N.J. Won't Sign Off On $17.8B Utility Sale

The Bergen Record ( — Saturday, August 5, 2006


The sale of Public Service Enterprise Group to a Chicago-based utility remains on track despite New Jersey regulators' refusal to bow to an ultimatum Friday.

Buyer Exelon Corp., after a board meeting in Chicago on Friday evening, said it will continue to pursue the $17.8 billion acquisition, which would create the nation's largest utility.

Exelon told the state Board of Public Utilities on Wednesday that it might walk away from the deal if the board did not agree "in principle" Friday to its "last and best offer" to buy PSEG, the state's largest utility. The offer was outlined in a six-page letter.

But the BPU stood firm against the threat. After a closed meeting at lunchtime Friday, the board said Exelon's latest proposal "still lacks clarity."

"We are going to respond to their question as to whether we are prepared to sign off on that today," Executive Director Victor Fortkiewicz said at a press conference after the meeting. "The answer is no."

Instead, in a 4-0 vote with one abstention, the board passed a resolution saying it would continue to look at the merger.

The showdown was the latest twist in 20 months of talks about the acquisition, which the two companies say would yield benefits for consumers and the state worth $1.46 billion. Critics say the purchase would create a company so dominant that it could manipulate market prices to push up rates.

Shares of both companies dropped after BPU's announcement. PSEG shares closed at $65, down $2.83. Exelon shares closed at $58.73, up 10 cents from the opening price but down more than $1 from the day's high.

Exelon's decision came several hours after the market close, too late to affect trading.

A joint statement by Exelon and PSEG said the companies had concluded that it is worth continuing to pursue negotiations with the Board of Public Utilities.

"It has taken a great deal of effort to get this far and it makes sense to spend a little more time to try to make this work," said John W. Rowe, chairman, president and chief executive of Exelon. "We remain committed to the financial boundaries that we have outlined in our proposal but are flexible about the details."

The utilities board has said that all merger applications must show a clear positive benefit to ratepayers and the state, or they will not be approved.

It said its concerns include safety and reliability of power delivery, as well as market power – whether the company would use its dominance to "set power prices which could lead to higher bills."

Exelon and PSEG, in their letter to the board Wednesday, said the deal would provide benefits worth $1.46 billion to PSEG's ratepayers and the state. That includes $600 million for rate credits, funding for other customer benefits and a contribution to state infrastructure development.

Other benefits, according to the two companies, would include PSEG dropping its pending electric and gas rate relief, worth about $200 million, if the deal went through. The state would get $150 million to $200 million in taxes from the deal, and customers would benefit from $450 million in lower wholesale power prices from efficiencies created by the takeover, according to the companies.

But critics say those benefits are outweighed by the possibility of future rate hikes that could result from Exelon's market dominance and ability to manipulate prices. They want Exelon to divest itself of some New Jersey power generating capability.

In June, the companies agreed with the U.S. Justice Department to sell six fossil-fuel generating stations, including four in New Jersey, in order to retain competition.

After the closed session, Commissioner Joseph Fiordaliso criticized the pressure from the companies.

"I am dismayed that Exelon issued an ultimatum," he said. "To me, this is not bargaining in good faith."

But the board urged all parties involved in the discussions to continue negotiating. Fortkiewicz said that the parties could get to a framework of an agreement within weeks.

"I'm committed and my staff would be committed to talking to the other parties, to work seven days a week, if that's what it takes," he said.

Several opponents of the plan – among them New Jersey Public Interest Research Group, New Jersey Citizen Action and the New Jersey Chemistry Council welcomed the BPU's stance Friday.

Public Advocate Ronald K. Chen said the board "acted prudently." He said the latest merger offer "raises grave problems with market share."

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