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Allegheny, DQE Merger Raises Competition Concerns

Allegheny, DQE Merger Raises Competition Concerns

FERC last week put off a final ruling on the troubled merger of Allegheny Energy and DQE Inc., parent of Duquesne Light, until the partners decide how they want to resolve some serious competitive concerns. The Commission gave them the option of divesting DQE's 570-MW Cheswick Generating Station or proceeding to hearing on their own mitigation measures, which include relinquishing control of the Cheswick output on a short-term basis and joining the Midwest independent system operator (ISO).

But all of this may be moot since Allegheny Energy and DQE lately have been acting more like a divorced couple rather than soon-to-be corporate newlyweds. In this case, "it's not clear...whether the bride is going to come strolling down the aisle, or whether she's going to run out of the church and catch the first bus to someplace else," said Chairman James Hoecker. "Staff has expended a lot of resources in expectation of some form of connubial bliss," but it's "apparent that there is trouble in paradise here." DQE said it plans to terminate the merger agreement by no later than Oct. 5th if the "material adverse financial effects" of the proposed deal aren't remedied by then.

Although the merger is in doubt, the Commission went ahead with its review of the transaction, particularly focusing on the infrequently used measure of divestiture as a means to mitigate the market power of the combined electricity concern.

Commissioner Curt Hebert Jr. noted that divestiture should only be used as an "extreme measure, just as I would not amputate a patient's arm if his wrist swelled." Unfortunately, the merger partners haven't left FERC with much choice to do anything else, he said. "The problem here arose [when] Allegheny failed to put some flesh on the bones" of its proposed mitigation measures.

Allegheny Energy, a registered public utility holding company, owns Allegheny Generating, Monongehela Power, The Potomac Edison Co. and West Penn Power. The companies provide wholesale and retail electric service in Pennsylvania, Maryland, Virginia, West Virginia and Ohio. DQE, an exempt holding company, owns Duquesne Light, which is engaged in the generation, distribution and sale of energy in Pennsylvania.

Susan Parker

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