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
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.
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