Nevadans will be spared costs of merger

David Strow

Wednesday, June 2, 1999 | 11:32 a.m.

ONEOK Inc. has agreed to write off an estimated $131 million in merger costs associated with its buyout of Southwest Gas Corp. of Las Vegas, and therefore won't pass those costs on to Nevada ratepayers.

That concession was the keystone of an agreement announced Tuesday between the Tulsa, Okla., natural gas company, the Nevada Attorney General's office, and the staff of the Nevada Public Utilities Commission. With the signing of the agreement, the attorney general's office and the PUC staff will now support the merger.

"This agreement supports our expectation that this combination will receive rapid review and approval of regulators in all three states where Southwest Gas operates," Southwest Chief Executive Michael Maffie said in a statement.

Both the attorney general and the PUC staff are intervenors in ONEOK's merger hearings, set to begin June 21. The PUC will vote on whether to approve ONEOK's application by Aug. 19.

If its $1.8 billion merger with Southwest is successful, ONEOK will record all merger costs in Nevada as regulatory expenses. ONEOK will be allowed to amortize, or write off, those costs over a 40-year period, said Deputy Attorney General Eric Witkoski. ONEOK will be barred from ever seeking a rate increase to cover those costs.

Witkoski estimated the total merger costs for all three of Southwest's states -- Nevada, Arizona and California -- will come to about $400 million, $131 million in Nevada.

These costs are primarily fees for attorneys and investment bankers involved in the transaction for both ONEOK and Southwest. They also include costs of holding shareholder meetings.

Over 40 years, the cost to ONEOK will be about $3.28 million per year. By comparison, ONEOK recorded $101.8 million in net income in fiscal 1999 on revenues of $1.84 billion. Southwest posted 1999 revenues of $917.3 million, and net income of $47.5 million.

Similar agreements have yet to be signed in California and Arizona, said Weldon Watson, vice president of corporate communications at ONEOK. Whether ONEOK will concede similar deals to regulators in those states is still undecided, he said.

"We want to keep the process moving," Watson said. "I am not aware, at this point, of any stipulations (in other states) along the same lines. But I am sure we would be agreeable to working with those jurisdictions as well."

The attorney general's office has already indicated it would not support an application from Southern Union, the Austin, Texas, natural gas company attempting to outbid ONEOK for Southwest. Southern Union's last bid topped ONEOK's by $80 million, but that company is under a temporary injunction preventing it from influencing the shareholder vote on the ONEOK-Southwest merger.

Southwest and ONEOK must receive approval from the utility commissions of all three states, as well as their shareholders, before their merger can be completed. A Southwest shareholder meeting has still not been scheduled.

The two companies expect their merger to close in the fourth quarter of this year.