USA Today

Largest Ever Utility Merger Is Off: Exelon And PSEG Won't Get Together

USA Today — September 14, 2006

NEWARK, N.J. (AP) — Exelon (EXC) on Thursday scrapped plans to acquire Public Service Enterprise Group (PEG), a deal pending for nearly two years that would have created the nation's largest utility company.

The $17 billion deal hit a roadblock in August, when New Jersey regulators raised concerns that the combined company would have too much market power, and should provide greater rate relief in New Jersey, where a PSEG subsidiary is the state's largest utility.

Discussions since then among Exelon, PSEG and the New Jersey Board of Public Utilities did not produce an agreement, said BPU executive director Victor Fortkiewicz. Exelon is based in Chicago, PSEG is based in Newark.

"A conclusion was reached that that gap could not be bridged," Fortkiewicz said Thursday evening, after the companies announced the merger was off.

In statements, executives with both companies said they are disappointed, and confirmed that differences on rate concessions and market domination issues were "insurmountable."

"The merger would have provided strategic benefits for PSEG and real benefits for New Jersey," said PSEG Chairman and CEO E. James Ferland. "It is unfortunate that our intense effort to reach a comprehensive settlement with the state's Board of Public Utilities was not successful. We simply could not achieve agreement on issues ranging from market power mitigation to electric and gas rate concessions."

Consumer groups in New Jersey had opposed the deal as it was structured, and New Jersey Public Advocate Ronald Chen said the withdrawal of the merger application "is in the best interests of all New Jerseyans."

"We did not believe the companies offered enough direct and real rate relief for New Jersey families and businesses," Chen said. "Perhaps most significantly, the companies also would not agree to measures that our experts, and the Board of Public Utilities staff, believed were necessary to ensure that the merged company could not manipulate regional energy markets and drive up statewide energy costs."

PSEG shares plunged $5.75, or 9%, in after-hours trading, when the announcement was made. They had risen 1 cent to $66.15 in trading Thursday on the New York Stock Exchange. Shares of Exelon rose $1.73, or 3%, after hours. They closed down 50 cents at $57.77 on the NYSE.

The U.S. Department of Justice approved the deal in June but stipulated that Exelon and PSEG first must divest six electricity generating plants – four in New Jersey and two in Pennsylvania – within 150 days of the merger's closure. The companies accepted.

The merger plan, announced in December 2004, would have created Exelon Electric & Gas and provided electricity or gas to 18 million people in Illinois, New Jersey and Pennsylvania.

The companies got approval from the Federal Energy Regulatory Commission in June 2005 and had hoped the transaction would close by mid-2006. But citizens' groups in New Jersey complained that the increased market share of the combined company would give it too much ability to increase utility rates.

PSEG is the parent company of Public Service Electric & Gas of New Jersey, the state's largest electric utility.

Exelon subsidiaries include Peco Energy, which sells electricity in the Philadelphia area, and Commonwealth Edison, a utility in Illinois.

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