FERC Signs Off On Niagara/National Grid Merger

National Grid USA's proposed purchase of Niagara Mohawk Holdings Inc. moved one step closer to completion last Wednesday after the Federal Energy Regulatory Commission gave its blessing to the deal. The merger, currently valued at $3 billion and first unveiled in September of last year (see NGI, September 11, 2000), still needs to clear a number of regulatory hurdles before it can be completed.

At its bi-weekly meeting last Wednesday, FERC said that it found the proposed merger will not adversely affect competition, rates or regulation. With respect to horizontal effects of the proposed merger, FERC said that it is unlikely that National Grid and Niagara Mohawk will have the ability and incentive to adversely effect electricity prices or output in any relevant market. The commission said that the companies lack this ability because they lack operational control over generation, such that they would be unable to withhold resources to drive up market prices. Turning to the vertical effects of the proposed merger, FERC ruled that the combination of the companies' capacity will not significantly enhance the combined company's incentive to adversely affect electricity prices or output.

As for the merger's effect on rates, FERC noted that National Grid and Niagara Mohawk have committed not to recover any merger-related costs in excess of merger-related savings absent prior regulatory authorization. The Commission said that it would accept this commitment, noting that FERC does not require analysis of the costs and benefits of a proposed merger in order to determine a transaction's consistency with the public interest.

The Commission also found no problems with the proposed merger as it relates to regulatory concerns. National Grid and Niagara Mohawk note that subsidiaries of theirs that are subject to state regulation prior to the merger will continue to be subject to that regulation after the merger.

The merger still needs regulatory approvals from the New York Public Service Commission, the Vermont Public Service Board and the Securities and Exchange Commission. It is expected to close in late 2001.

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