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Regulators Wring More Savings From National Grid-KeySpan Tie-Up

April 28, 2008
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National Grid USA's acquisition last year of KeySpan Corp. continued to provide benefits to consumers last week when the New York State Public Service Commission (NYPSC) found nearly $12 million more in merger savings for customers.

The NYPSC increased by $11.5 million National Grid's upstate customers' share of savings from the company's acquisition of KeySpan (see NGI, Sept. 3, 2007). Also, the commission said it will seek comments on two additional potential merger savings issues.

"National Grid's merger with Niagara Mohawk in 2001 was predicated upon a joint proposal providing for an allocation of some synergy savings to Niagara Mohawk customers in the event National Grid closes any mergers or acquisitions within the United States," said NYPSC Chairman Garry Brown. "Since all joint proposals are carefully constructed and intricately interwoven to balance an agreement involving numerous gives and takes among the signatories, many of whom have differing interests, our action today preserves the integrity of the merger joint proposal."

In October Niagara Mohawk Power Corp., doing business as National Grid, proposed a "follow-on merger credit" as part of savings associated with National Grid's acquisition of KeySpan. National Grid calculated its upstate customers' share of KeySpan follow-on merger savings for September 2007 through December 2011 to be about $40.4 million -- about $33 million for electric operations and $7.4 million for natural gas operations.

Based upon an audit by NYPSC staff, the commission determined that National Grid's upstate customer share of KeySpan follow-on merger savings for the period August 24, 2007 through December 2011 increased to about $52 million, or $11.5 million more than the amount proposed by National Grid.

The commission's order will result in approximately $9.4 million in KeySpan-related merger savings being deferred for the benefit of National Grid's upstate electric customers. This amount will flow back to customers Jan. 1, 2010 through Dec. 31, 2011 as part of the competitive transition charge reset. Approximately $2.2 million will be credited to the company's gas contingency fund and will provide a future credit for gas customers.

In the audit conducted by NYPSC staff, two potential issues relating to efficiency gains and merger savings adjustments were discovered to not be fully addressed by National Grid. The commission will seek comments by the company and others on these issues. Final resolution of these two issues could result in additional merger savings for National Grid's upstate electric and gas customers.

The National Grid-KeySpan merger was expected to net ratepayers benefits estimated at more than $700 million over a 10-year period. More than half of the savings ($494 million) was to go to KeySpan customers on Long Island and New York City, while about $100 million would flow to National Grid's upstate customers and $93 million would go to customers of affiliate Long Island Power Authority. A deal with regulators also included a five-year rate freeze for gas customers (see NGI, July 16, 2007).

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