A wave of mergers is sweeping Indiana telephone and electric utilities as deregulation slowly comes into play in both industries. While American Electric Power (AEP) is acquiring and Ameritech and GTE being acquired, the end result appears to be the same, less competition and more consolidation as consumers pick up the bill for the expansionary dreams of utility CEOs.

Indiana & Michigan (I&M) parent company, AEP, is set to acquire Central and Southwest

On April 30, 1998 American Electric Power (AEP) and Central and Southwest Corporation (CSW) filed a joint application with federal regulators for approval of a merger of the two companies. AEP and CSW contend the merger, which will create the largest electric monopoly in the western hemisphere, will benefit the public through improvements and increased efficiencies in the production, transmission and distribution of electricity. The companies contend that the merger will enhance competition, provide consumers with a broader array of services, and will not negatively impact emerging competitive markets.

In reality, the merger is a preemptive strike designed to prevent competition and increase corporate profits at the expense of captive ratepayers. After the merger, the remaining company will be a "new" AEP which will stretch from Canada to Mexico, controlling over 28,000 megawatts of combined transmission capacity which is critically located to moving the large amount of power transfers needed to make the emerging competitive electricity markets work. Without a separate and truly independent entity to govern the pricing and access to the transmission system (often called an Independent System Operator, or "ISO), AEP will be able to use its vertical market power to block competitors and price them out of the market.

In addition, AEP will gain expanded horizontal market power over millions of retail electric customers. Under the proposed merger, AEP plans to allocate an unusually high percentage of the merger’s costs to Indiana customers and will also increase its ability to shift costs from large industrial customers to residential and small commercial customers. As for the projected savings from the merger, AEP intends to use some of the savings that should go to its customers to "forward fund" future nuclear decommissioning costs of its problem plagued D.C. Cook nuclear power plant. [For more information on AEP’s nuclear problems see the Legal Briefs on page ??]

The Indiana Utility Regulatory Commission has opened up an investigation into the AEP/CSW merger, which should be concluded by summer of 1999, and appointed a negotiating team to work out appropriate conditions on the merger and guarantees from the company.

CAC has actively intervened in this investigation and is working toward several major objectives. First, the company should not be allowed to capture a disproportionate share of the benefits of the merger for shareholders rather than customers. The new AEP must also be restrained from using control of its significant transmission assets to advantage its own generation vs. competitors and especially new entrants. In addition, AEP has a significant amount of generation that was "grandfathered", or exempted from the clean air act standards, which the company must not be allowed to use to disadvantage competitors that have to meet the new standards. Lastly, CAC is working to prevent AEP from using ambiguities and limitations in the IURC’s authority over utility holding companies to ignore the interests of Indiana’s environmentally conscious or "green" consumers.

The proposed SBC takeover of Ameritech.

In May 1998 SBC Communications, Inc. (SBC) and Ameritech Corporation (Ameritech) agreed to the largest local telephone "merger" in U.S. history. The companies’ three main objectives in the merger are to 1) implement a "National - Local strategy" that targets the top one thousand global corporations, 2) maximize cost savings by combining corporate resources and eliminating duplication, and 3) increase profits for shareholders by implementing new services more quickly. What is clearly not an objective for either Ameritech nor SBC is the reduction of prices for residential or small business customers.

In every formal proceeding conducted at the state and federal levels to review the SBC-Ameritech merger, public interest and consumer advocacy organizations have concluded that the merger would be a sever blow to the development of competition. The merger eliminates actual and potential competition since SBC and Ameritech were already planning and in some cases actually already implementing competitive entry into each other’s markets in Ohio, St. Louis, and Chicago. The mega-merger will also make it more difficult for other competitors to enter local markets in Indiana, and SBC has already established itself as the most anti-competitive of the "baby bell" companies.

Furthermore, this transaction is not really a "merger". It is a purchase of Ameritech by SBC involving the exchange of stock valued at $62 billion, a premium of 30% over Ameritech’s market value and over 150% of Ameritech’s book value. Ameritech will become a wholly owned subsidiary of SBC. The new corporation will be called "SBC", the majority of stock will be held by SBC shareholders, SBC’s appointments to the new board of directors will outnumber Ameritech’s by 6 to 1, and there is no guarantee that any future board of director members will be Ameritech representatives.

SBC argues that there is a risk associated with the takeover that cannot be ignored and that its shareholders are assuming all of the risk. That risk, of course, is that SBC is paying far too much for Ameritech. In reality, SBC’s takeover plan is designed to hedge that risk by having its mostly captive residential and small business customers subsidize the cost of the merger as well as be used as a cash cow to finance the company’s plan for global expansion.

Due in part to a request from CAC and the American Association of Retired Persons (AARP), the Indiana Utility Regulatory Commission initiated an investigation into the takeover. SBC, joined by several other utilities, has questioned the Commission’s authority over mergers, however, and it is unclear what state action can, or will be taken to stop or at least condition the takeover. CAC, AARP, and United Senior Action have jointly intervened at the state level and are working with a broad range of state and national groups to stop the takeover.

GTE/ Bell Atlantic

While the Indiana Utility Regulatory Commission has opened an investigation into the GTE/Bell Atlantic merger, the major policy issues involved are also being addressed by the Commission in the AEP and Ameritech cases discussed above. While CAC has not directly intervened in the GTE merger, it is coordinating with the Indiana Office of Utility Consumer Counselor (OUCC) at the state level and with other consumer groups at the federal level to protect GTE customers. For more information on the GTE merger contact the OUCC at 1-800-

Consolidation, not competition is the trend

Indiana is not alone in experiencing more consolidation without competition as federal and state deregulation efforts come into play. When the courts broke AT&T up in 1984 they created seven regional "Bell Companies", of which only four will be left if SBC succeeds in taking over Ameritech. The number of viable long distance, cellular, and cable companies is dwindling as the big get bigger and the small ones are gobbled up. Meanwhile, consumers have seen little in the way of real choices of providers or in actual savings. CAC will continue its commitment to work to protect telephone customers, but concerned citizens will have to stay active and informed.

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