Election that formed a part of UILs acquisition of the Connecticut gas companies,
asserting that CNG and SCG continue to resist returning lost value to ratepayers. AG Brief, p.
22. This is not the case. As the Authority is aware, as a result of the 338 Election that was a part
of the 2010 transaction Iberdrola reported tax gain on the gas companies assets, and that

39

The concept on which the AGs recommendation is based came from public comment provided
by Yuri Kaufman in this proceeding, see May 14 Tr. 15:7-22 (Kaufman), rather than record
evidence.

40

The Authority also explained that such claims are properly pending in other fora and that its
ruling in this proceeding will not impact such claims. See Order on Motion 16 ([T]he English
Station property is already the subject of pending legal actions in other appropriate forums such
as the State of Connecticut Department of Energy and Environmental Protection and the U.S.
Environmental Protection Agency. This proceeding is not the appropriate forum for the City to
address its views on the issues of responsibility for environmental damage, liability, and clean-up
related to the English Station property.); Order on Motion 21 (Asnat and Evergreens ability to
pursue their environmental claims in [other] forums will not be adversely impacted by any
decision from the Authority with respect to UILs change or control application. In other words,
a decision regarding the proposed change of control will not impact Asnat and Evergreens ability
to make their claims in other state or federal agencies or courts.). Applicants have also testified
that if UI is fully and finally determined by a state or federal environmental agency or reviewing
courts to be liable in any way with respect to English Station, that liability will continue to exist and will be honored by UI - both pre and post-Proposed Transaction. See Apr. 27 Tr. 73:5-9
(Torgerson).

41

reported gain eliminated pre-existing accumulated deferred income taxes (ADITs). Therefore,
since there were no longer ADITs, it would be a normalization violation to assume in ratemaking
that the ADITs continued to exist (and serve as a reduction to rate base).
As noted by CNG in Docket No. 13-06-08, any express adjustment to offset or mitigate
the elimination of those pre-transaction (2010 and earlier) ADITs would violate the tax
normalization rules. The Authority determined that CNG should seek a private letter ruling from
the Internal Revenue Service with respect to the matter and the Authoritys decision is also under
appeal by the OCC. These two processes will fully resolve whether a rate credit can be imposed
to compensate for the elimination of the ADITs, and it would be duplicative and potentially
inconsistent for the Authority to speculate what the IRS and the courts will determine on that
CNG rate case issue. Those resolutions would then apply to SCG at the time of the next SCG
rate case.
V.

THE AUTHORITY SHOULD APPROVE THE PROPOSED TRANSACTION

The Applicants meet the statutory standard for approval of the Proposed Transaction.

Further, the Applicants have provided detailed evidence in responses to discovery requests and
testimony that adds additional support for the approval of the Proposed Transaction. The
Applicants have also proposed 43 additional commitments and benefits that add to the already
strong profile of the Proposed Transaction. By contrast, the OCC, the AG, CIEC and TASC
have failed to demonstrate the statutorily required necessity or appropriateness of their numerous
additional proposed conditions. As such, the Authority should approve the Proposed Transaction
consistent with the commitments that the Applicants have made herein.

42

Respectfully submitted,

IBERDROLA USA NETWORKS, INC.,

IBERDROLA USA, INC., IBERDROLA, S.A.,
AND GREEN MERGER SUB, INC.

By:

/s/ David L. Schwartz

David L. Schwartz
Natasha Gianvecchio
David E. Pettit
Latham & Watkins LLP
555 11th Street NW, Suite 1000
Washington, DC 20004
Tel: 202-637-2200
david.schwartz@lw.com
natasha.gianvecchio@lw.com
david.pettit@lw.com
Frederic Lee Klein
Pullman & Comley, LLC
90 State House Square
Hartford, CT 06103
Tel: 860-424-4354
fklein@pullcom.com

UIL HOLDINGS CORPORATION

By:

/s/ Sigrid E. Kun

Linda L. Randell
Sigrid E. Kun
UIL Holdings Corporation
157 Church St.
New Haven, CT 06506
Tel: 203-499-2575
Tel: 203-499-5858
linda.randell@uinet.com
sigrid.kun@uinet.com

June 12, 2015

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