Niagara Mohawk (NIMO) shareholders last week approved an $8.9billion merger with Britain’s National Grid Group plc a couple daysfollowing a major rate reduction deal that was offered to New Yorkratepayers and regulators in exchange for approval of the marriage.

“Today marks an important milestone in our company’s history,”NIMO CEO William E. Davis said, following the shareholder vote. “Westill have a number of hurdles to overcome and approvals to securebefore this merger is completed, but we remain optimistic that theproposed transaction can be completed by late this year.”

NIMO also announced a gas supply management transaction withSouthern Energy last week that is designed to stabilize wholesalegas costs. Southern will manage NIMO’s entire gas supply,transportation and storage portfolio, including 19 Bcf of gasstorage and 0.8 Bcf of transportation capacity. Additional termswere not disclosed.

NIMO provides electricity to more than 1.5 million customers andnatural gas to more than 540,000 customers in northern and centralNew York. National Grid is making NIMO its third major utilitypurchase in the Northeast in a year after it bought New EnglandElectric System and Eastern Utilities Associates in 2000. Thecombination will create the ninth largest electric utility in theU.S. with an electric customer base of 3.3 million.

As part of the merger approval process, the companies promisedthe New York Public Service Commission last week they will reducepower rates by $132 million and install a 10-year electric ratefreeze. The companies hope to gain regulatory approval from the PSCby June.

If approved, NIMO estimates its electric customers would seecuts in delivery rates of 7.8% for residential service, 3.8% forcommercial service, 6.4% for small-to-mid-sized industrial serviceand 13.4% for large industry, relative to prices that customerswould see without the merger. Delivery prices include all costsexcept for the commodity.

The long-term proposal also has other initiatives: aprice-stabilized commodity service for residential and commercialcustomers for several years, providing customers with protectionfrom severe fluctuations in the generation marketplace; theextension by one year of a multi-year gas rate settlement,resulting in gas delivery rates – unchanged since 1996 – remaininglocked through August 2004; the extension of a low income customerassistance program; the establishment of a service quality program,under which NIMO would receive annual rewards or penalties of up to$22 million based on its customer service performance; and acongestion reduction program to help ease or prevent congestion onthe bulk power transmission network.

“The merger of the two operations will allow us to reducedelivery costs to consumers and improve service at the same time,”said Lawrence Reilly, senior vice president and general counsel ofNational Grid USA. “We have recently experienced high generationmarket prices. The long-term rate proposal we submitted today will,if approved, reduce the impact of these price increases.”

The merger of the two companies’ operations is expected toresult in net savings over the next 10 years of $970 million whencompared to the rates Niagara Mohawk forecasts it would have had tocharge without the merger, the companies reported.

Rocco Canonica

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