NJ.com

Consumer Groups Glad PSEG Won't Merge, Investors Not Pleased

NJ.com — Friday, September 15, 2006

By GEOFF MULVIHILL
The Associated Press

(AP) — Investors have indicated that it's bad news for Public Service Enterprise Group that the electric company's deal to merge with Exelon Corp. fell through.

But a day after the deal fizzled, consumer advocates said Friday it's good news for the customers of New Jersey's largest utility.

"It is truly a victory for consumers," said Suzanne Leta, energy advocate for the New Jersey Public Interest Research Group. "This merger would have really raised electric rates."

Leta said a merger could have resulted over time in bills for consumers rising by hundreds of dollars per year because of the market domination of the combined company.

But, in the short-term, the deal had promised to lower bills for PSEG customers, and its demise means consumers will not see a rate decrease.

Exelon had been offering New Jersey $600 million worth of rate cuts over two years to win merger approval, said Paul T. Ridzon, an analyst who follows the energy industry for Keybanc Capital Markets.

Federal regulators had signed off on the merger, but New Jersey regulators, cheered on by watchdog groups and some state officials, wanted the combined company to make even deeper price cuts in the short-term. They also wants the company to sell off two power plants and agree not to take advantage of its market power to raise rates too much in the future.

Rather than agree to rate cuts that the state Board of Public Utilities was requesting, Exelon on Thursday decided to stop pursuing the $17 billion deal that would have made it the nation's largest utility, providing electricity or gas to some 18 million people in Illinois, Pennsylvania and New Jersey.

The question of rates is not settled, though.

PSEG has applications before the state utility regulators to raise electric rates by $64 million per year and gas rates by $133 million per year.

Ev Liebman, the program director at NJ Citizen Action, said she hopes the regulators do not simply grant those requests as "a consolation prize" because the merger did not happen.

Investors have shown their displeasure with the deal falling through – at least on PSEG's side.

PSEG shares closed down at $62 Friday on the New York Stock Exchange, down $4.15, or more than 6 percent.

Shares in Exelon closed Friday at $59.21, up $1.44, or nearly 2.5 percent.

One of the reasons the companies sought the mergers was that they believed Exelon could run PSEG's three Salem County nuclear power plants more efficiently – and make more money from them.

The companies say that since Exelon began operating the plants shortly after the merger was proposed in December 2004, the plants have done better. Exelon has a contract to continue running them until Jan. 17. PSEG has not said whether it will exercise an option to keep Exelon at the plants for another three years.

Keybanc's Ridzon said who runs operates the plants will be one key issue for PSEG to address. Another, he said, will be hiring more middle-managers. Many left the company out of fears their jobs would be eliminated after a merger, he said.

As for another merger, he thinks it's unlikely. The BPU's asking price for approval was so high it might scare off prospective deals in the future, he said.

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