The New York Times

New Jersey Opposition Leads To Utility Merger's Collapse

The New York Times — Friday, September 15, 2006


TRENTON, Sept. 14 — A planned merger that would have created the largest utility in the United States collapsed on Thursday, a month after New Jersey regulators demanded better terms for consumers.

The Public Service Enterprise Group of Newark – the parent company of Public Service Electric and Gas, New Jersey's largest utility – and the Chicago-based Exelon Corporation said their differences with the state over the $17 billion deal were "insurmountable."

In the 19 months that the proposed merger was before the New Jersey Board of Public Utilities, it drew fierce opposition from consumer groups and many legislators, who were later joined by the state's new public advocate, Ronald Chen. The deal had been approved by regulators in New York, Connecticut and Pennsylvania, as well as by the Federal Energy Regulatory Commission. And New Jersey had not turned down a merger in 20 years.

But this proposal ran into serious trouble because regulators feared that the combined company would drive up electric and gas rates.

In July, Exelon offered $600 million in credits to New Jersey customers through 2008 to help win approval from the Board of Public Utilities.

But the board, in a counterproposal on Aug. 17, demanded that Exelon and P.S.E.&G. increase their offer of credits to ratepayers and that they sell eight plants in New Jersey and Pennsylvania to reduce the combined company's market share.

That led Exelon to warn last month that the deal was "no longer 'more likely than not.' " In a statement on Thursday, Exelon's chairman, John W. Rowe, said the company was "very disappointed that the merger cannot be completed."

The board issued only a brief statement on Thursday. But Mr. Chen said in a statement that the end of the merger "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," he said.

Consumer advocates celebrated the end of their battle. "Time after time, New Jersey and other states have approved utility mergers that are not in the best interests of the public," said Suzanne Leta of the New Jersey Public Interest Research Group. "This time New Jersey regulators wouldn't accept the federal rubber stamp."

The New Jersey utility's stock dropped by nearly 9 percent in after-hours trading to $60.25, while Exelon stock rose about 3 percent to $59.50. Opponents of the merger, citing estimates from the board of public utilities, contended that it could increase the typical residential energy bill by about $45 a month. And Mr. Chen warned that the merger was likely to increase rates for all New Jersey ratepayers, not just P.S.E.&G.'s 3.8 million customers, because all utilities in the state buy power from the same energy generators.

The merger would have shored up the finances of the Public Service Enterprise Group, the weaker of the two companies. But the company's chairman, E. James Ferland, said in a statement on Thursday that "our prospects on a stand-alone basis are bright." The State Senate president, Richard J. Codey, said, however: "The way the business is going, companies like P.S.E.&G. may be dinosaurs. These utilities may go the way of the independent pharmacies."

Gov. Jon S. Corzine had supported the merger, with some reservations. His press secretary, Anthony Coley, said on Thursday evening: "We saw some benefits with a merger, so this is unfortunate news. "P.S.E.&G. has, however, served New Jersey residents well in the past, and we expect their tradition of providing good customer service will continue."

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