ConEd/NU Merger Conditions Unpopular With All Sides
The Connecticut Department of Public Utility Control finally passed
down its much-delayed approval of Consolidated Edison's (CEI) acquisition
of Northeast Utilities (NU). The problem is, neither company, nor the state's
attorney general, is marking DPUC's heavily conditional approval in the
The $7.5 billion purchase, first announced last October, would create
the largest gas and electric utility in the nation with more than five
million electric and 1.4 million gas customers in New York and New England.
The combined company would have annual revenues of $11 billion and a total
enterprise value of $19 billion (see NGI, Oct.
DPUC's decision includes strict guidelines imposing rate reductions
and employment rules among other things. "Within 60 days of the consummation
of the NU/CEI merger, an immediate across-the-board reduction in Connecticut
Light & Power's (CL&P) distribution rates shall go into effect,"
said DPUC in its conclusion. "The amount of the rate reduction shall
be 3%." Yankee, another NU subsidiary, also must have rate reductions
within 60 days of the merger completion. Both rate reductions would stay
in effect until the company's next general rate proceedings are completed.
The DPUC also ordered that the "new CEI shall have no involuntary
layoffs in Connecticut, other than for cause, through Dec. 31, 2003."
Both companies expressed their displeasure with the merger decision.
NU said, "the DPUC's decision goes far beyond what it has ever required
in the past in other mergers. The Department has never required rate cuts
or write offs as conditions for mergers, and has held open the opportunity
for recovery of the acquisition premium at some future date. NU/Con Edison
have pledged they will not seek recovery of the acquisition premium. Left
unchanged, this decision makes a successful merger difficult, if not impossible,
NU filed written exceptions on Sept. 29 and will participate in oral
arguments on Oct. 4. The company pointed out that the decision is only
a draft, and it hopes the commission will consider its arguments.
ConEd also released a somewhat pessimistic statement. "We are reviewing
the commission's draft order on the merger and will assess its provisions
over the next several days. While this merger will clearly benefit customers,
it also needs to make business sense for the combined companies, and ensure
their ability to invest in infrastructure improvements and enhance service
reliability over the long term. Our preliminary review suggests that some
provisions of the draft order could prevent us from achieving these fundamental
CEI said it would work closely with the commission members to address
their questions and concerns, but its goal remains unchanged - to move
forward with a merger that benefits its customers, shareholders and employees.
Connecticut Attorney General Richard Blumen, who filed with DPUC back
in February opposing the merger, was unhappy with the commission's decision
as well (see NGI, MAR. 13). "This merger
is a bad marriage," Blumenthal said. "Dressing it up in fancy
clothes like the DPUC conditions doesn't correct the fundamental flaws.
Con Ed is simply an unacceptable partner --- a company with an abysmal
record of excessive rates, poor quality of service, and disrespect for
the environment. "All of the benefits --- very modest rate reductions,
meager sharing of savings with ratepayers, a moratorium on layoffs ---
last only until 2003. They are a short-term fix for an irreversible bad
While the attorney general gives credit to the DPUC for attempting to
address the merger's shortcomings, he believes that that the benefits to
ratepayers will be insufficient. "I renew my call for the DPUC to
reject this merger or, at the very least, impose stricter conditions on
ConEd that will safeguard our consumers, our economy, and our environment
for the long term," he said.
Blumenthal believes that history reflects negatively on the CEI/NU merger.
"History is not on this merger's side. Connecticut's experience with
utility takeovers by out-of-state companies has shown that the honeymoon
is brief, and the results can be very bad. When SBC sought to takeover
SNET, I vigorously opposed that merger for many of the same reasons contained
in this case. As I predicted would happen, SNET is now seeking to raise
local service rates, reduce its service quality accountability, avoid sharing
any merger savings with consumers, and shut down its cable operation, despite
repeated assurances to the contrary. I fear that the results will be similar
ConEd and NU still needs the approvals of New York and the Securities
and Exchange Commission, final rulings from New Hampshire and Connecticut,
and a Department of Justice review. A DPUC spokesperson said it expects
the commission to reach a final decision on Oct. 19.