The Star-Ledger

Exelon's Deal For Public Service Faces All Manner Of Opposition

The Star-Ledger — Sunday, May 8, 2005

BY TOM JOHNSON
Star-Ledger Staff

A remarkably broad spectrum of interests are lining up in hopes of scaling back or scuttling the agreement of energy company Exelon to purchase Newark-based Public Service Enterprise Group.

In more than 36 filings with a federal agency, opponents say the $12 billion deal would create an industry behemoth that could wield undue power in setting prices for electricity and gas throughout the region.

These filings come from an array of competitors, representatives of large industrial customers, consumer advocates and state agencies.

"It is going to create the largest utility in the United States and the largest power generator," New Jersey Ratepayer Advocate Seema Singh said. "When you have such large market power, you sort of have a monopoly and that's not good for consumers."

When Chicago-based Exelon announced in December it would buy PSEG, the companies said the deal would end up lowering customers' bills and lead to better service.

All planned mergers and acquisitions face a set of hurdles, starting with board votes, moving on to shareholder votes and possible state and federal regulatory reviews. Energy deals tend to face more scrutiny due to the heavy regulation of utilities, which is designed to protect consumers, who often don't have a choice about their provider.

In this case, opponents of the deal are massing their efforts at the gates of the Federal Energy Regulatory Commission in Washington, D.C. The commission, which oversees the energy industry, can call extensive hearings and can force the companies to sell off assets or even cancel the whole deal.

The ratepayer advocate's office has been joined by the Illinois Attorney General's office, the New Jersey Board of Utilities, and others in either opposing the proposed merger or asking the federal agency to hold extensive hearings on the deal. If the federal agency does hold hearings, a step the two companies oppose, it would delay the closing of the deal until the second half of 2006 or later.

Some observers say the longer it takes to close the deal, the greater chance it might unravel.

The merger would create a company that would produce 45 percent of the electricity generated within the PJM region -- the independent power pool serving all or parts of 13 states in the Mid-Atlantic and Midwest.

"This is just huge," said Steven Goldenberg, a lawyer representing the New Jersey Large Energy Users Coalition, an organization of the 25 largest manufacturers in the state, including many pharmaceutical companies. "There is a common concern about the level of power that comes out of this merger and how it affects rates."

Exelon and PSEG have already conceded they need to deal with the issue of controlling a huge share of the electricity produced within the region before the merger wins approval. They have proposed to sell off 2,900 megawatts (one megawatt can power 1,000 homes) of fossil power plants and another 2,600 megawatts of power produced by nuclear power plants through long-term energy contracts.

The company would sell the power to other suppliers around the country.

The nuclear proposal, dubbed virtual divestiture by the applicants, has been almost universally panned by foes. They say it is an untested way of resolving concerns about too much market power. If the combined company, to be called Exelon Electric & Gas, keeps the nuclear plants, they question how will market power be kept in check when those contracts expire.

"The bottom line is there's a history of market power affecting participants in the PJM region," said Ellen Raines, a spokeswoman for FirstEnergy, the owner of Jersey Central Power & Light, which opposes the merger.

In its filing, FirstEnergy said its affiliates lost millions of dollars due to unmitigated market power in the PJM in 2001. "We don't want to see our customers paying more and the company incurring costs that it can not recover because of price caps," Raines said.

Ed Selover, general counsel for PSEG, said the companies plan to make filings next week that will make "minor adjustments" to address the concerns about market power raised by those who have intervened in the case. He said the company hopes to avoid litigating the case before the federal commission and hopes the proposal it submits answers those concerns.

If the deal is approved, the resulting company will achieve efficiencies and improved performance from its power plants, particularly its nuclear stations, which will lower wholesale prices in the long term and lead to lower costs to customers, Selover said.

Ev Liebman, program director for New Jersey Citizen Action, said she is skeptical.

"The new company will have ability to set prices," she said. "As a profit-making corporation answerable to its investors, it will work to drive prices up."

The New Jersey BPU is worried a bigger Exelon could threaten the viability of its annual power auction, at which time the state's four utilities purchase $5 billion worth of electricity for most of their customers. They fear the new company would control so much share of the power market, it could scare other competitors away from participating in the auction, driving up prices to consumers as a result.

Even a 1 percent change in price at that auction would mean consumers pay $50 million more for electricity in a given year, Mark Beyer, deputy chief economist for the agency, said.

Exelon is a "potential vehicle for the abuse of captive retail customers, which might potentially result in the capture of monopoly rents by the merging companies," the BPU said in its filing, which seeks a full federal hearing on the deal.

The federal commission is expected to make a decision by the end of June on whether to hold a hearing, Exelon officials said last week in an earnings-related conference call.

"Our goal is to avoid a hearing," Elizabeth Moler, executive vice president of Exelon, said.

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