Xcel Energy Marriage Gets FERC Nod
New Century Energies Inc. (NCE) of Denver and Minneapolis-based Northern States Power (NSP), two mid-sized combination utilities, got the go-ahead from FERC last week for their marriage that will cover a wide swath of the natural gas and electricity markets in the Midwest and Southwest. The $4.8 billion merger will create the 8th largest utility in the nation, serving more than 4.5 million natural gas and power customers in 12 states from Canada to Mexico.
The merged utility colossus, to be named Xcel Energy Inc., will have a "broad geographic footprint," said Commissioner Linda Breathitt. In addition to the utility subsidiaries in a dozen states, the companies own and operate independent power projects, natural gas pipelines (such as NSP's Viking Gas Transmission) and engage in the marketing of electricity and natural gas, she noted.
Despite the size of the pending merger, the Commission found it posed no adverse threat to competition. "The companies do not compete with each other in any electricity markets, so there are no significant horizontal competitive issues. And while [Southwestern Public Service, an NCE subsidiary] and NSP each have gas affiliates, the order finds that the merging companies do not compete in common upstream and downstream geographic markets, and thus there are no vertical competitive concerns either," said Commissioner William Massey. Also in its favor, the Commission pointed out, was the merged company's willingness to join the Midwest ISO.
The two utility companies hope to close the merger in the second quarter, an NSP spokesman said. But before they can do that, he noted the deal still must win the approval of regulators in seven states - Minnesota, Colorado, New Mexico, Texas, Wyoming, Arizona and North Dakota. Only two states, Kansas and Oklahoma, have approved the transaction either in whole or part so far. The Securities and Exchange Commission also has to sign off on it.
The combined company is expected to save $1.1 billion in costs over 10 years, which will benefit customers and investors. "We think our merger will be considered a model for the utility industry," said Wayne Brunetti, president and CEO of NCE.
NCE serves gas and electric customers through three operating subsidiaries - Southwestern Public Service Co. (SPS), Public Service Co. of Colorado (PSCo) and Cheyenne Light, Fuel & Power - in Colorado, Kansas, New Mexico, Oklahoma, Texas and Wyoming. NSP caters to gas/electric users in Arizona, Michigan, Minnesota, North and South Dakota and Wisconsin.
NCE was formed through the merger of PSCo and SPS in 1997, and its appetite for growth continues. Northern States Power was the target of a takeover attempt by Wisconsin Energy Corp. that failed in 1997 after running into problems with Wisconsin regulators. But the Wisconsin Public Service Commission has no jurisdiction over the NSP-NCE merger, even though NSP serves customers in that state. The commission would only have authority if one or both of the merger partners were based in the state. Neither NCE or NSP are located in Wisconsin.
In addition to its domestic operations, the merged company will serve about 2 million power customers and 400,000 gas customers in the United Kingdom, and will have operations in Central Europe, Australia and South America. Based on 1998 results, it would have revenues of $6.4 billion, earnings of $618.8 million and assets totaling $15.1 billion.
John Howard, who currently is chairman and CEO of NSP, will be the chairman of the merged company, which will be based in Minneapolis, MN. NCE's Brunett will become CEO of Xcel Energy at the completion of the merger.
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