The New York Times

In Huge Merger Of 2 Utilities, 'Quiet Agency' Is In Spotlight

The New York Times — Monday, August 21, 2006

By DAVID W. CHEN

TRENTON, Aug. 18 — In New Jersey, you cannot go anywhere at home without bumping into something that is regulated by a relatively obscure agency called the Board of Public Utilities.

The five-member board is supposed to make sure your electric, water and natural gas rates are fair, for example, and it monitors the reliability of your telephone service.

But these days, the board has a more visible role. It is on the cusp of making one of the more significant decisions in its 95-year history: whether to approve a $17 billion merger of Exelon, a Chicago-based company, and Public Service Enterprise Group, the parent company of P.S.E.& G., creating the nation's largest utility.

The merger, first proposed in late 2004, has been approved by regulators in New York, Pennsylvania and Connecticut, as well as by the Federal Energy Regulatory Commission and the federal Department of Justice.

That leaves the New Jersey board as the only remaining hurdle.

On Thursday, the board's staff responded with a counterproposal that was welcomed by investors but criticized by consumer groups. Neither Exelon nor Public Service offered an immediate comment. Whether the counterproposal is accepted or modified, the board's commissioners still must act, and that could be weeks away.

As a result, the attention of Wall Street, consumer groups and New Jersey's governor, Jon S. Corzine, has turned to a group unaccustomed to the spotlight: the Board of Public Utilities itself.

"There needs to be serious analysis of the financial terms and conditions for the ratepayers in this state," Mr. Corzine said at a news conference shortly before the counterproposal was offered.

"And I don't think it needs to be done on a crash-course basis," he continued, "just because the board of directors of one of the companies decides that Friday on some day in August is the day that they want a decision." That was a reference to an ultimatum the companies issued earlier in the month.

Among the board's considerations are whether the huge new company would end up raising rates and whether it would eventually shrink its work force in New Jersey.

And with the price of energy rising, the 3.8 million customers of P.S.E.&G., which has played a major role in the state's business and cultural scene, stand to be affected.

Until recently, little attention had been paid to the Newark-based state agency, which has long been regarded as influential but has also occasionally been tarred by scandal and accusations of political patronage.

"It was always a quiet agency that had a lot to do with our lives, even though most people are probably like, 'The B.P.U.? Who are those folks?' " said Victor De Luca, a board member of New Jersey Citizen Action, who has worked on utility issues for years.

Gov. Woodrow Wilson created the board in 1911, primarily to oversee railroads and other utilities, and since then it has sent two of its presidents on to the governor's office: Brendan T. Byrne and Christie Whitman.

Louisiana is the only other state in which a member of its utility commission has made that leap, with Huey Long and the current governor, Kathleen Babineaux Blanco, according to Robert L. Schain, president of Regulatory Research Associates, an independent energy research company in Jersey City.

Nevertheless, for many years, the New Jersey board was viewed as a sinecure for well-connected politicians nearing the end of their careers and looking for a prestigious full-time job to boost their salaries – now $141,000 a year for the president, and $125,000 for commissioners – and qualify for a higher pension.

Moreover, the board was often criticized for being too cozy with the utility companies it regulated.

The current commissioners, too, have deep political roots.

The president, Jeanne M. Fox, is a former top official with the federal Environmental Protection Agency, and the wife of Steve DeMicco, a Democratic strategist who managed Mr. Corzine's campaign last year and is now managing that of Senator Robert Menendez.

The other Democrats on the board are Frederick F. Butler, a former executive director of the Assembly Democrats, and Joseph L. Fiordaliso, a deputy chief of staff under Gov. Richard J. Codey.

The Republicans include Connie O. Hughes, who served as the chief of management and policy for Donald DiFrancesco when he was the acting governor, and Christine V. Bator, a commissioner of the state's Highway Authority under Mrs. Whitman.

This summer, Republican legislators demanded that the board be investigated for its handling of two bank accounts, with a total balance of about $80 million, that the legislators say were established without permission from the state's Treasury Department.

Yet the board has also been praised, with environmentalists – often the bane of such government agencies – saying it has promoted energy conservation and clean energy initiatives, said Jeff Tittel, the New Jersey executive director of the Sierra Club.

In the matter of the merger, Exelon officials and many analysts on Wall Street say the combined utility would operate more efficiently than P.S.E.&G. does, especially in generation of nuclear power. Exelon currently runs 10 nuclear power plants in New Jersey, Pennsylvania and Illinois.

According to a pamphlet published in May by the two companies, as a result of the merger, rates will go down by 5 percent – "a savings in wholesale electric consumer costs of $397 million to $1.3 billion over the course of 10 years."

In an interview last month with reporters and editors of The New York Times, Mr. Corzine said that he supported the merger, mainly because of concerns about a company like P.S.E.&G. – with a "weak balance sheet" – controlling nuclear power plants.

Underscoring his interest, he has assigned Gary D. Rose, the director of the governor's Office of Economic Growth, to participate in the proceedings.

Yet Mr. Corzine was quick to acknowledge in the interview, "I'm out of sync with my administration on this one," and he noted that the public advocate, Ronald K. Chen, whom he appointed, has been a consistent critic of the merger.

To those opposed to the merger, which would create a company with 28,000 employees and approximately $79 billion in assets, the arrangement would suffocate competition and lead to a monthly electricity rate increase of about $45.

Critics also have expressed the fear that Exelon would eventually press to cut costs, leading to potential safety problems.

On Aug. 2, the two companies made what they called their "last and best offer" and gave the board 48 hours to say yes or no.

But the board's commissioners refused to act based on what critics said was a classic corporate bluff.

"To me, this is not bargaining in good faith," Mr. Fiordaliso said on Aug. 4 at a special meeting of the board. "This commissioner will not tolerate this type of behavior."

Then on Thursday, board staff responded: the new company should offer New Jersey ratepayers a total of $820 million in credits, or $200 million more than the companies' most recent offer; and the companies should be required to sell eight fossil-fuel plants in New Jersey and Pennsylvania, or two more than the Justice Department had recommended.

One manager of a hedge fund who has followed the negotiations said that investors were "reacting positively," because it appeared that the two sides were close, and because it appeared that Mr. Corzine, a former co-chairman of Goldman Sachs, had helped to break the logjam on Thursday by defending the board's scrutiny but also urging it to "bring this to conclusion."

Public Service's stock closed at 71.31 on Friday, up from 67.99 a week before, and Exelon 59.85, up from 57.91.

But Suzanne Leta of the New Jersey Public Interest Research Group said the board was giving away too much.

"It's very disappointing to see the board backtrack on the past two years of really quality work," Ms. Leta said. "It's really important and urgent that the governor's office and the B.P.U. commissioners stick to the facts of this case."

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