Beyond Exelon

NJ.com — Sunday, September 17, 2006

The deal is dead. Energy giant Exelon has withdrawn its offer to purchase PSEG, and state regulators must make sure that consumers don't pay the price.

The state Board of Public Utilities, which set such tough conditions for the sale that it ultimately fell through, must now make sure that PSEG customers don't get walloped by $200 million in proposed gas and electric rate increases that would have been off the table if the deal had been approved. Some of that increase is inevitable, but the BPU needs to make sure every penny of it is merited.

The sale didn't go through, but New Jersey consumers have seen one enormous benefit nonetheless. In anticipation of the purchase, Exelon entered into a contractual agreement to manage PSEG's notoriously underperforming nuclear power plants, and energy generation has increased significantly -- helping to keep energy prices from rising even more in the past year.

PSEG's nuclear power plant management deal with Exelon is expected to run another three years, but what happens after that? It is imperative that New Jersey's largest utility enter into a long-term deal with Exelon to manage the Salem and Hope Creek nuclear power plants.

The other major upside to scuttling the deal is that PSEG will remain a New Jersey company, instead of becoming an affiliate of an out-of-state energy giant.

So far, the impact on PSEG's stock price would appear to be minimal, and that's important for shareholders. Since the deal was announced two years ago, PSEG stock has climbed from $44 to $66 a share, and analysts predict that it should level off around $60.

As for concerns that the purchase of PSEG would have given Exelon so much control over regional electricity production that it would cost New Jersey consumers dearly, that debate is now moot. Many believed that PGM, the organization that operates the regional power grid and the wholesale electricity market, would have monitored the supersize Exelon. But public interest groups vehemently disagreed and mounted a huge grassroots campaign that ultimately prevailed.

Ironically, one major drawback to the merger for many New Jerseyans was PSEG's role as one of the state's foremost corporate citizens. The concern was that if control of PSEG went out of state, New Jersey would lose a key player in economic development and philanthropic efforts statewide.

Although Exelon promised to continue that tradition, the company would have been hard-pressed to match PSEG's civic-minded achievements long term. From that standpoint, it should be reassuring to New Jerseyans that PSEG will still be calling its own shots.

The larger repercussions on PSEG customers' gas and electric rates, however, could be significant unless the BPU hangs tough.

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