City Belt

'The Utility Company of Tomorrow' — Layoffs, Monopoly Power, And A Recipe For Price Gouging

What's Not To Love About The PSE&G/Exelon Merger?

CityBelt — Wednesday, July 26, 2006

By Elizabeth Weill-Greenberg

"Creating the utility company of tomorrow," proclaim Exelon and PSE&G's corporate PR materials. It's got a nice ring to it – after all, who could possibly be against tomorrow?

But after spending a couple weeks trying to understand the proposed merger between the Chicago-based energy giant and Public Service Enterprise Group, PSE&G's parent company, I became increasingly frustrated. The more corporate jargon and empty PR platitudes I read and heard the more I wanted to turn off my computer and read an Us Weekly.

Isn't that the danger? Important stories on big business are often stuck on the Business and Editorial pages of mainstream newspapers - divorced from plain language and plain life, considered "too wonky" for Jane Six-Packs to understand and care about. But if this merger goes through it will likely have a very real impact on New Jersey residents.


Critics from all over NJ – from the Public Advocate to the Board of Public Utilities staff to Citizen Action to the Chemistry Council – all say one thing: While this is a good deal for some shareholders, it's a bad deal for the people of New Jersey.

"If this goes through you basically have one large utility in our area being swallowed up by an even bigger one," explained Ev Liebman of New Jersey Citizen Action. "It'll create a super monopoly."

Exelon and PSE&G filed their petition to merge, and create the largest utility company in the country, in December 2004. The NJ Board of Public Utilities will make the ultimate decision to accept or reject the merger sometime in the coming months.

If the merger goes through, PSE&G says, NJ residents will enjoy the benefits of a more competitive market and millions of dollars in rate credits.

In order for the Board of Public Utilities to approve the merger or a settlement, Exelon and PSE&G have to show that their $16 billion deal will actually benefit NJ residents, by producing a more competitive market, decreased rates, better service and more jobs. Consumer advocates say the multi-billion dollar merger will only benefit corporations – not ratepayers.

"Our members are consumers," said Kevin Brown, president of the Service Employees International Union (SEIU) NJ State Council, one of the groups opposing the deal. "This is a pocketbook issue."

For SEIU members, many of whom are working class, higher utility bills will stretch paychecks that can barely cover their current costs, he said.

Exelon CEO John Rowe is reportedly willing to give consumers a credit of $120 million over a period of three to four years, but the terms are still being negotiated.

"If they think they can make it cheaper, put it down on paper," said Brown.

However, PSE&G spokesman Paul Rosengren told City Belt that "details of how the credits will be applied have not been finalized." In other words, no promise of a rate reduction.

Even the $120 million in proposed rate credits don't guarantee lower monthly costs. The NJ Public Interest Research Group (NJPIRG) estimated that if the merger is approved, consumers will pay about $45 more a month on their utility bill, an estimate that Liebman calls "conservative."

The Board of Public Utilities staff has estimated a merger of these two giants could result in price increases as high as $2.3 billion a year.

No matter how poor your math skills are, you know that $120 million in rate credits is a lot less than $2.3 billion.

PSE&G insists that the Department of Justice's June 26 approval of the merger – on the condition that the companies sell off six plants – safeguards against any price gouging. "There will be more players in the marketplace, not less," said Rosengren.

But few are convinced that the DOJ decision properly protects consumers. Instead, they see a proposed company so large that it can manipulate the supply of electricity to the market, therefore driving up electricity rates, a la Enron (the difference being that, through corporate sleight-of-hand, Enron didn't actually own any of the power it was manipulating the supply of).

The Public Advocate's office, which has strongly opposed the merger, said it is still reviewing the DOJ's decision.

"We have said from the start of this process that we are very concerned about the potential for this merger to create a company so big that it could exercise market power," said Public Advocate Ron Chen in a statement to City Belt. "An exercise of market power could raise energy costs across the state by hundreds of millions of dollars, impacting all New Jerseyans, not just PSE&G customers."

An analysis released last week by PJM Interconnection, the regional energy monitor for several states including New Jersey, and commissioned by the Board of Public Utilities shows that the merger between PSE&G and Exelon would still create a risky concentration of power, even with the DOJ mandate to sell six specified plants.

Despite Rosengren's claim that PSE&G is "selling the price-setting plants that we own, generally not the price takers," three of the six plants designated for sale – Hudson, Mercer and Serwen – have significant problems.

In 1992, under pressure from the federal Environmental Protection Agency and Department of Justice, PSE&G agreed to spend $337 million to reduce pollution at Hudson and Mercer. Both plants are still plagued by environmental problems and are among the state's "oldest and dirtiest power plants," according to NJPIRG. In addition, the Sewaren units are already scheduled to close.

It's hard to believe that these deeply flawed plants are setting electricity prices, and that selling them will protect consumers from price gouging.

OK, so far it appears that the Exelon/PSE&G merger has flunked the rate and competition tests. What about jobs?

PSE&G's Rosengren estimated that as a result of the proposed merger, "there will be about 900 job reductions in the state of New Jersey." For about the last year and a half, when these jobs have been vacated, they have not been filled, he explained. In addition to eliminating those jobs, if the merger were approved "fewer than 100 people" would be "involuntarily let go" – you know, fired.

Despite the business jargon surrounding this merger, its potential consequences – layoffs and monopoly power – are in plain English.

"It's a really simple issue," said Liebman. "Do you want to create a big monopoly that's going to be able to control the supply of electricity? And if it can control the supply of electricity, it's going to be able to jack up your prices. That's really what this is."

Take Action: contact Board of Public Utilities president Jeanne Fox and tell her what you think of the PSE&G/Exelon deal. Call her at 973-648-2013, or fax her at 973-648-4195, or use the NJBPU online contact form.

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