NIMO Shareholders Approve National Grid Deal

Niagara Mohawk (NIMO) shareholders last week approved an $8.9 billion merger with Britain's National Grid Group plc a couple days following a major rate reduction deal that was offered to New York ratepayers and regulators in exchange for approval of the marriage.

"Today marks an important milestone in our company's history," NIMO CEO William E. Davis said, following the shareholder vote. "We still have a number of hurdles to overcome and approvals to secure before this merger is completed, but we remain optimistic that the proposed transaction can be completed by late this year."

NIMO also announced a gas supply management transaction with Southern Energy last week that is designed to stabilize wholesale gas costs. Southern will manage NIMO's entire gas supply, transportation and storage portfolio, including 19 Bcf of gas storage and 0.8 Bcf of transportation capacity. Additional terms were not disclosed.

NIMO provides electricity to more than 1.5 million customers and natural gas to more than 540,000 customers in northern and central New York. National Grid is making NIMO its third major utility purchase in the Northeast in a year after it bought New England Electric System and Eastern Utilities Associates in 2000. The combination will create the ninth largest electric utility in the U.S. with an electric customer base of 3.3 million.

As part of the merger approval process, the companies promised the New York Public Service Commission last week they will reduce power rates by $132 million and install a 10-year electric rate freeze. The companies hope to gain regulatory approval from the PSC by June.

If approved, NIMO estimates its electric customers would see cuts in delivery rates of 7.8% for residential service, 3.8% for commercial service, 6.4% for small-to-mid-sized industrial service and 13.4% for large industry, relative to prices that customers would see without the merger. Delivery prices include all costs except for the commodity.

The long-term proposal also has other initiatives: a price-stabilized commodity service for residential and commercial customers for several years, providing customers with protection from severe fluctuations in the generation marketplace; the extension by one year of a multi-year gas rate settlement, resulting in gas delivery rates - unchanged since 1996 - remaining locked through August 2004; the extension of a low income customer assistance program; the establishment of a service quality program, under which NIMO would receive annual rewards or penalties of up to $22 million based on its customer service performance; and a congestion reduction program to help ease or prevent congestion on the bulk power transmission network.

"The merger of the two operations will allow us to reduce delivery costs to consumers and improve service at the same time," said Lawrence Reilly, senior vice president and general counsel of National Grid USA. "We have recently experienced high generation market prices. The long-term rate proposal we submitted today will, if approved, reduce the impact of these price increases."

The merger of the two companies' operations is expected to result in net savings over the next 10 years of $970 million when compared to the rates Niagara Mohawk forecasts it would have had to charge without the merger, the companies reported.

Rocco Canonica

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