The Star-Ledger

State Counteroffer Asks Utilities For $820 Million

Exelon also would have to sell two additional plants

The Star-Ledger — Friday, August 18, 2006

Star-Ledger Staff

State regulators yesterday came up with a long-awaited counteroffer to Exelon, asking the company to ante up $820 million in benefits and to sell two more power plants in New Jersey to win approval for its acquisition of the Public Service Enterprise Group, according to several people familiar with the offer.

The offer comes only four days before Chicago's Exelon's board of directors is scheduled to decide whether to continue to pursue the acquisition of the Newark energy conglomerate in an $18 billion deal that would create the nation's biggest power supplier and country's largest electric utility.

The companies yesterday declined to comment on the offer, given to them during a two-hour private meeting with staff of the Board of Public Utilities earlier in the day. Neither side would discuss specifics of the proposal, which ap pears to be far higher than the $600 million offer described as the company's "last and best offer" made two weeks ago.

While declining to discuss de tails, the agency released a statement saying it ensures "ratepayers will receive real benefits in real time." That apparently is an allu sion to criticism of the companies' own offer, which some argued included money from rate cases where the company had not yet proved its case.

While the $820 million benefits figure is higher than the $600 million offer, it would be spread out over a longer period of time, according to the people familiar with the offer.

Beyond seeking more money for customer rate relief, lower-income energy assistance and other programs, they said the state's counterproposal would force the company to litigate pending electric and gas rate cases pending before the agency as well as requiring the utility to refrain from seeking rate increases for the next five years.

The deal, announced back in December 2004, has been opposed by an unlikely coalition of consumer advocates, manufacturing interests and competitors, primar ily because of concerns the combined company would wield too much power in setting electric ity prices in the market.

To address those concerns, the companies agreed to sell 5,600 megawatts of generating capacity, including four plants in New Jersey. The BPU offer would insist the company sell an additional two so- called peaking plants in the state, totaling more than 1,100 megawatts. One megawatt is enough to light about 800 homes.

While the state's latest counteroffer isn't as demanding as one made by the New Jersey Public Advocate, it would require the compa nies to increase their $600 million offer significantly. Previously, the companies said they would not go above the economic framework of their last offer.

Whether it is enough to make Exelon reconsider the deal remains to be seen. One analyst said the offer might be enough to move negotiations to a conclusion.

"It would appear to me, on both the money and divestiture issues, I could see the deal moving for ward," said Paul Fremont, an analyst with Jeffries & Co.

But consumer groups criticized the state counterproposal, saying it does not go far enough in ensuring consumers receive positive benefits from the deal.

"It will result in higher rates for consumers," said Phyllis Salowe- Kaye, executive director of New Jersey Citizen Action.

"Customers would still be vulnerable to the possibility of them raising rates," added Dena Mot tola, executive director of the New Jersey Public Interest Research Group.

Meanwhile, yesterday Gov. Jon Corzine said "it is time to bring this to conclusion," while stopping short of criticizing the state BPU for being too slow in rendering a decision in the case.

Corzine's comments came after he was asked whether he agreed with some lawmakers who suggested the state should wrap up its review of the deal, which would create the nation's biggest power supplier and country's largest electric utility.

"It is coming to a conclusion," Corzine said. "We're looking at the numbers. It's a negotiating process that hasn't come to a conclusion."

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