PSEG Buyout Faces More Hurdles

The Bergen Record ( — Friday, August 18, 2006


State regulators on Thursday called for $220 million more in givebacks to customers and the sale of additional power plants as conditions for approving the Public Service Enterprise Group's $17.8 billion takeover by Exelon Corp. to create the nation's largest utility.

The counterproposal from the staff of the state Board of Public Utilities came in response to a "last best offer" offer made two weeks ago by the companies.

The proposal, obtained by The Record, would require the merged company to provide $820 million to offset possible rate increases over the next five years. The companies had pledged $600 million through the end of 2008.

The proposal also calls for the companies to sell off PSEG's generating plants in Essex and Burlington counties, in addition to six plants required by the U.S. Department of Justice.

Most of the remainder of the counteroffer is in line with the offer the two companies made public two weeks ago, including preservation of all union jobs through May 1, 2011; and placement of headquarters at PSEG headquarters in Newark, for Exelon utilities in New Jersey, Pennsylvania and Illinois.

The new offer "fairly addresses all important issues" in the proposed sale, the BPU said.

It "is geared towards bringing positive benefits to the ratepayers and citizens of New Jersey" and "ensures than New Jersey ratepayers will receive real benefits in real time," the BPU said in a statement.

"The offer effectively addresses the rate and market power issues of the merger and is structured to maintain the high standards of reliability and safety presently delivered by PSE&G," the BPU said.

Newark-based PSEG is the parent of Public Service Electric and Gas Co., New Jersey's largest utility with more than 2 million customers.

The BPU is the last regulatory body whose approval is needed for the deal to go forward.

PSEG and Chicago-based Exelon declined to comment, but two consumer groups said they still oppose the sale as a bad deal for consumers.

"We think that this proposal falls short, and fails to adhere to their standard that this deal should have a positive benefit," said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action. "Right from the beginning, we've been saying that market power is the whole ball of wax," Salowe-Kaye said. "We think this will lead to higher rates."

If the deal goes through, Exelon and Public Service "will be celebrating and consumers will be paying," she said.

Market power is still an issue, said Dena Mottola, executive director of the New Jersey Public Interest Research Group.

Public Advocate Ronald K. Chen said that at first glance, the BPU proposal "is a marked improvement over anything the companies have proposed."

But it falls short of a counterproposal his office made, calling for more money up front and more divestitures.

The BPU made the counteroffer "to show our good faith effort to move forward in the negotiations," spokesman Eric Hartsfield said. Until Thursday, the BPU said its policy was not to comment on ongoing settlement discussions.

This was the BPU's first public comments since Aug. 4, when it rejected what it saw as an ultimatum issued by the two companies, which said they might cancel the proposed sale if they didn't get an answer "in principle" to their offer.

A key issue since the deal was announced 20 months ago has been whether the combined companies would control too much generating capacity, letting them manipulate energy markets and raise prices.

Two federal agencies ruled that that problem was solved when the companies agreed to sell off six of their plants. But critics – including the BPU staff and the state's Public Advocate – said more was needed.

In an Aug. 2 letter to the BPU's executive director, PSEG and Exelon said their proposal included $1.46 billion "of positive benefits to PSE&G ratepayers and the state of New Jersey." The companies said they remained flexible in modifying the proposal, but did not have the ability to increase the amount of money involved.

The companies said if the BPU staff could not agree in principle to the overall teams, they would be forced to withdraw the merger application, as well as the benefits.

In addition, Public Service said it would seek $133 million in gas rate increases it says it is due but had offered to forego as a condition of approval. It also said it would drop its plan to freeze electric rates until 2011.

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