Chicago Tribune

Exelon Sparks Illinois Outcry, New Jersey Carrot Stirs Sharing Call

The Chicago Tribune — Tuesday, February 2, 2005

By Robert Manor
Tribune staff reporter

Commonwealth Edison parent Exelon Corp. paid billions when it bought its way into the lucrative New Jersey power market late last year.

Now Illinois state regulators and consumer advocates want to make sure that customers in New Jersey aren't the only ones who benefit from the hundreds of millions of dollars in proposed savings from Exelon's merger with Newark-based Public Service Enterprise Group Inc.

On Wednesday Exelon Chairman and Chief Executive John Rowe suggested that sweeteners may be in order for the Garden State as Exelon seeks swift approval of the merger from state regulators.

"We recognize time is money," Rowe told analysts on a conference call. "We're prepared to share a little in order to get an expedited result."

Those comments led Illinois Commerce Commission Chairman Edward Hurley to question Exelon's motives and to look into whether Illinois ratepayers would see any kind of relief as well from cost-savings that result from the $14 billion merger.

"What about Illinois?" Hurley asked. "If there is going to be a merger savings, we should have something for Illinois."

Hurley said he will ask ICC staff to look into the issue of compensation for Illinois consumers and what authority the commission has to demand it.

In New Jersey, regulators and public interest groups are working out proposals to extract compensation from Exelon as the price of its merger with PSEG.

In Pennsylvania, where Exelon serves Philadelphia, consumer advocates say the company will have to prove how that state's consumers can benefit from the merger, whether through lower rates or better service.

When the Chicago-based company announced the acquisition of PSEG in late December, Exelon said it would save $400 million in the first year and $500 million a year after that. The savings are to come through economies of scale, elimination of jobs and improved operations.

Exelon is hoping to win New Jersey's approval for the merger in 15 months or less, so last week Rowe said the company would offer that state a sweetener to speed things up.

Commonwealth Edison has seen its electric rates frozen until 2007 as part of Illinois' deregulation of the electricity industry.

Hurley warned consumers not to expect a major windfall from the merger, "but I think customers are happy to get anything," he said.

Betsy Moler, executive vice president of government affairs for Exelon, said the merger would not affect Illinois that much.

"The impact will be more significant in New Jersey," she said, noting that the state is losing one of its largest companies to Chicago.

"Obviously, Chicago will benefit," Moler said. "You will have a Fortune 100 company in Chicago instead of a Fortune 200 company."

Howard Learner, executive director of the Chicago-based Environmental Law & Policy Center, doesn't see it that way.

"Are we running into a situation where Illinois consumers might be charged more so Exelon can offer rate-reduction benefits in New Jersey?" Learner wondered. "If a rate reduction is good for New Jersey, it should be good for Illinois as well."

Exelon says laws and regulations prohibit customers in one state from subsidizing those in another.

Learner said he also worries that Exelon will be tempted to sell cheap Illinois-generated electricity on the East Coast, where prices are higher.

Learner has something of a counterpart in New Jersey. Her name is Deepa Mehta, a community organizer with New Jersey Citizen Action.

Mehta said consumer activists in her state are meeting this week to decide what they want from Exelon. But she said her organization doesn't see how Exelon can help New Jersey.

"We are probably going to oppose the merger," Mehta said. "We think it's going to have adverse effects on [gas and electricity] rates long term."

Jeanne Fox, president of the New Jersey Board of Public Utilities, would not rule out requiring a package of benefits from Exelon, including lower electric rates, better service and more assistance for low-income consumers.

"We will take the time that is necessary," Fox said. "This would be a huge deal for New Jersey."

Exelon will begin filing information with regulators soon, and its willingness to offer concessions will become clearer then. It also has hired former New Jersey Gov. Jim Florio to serve as its adviser.

One person familiar with the political environment in New Jersey says utilities, regulators and consumer advocates almost never face off in open combat. Instead, they prefer to quietly work out a deal that all can live with.

"Historically, there is [always] a settlement," the source said, and that is likely to happen with Exelon.

Even Pennsylvania is getting into the act.

Sonny Popowsky, the official Consumer Advocate of Pennsylvania, said state law requires that any merger involving a utility must demonstrate some benefit for consumers.

Exelon comes under that law because it bought Philadelphia-based Peco Energy Corp. in 1999.

"In the case of the Peco merger, they implemented $200 million in rate cuts over a several-year period," Popowsky said. "They provided guarantees of certain service standards and expanded low-income assistance."

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