Don't believe everything you read: The proposed buyout of TEP could be a disaster

If the nonsense the Arizona Daily Star had the chutzpah to print in its May 31 editorial supporting the buyout of Tucson Electric Power's parent company, UniSource, influences the Arizona Corporation Commission's decision, we'd be well advised to learn the lost skill of candlemaking. Unfortunately, since electricity pumps our water supply, burning candles won't keep the water running nor do much during rolling blackouts.

Unless you like the idea of Tucson as a guinea pig, a vigorous public outcry against this unprecedented sale of a public utility is needed. Tucson is "a good test case to debate whether, and in what circumstances, the LBO (leveraged buyout) may or may not be appropriate for the utility industry."

That quote, from Public Utilities Fortnightly, is in Marylee Diaz Cortez's testimony on behalf of the Residential Utility Consumer Office. We hope the ACC Administrative Law Judge, Jane Rodda, will make the time to read Cortez's testimony. Between Cortez's testimony, and the reams of legal documents the ACC will consider, it's clear the UniSource/TEP deal has "Enron potential" written in invisible ink on every page. Cortez is a certified public accountant.

To read her testimony, go to Google and enter "UniSource Energy Corporation Marylee Diaz Cortez." Not the most scintillating reading, but that's what Frederick B. Rentschler, The Man behind this buyout, is counting on. Readers who accept the drivel in the Star--that the sale is "a good deal for TEP customers as well as shareholders"--can continue to believe the only thing to worry about is electric rates.

One thing we know for sure: The current shareholders of UniSource voted approval of the sale because they are being paid more than the company is worth. (Check out Cortez). Consider this: How many shares, if any, of UniSource are held by Arizona Daily Star owners? Is there any other connection between the Pulitzer and Rentschler dynasties? Shareholders will profit. The question is: Would this sale serve the best interest of the public, and if so, how? And since it has never happened before, how can anyone provide credible evidence that it will?

The Star's editorial claims, referring to the ACC objections, "UniSource responded positively, meeting every objection with a promised, written guarantee." In these post-Enron days, "written guarantees" are as useful as toilet paper, and the editorial ignores the following excerpt from Cortez's testimony:

"Q. Does Unisource currently generate sufficient earnings to service the level of debt Saguaro will take on to finance this transaction?

A. RUCO has repeatedly tried to get an answer to this key issue from both UniSource and the Investors (KKR and JP Morgan). UniSource, in response to data requests, has sidestepped giving a definitive answer. The Investors have not responded to any of the data requests RUCO propounded to them."

Translation: The investors are an arrogant bunch of suits who don't think they need reply to an organization representing customers since their lawyers, accountants and assorted minions are using their time conjuring arguments they hope will overwhelm and convince Judge Rodda of the merits of the deal.

If you've adopted an "I can't do anything about it," attitude, or simply given in to hopeless apathy: shame on you. Get thee to a public hearing! But before you go, consider the following:

Saguaro Acquisition is a Delaware corporation that will cease to exist after the merger. Why's that? Saguaro is connected to Saguaro Utility Group, a limited partnership including Frederick B. Rentschler and investment funds, according to a June 1 Star story, "affiliated with Kohlberg Kravis Roberts & Co, J.P. Morgan Partners, LLC, and Wachovia Capital Partners."

Rentschler will have 100 percent of the voting rights if this deal goes down, and TEP will be a privately held company. Think about that. The "current management," so lovingly referenced in several Star articles, will become employees and no longer have an ownership interest in the utility. Though the buyers promise to keep them on, current management has no contractual obligation to remain. In other words, current management, who will make money on the deal, may simply take the lucre and run. Even if they stay, TEP may end up a "cash cow" for UniSource, thus threatening TEP's ability to provide reliable service, according to a May 3 Dow Jones Newswire story.

Whatever assets UniSource now holds could be sold following the buyout in order in pay off its increased debt. (See Cortez for the numbers.)

And there's more ... lots more. If the federal Public Utility Holding Act is eviscerated, utilities risk becoming a free for all. The bottom line: The investors are betting on more deregulation, and that's bad news for customers.

A pre-hearing meeting is set for June 17 at 10 a.m. at the ACC Tucson office, 400 W. Congress St., Room 222. Public comments will be heard June 17 at 5 p.m. The judge will begin her hearings, also open to the public, Monday, June 21 at 10 a.m. If you write a letter, include the docket number: E-04230A-03-0933.

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