NJ Regulators Urge GPU-FirstEnergy Merger Rejection
Staff at the New Jersey Board of Public Utilities (NJBPU) has urged state regulators to reject the pending merger between FirstEnergy Corp. and GPU Inc. on the grounds that the two companies have failed to back up claims that the merger will not harm ratepayers in the Garden State, among other things.
The board's staff made its recommendation in an initial brief filed in late May. The merger between FirstEnergy and GPU must clear a number of regulatory hurdles before it can be consummated, including the approval of the NJBPU. The two companies in November 2000 filed a joint petition with the board seeking approval of the proposed merger.
In its brief, staff notes that FirstEnergy and GPU asked New Jersey regulators to sign off on their merger without conditions. According to staff, GPU and FirstEnergy argue that approval of the merger should not be conditioned on the board's review of detailed calculations and analysis of all merger savings and merger costs because it is "premature and unnecessary" to pinpoint these costs and savings prior to their inclusion in Jersey Central Power & Light Co.'s (JCP&L) rates. JCP&L is a subsidiary of GPU.
Staff further note that GPU and FirstEnergy have proposed numerous merger-related benefits, including potential savings of $150 million for the merged company. The board's staff said that it was reasonable to expect that JCP&L's ratepayers would be beneficiaries of these savings. Therefore, staff continued, the NJBPU has a "pronounced interest" in assuring that the calculations of the merger savings are properly executed and the savings equitably shared with JCP&L's ratepayers. However, due to the lack of information provided by the companies, staff said that it was unable to conclude that the merger would not harm ratepayers in New Jersey.
What further troubles staff at the board relates to how several credit agencies responded to initial news in August of last year that GPU and FirstEnergy would merge (see NGI, Aug. 14, 2000). Staff note that immediately following that announcement, the three major ratings agencies -- Moody's, Standard & Poor's and Fitch -- issued reports placing the ratings of JCP&L on watch for possible downgrade. The three reports, among other things, contained a number of common observations on the potential exposure of JCP&L's ratings to new credit concerns embedded in the corporate and regulatory profiles of FirstEnergy and its subsidiaries. Given that these concerns were expressed by respected financial ratings agencies, staff said that it "has no choice but to bring these concerns" to the attention of the board.
In addition, staff remains unconvinced that the proposed merger will not have an adverse impact on competition in New Jersey. The board raises questions as to how knowledgeable the two companies are about NJBPU regulations that, among other things, set forth standards of conduct related to interactions and relations between an electric utility and various types of related competitive business segments. More specifically, the board states that it is concerned with the petitioners' "apparent lack of knowledge" as to each merging entity's organization and structure. The staff asserts that based on the record of this proceeding, it has not received adequate information to recommend approval of the merger as it relates specifically to the issue of prospective compliance with the board's affiliate relations rules.
The Pennsylvania Public Utility Commission last month approved the merger between GPU and FirstEnergy by a vote of 5-0. At the same time, the Pennsylvania commission decided to postpone a decision on GPU's request to raise rates (see NGI, May 28).
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