Chicago Sun-Times

Exelon Drops N.J. Bid

Chicago Sun-Times — Friday, September 15, 2006

Exelon Corp. on Thursday scrapped plans to acquire Public Service Enterprise Group Inc., 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 Chicago-based Exelon, Newark-based PSEG and the New Jersey Board of Public Utilities did not produce agreement, said BPU executive director Victor Fortkiewicz.

"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 were 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 the New Jersey Public Advocate, Ronald K. 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 $6.30, or 9.5 percent, 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 percent, 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.

The deal's collapse was applauded by state Assemblyman Joseph Cryan, D-Union, who sponsored a resolution urging the BPU to reject the merger. "It is heartening to see that one of New Jersey's model corporate citizens will remain in local hands," said Cryan, who also is chairman of the state Democratic Party.

The outcome also was welcomed by a coalition of environmental, labor and business groups, who claimed the merger would have raised electric rates in New Jersey, reduced reliability and risked public safety.

"This deal would have created an energy giant large and powerful enough to dictate electric rates with the potential to cost every ratepayer in the state hundreds of dollars more a year," said Suzanne Leta, of one coalition member, New Jersey Public Interest Research Group. "The risk of skyrocketing electric bills far exceeds Exelon's paltry rate credit offer that shakes out to less than three dollars a month for PSE&G customers."

PSEG spokesman Paul Rosengren said the company believed it offered a significant amount of rate credits, and that while the BPU was concerned that those might be outstripped by future rate increases due to market concentration, "We felt that market power was dealt with significantly at the federal level, with FERC and the Department of Justice, and we couldn't go further in that area."

Meanwhile, Ferland reaffirmed PSEG's 2006 earnings guidance of $3.45 to $3.75 a share, and said the preliminary guidance for 2007 is $4.60 to $5 a share.

Exelon will continue to manage PSEG's Salem and Hope Creek nuclear plants through at least Jan. 17, and PSEG can renew the agreement for up to three years, Ferland said.

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

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

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