Exelon Corp. and Public Service Enterprise Group Inc. said Monday that even though either could walk away without penalty from their proposed merger beginning Tuesday, June 20, they will both stick it out and work to get the regulatory approvals needed to complete the deal.

The companies still need the blessing of the U.S. Department of Justice (DOJ) and New Jersey Board of Public Utilities (NJBPU) for their merger, which was announced December 2004.

Last month, the New Jersey Division of Rate Counsel filed a brief urging the NJBPU and Richard McGill, the administrative law judge (ALJ) hearing the case, to reject the merger as currently proposed. The initial brief was filed by New Jersey Division of Rate Counsel Director Seema Singh. “We thoroughly reviewed the proposed merger, 17 days of hearings were held, and expert witnesses for all parties testified. The administrative law judge and the Board of Public Utilities should reject the merger as it is currently proposed for failing to establish ‘positive benefits’ for the citizens of New Jersey,” Singh said. “The rewards are too small and the risks are too great for the proposed merger.”

And later in May several New Jersey state lawmakers filed a resolution urging the NJBPU to reject the merger. The BPU “rightly decided that the standard for the approval of this merger must result in positive benefits to rates, competition and the provision of safe, adequate and proper service and therefore, no harm to New Jersey ratepayers,” the resolution said.”There is no question that Exelon’s proposed acquisition of PSEG does not meet the BPU’s standard.” The resolution was sponsored by New Jersey Assemblyman Joseph Cryan and four other New Jersey assembly members. It was co-sponsored by Assemblywoman Nilsa Cruz-Perez.

Under the companies’ merger agreement, either party has the option to terminate the transaction without penalty at any time after June 20. However, they said they will both continue to seek merger approvals. Neither Chicago-based Exelon nor Newark, NJ-based PSEG has taken any action to terminate the merger agreement or extend the June 20 exit date.

“We are moving ahead to get our last two remaining regulatory approvals,” said Exelon CEO John W. Rowe. “We continue to make progress in our discussions with the Department of Justice, and we are involved in ongoing settlement discussions in New Jersey. We are trying to successfully complete these discussions as soon as possible. It obviously has taken longer than expected to get through the regulatory approval process.”

DOJ is reviewing issues related to competition. Rowe said, “We are working with DOJ to reach a settlement that addresses its concerns. We made an enhanced offer several weeks ago in New Jersey to demonstrate the significant benefits the merger will bring to the state. Although our settlement proposals make the economics of the transaction somewhat thinner, our board recently reevaluated the transaction, and has agreed that we should proceed on the assumption that we can reach reasonable settlements at DOJ and in New Jersey. On that basis, we continue to believe that this merger will create substantial long-term value for our shareholders. Higher energy prices have raised the values of Exelon and PSEG about proportionately since the merger was announced in December 2004. And in our view, the strategic value of the merger remains compelling. Of course, our board will make an independent assessment and evaluation of the merger after the terms and conditions of all regulatory requirements are known.”

“We at PSEG also continue to believe the merger makes economic and strategic sense,” said PSEG CEO Jim Ferland. “Like Exelon, our board recently reviewed the transaction. In addition to providing value to our shareholders through a larger, more diverse company, we believe the transaction offers substantial benefits to our customers. We believe it is important to try to gain a reasonable settlement with DOJ and a reasonable regulatory approval in New Jersey to achieve these benefits.”

The final decision on whether to proceed with the merger will rest with the boards of both Exelon and PSEG after the terms and conditions of regulatory requirements are known. Closing is anticipated in the third quarter upon completion of all required regulatory actions.

The merger was approved by FERC in June 2005 (see Daily GPI, July 5, 2005) and the Pennsylvania Public Utility Commission (PAPUC) voted unanimously to approve the deal and associated settlement terms Jan. 27. Various other states have given approvals related to the merger, including New York, Texas and Connecticut.

The deal was announced December 2004 (see Daily GPI, Dec. 21, 2004). At the time it was expected to create a combined utility holding company with total assets of $79 billion, $27 billion in annual revenues and $3.2 billion in annual net income. The company, which would be the parent of Commonwealth Edison in Chicago, PECO Energy in Philadelphia and Public Service Electric and Gas in Newark, will serve a total of seven million electric customers and two million gas customers. It will have 52,000 MW of power generation, including 20,000 MW of nuclear power, making it the nation’s largest power generator.

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