The Connecticut Department of Public Utility Control finally passed down its much-delayed approval of Consolidated Edison’s (CEI) acquisition of Northeast Utilities (NU). The problem is, neither company, nor the state’s attorney general, is marking DPUC’s heavily conditional approval in the win column.
The $7.5 billion purchase, first announced last October, would create the largest gas and electric utility in the nation with more than five million electric and 1.4 million gas customers in New York and New England. The combined company would have annual revenues of $11 billion and a total enterprise value of $19 billion (see NGI, Oct. 18, 1999).
DPUC’s decision includes strict guidelines imposing rate reductions and employment rules among other things. “Within 60 days of the consummation of the NU/CEI merger, an immediate across-the-board reduction in Connecticut Light & Power’s (CL&P) distribution rates shall go into effect,” said DPUC in its conclusion. “The amount of the rate reduction shall be 3%.” Yankee, another NU subsidiary, also must have rate reductions within 60 days of the merger completion. Both rate reductions would stay in effect until the company’s next general rate proceedings are completed. The DPUC also ordered that the “new CEI shall have no involuntary layoffs in Connecticut, other than for cause, through Dec. 31, 2003.”
Both companies expressed their displeasure with the merger decision. NU said, “the DPUC’s decision goes far beyond what it has ever required in the past in other mergers. The Department has never required rate cuts or write offs as conditions for mergers, and has held open the opportunity for recovery of the acquisition premium at some future date. NU/Con Edison have pledged they will not seek recovery of the acquisition premium. Left unchanged, this decision makes a successful merger difficult, if not impossible, to achieve.”
NU filed written exceptions on Sept. 29 and will participate in oral arguments on Oct. 4. The company pointed out that the decision is only a draft, and it hopes the commission will consider its arguments.
ConEd also released a somewhat pessimistic statement. “We are reviewing the commission’s draft order on the merger and will assess its provisions over the next several days. While this merger will clearly benefit customers, it also needs to make business sense for the combined companies, and ensure their ability to invest in infrastructure improvements and enhance service reliability over the long term. Our preliminary review suggests that some provisions of the draft order could prevent us from achieving these fundamental objectives.”
CEI said it would work closely with the commission members to address their questions and concerns, but its goal remains unchanged – to move forward with a merger that benefits its customers, shareholders and employees.
Connecticut Attorney General Richard Blumen, who filed with DPUC back in February opposing the merger, was unhappy with the commission’s decision as well (see NGI, MAR. 13). “This merger is a bad marriage,” Blumenthal said. “Dressing it up in fancy clothes like the DPUC conditions doesn’t correct the fundamental flaws. Con Ed is simply an unacceptable partner — a company with an abysmal record of excessive rates, poor quality of service, and disrespect for the environment. “All of the benefits — very modest rate reductions, meager sharing of savings with ratepayers, a moratorium on layoffs — last only until 2003. They are a short-term fix for an irreversible bad marriage.”
While the attorney general gives credit to the DPUC for attempting to address the merger’s shortcomings, he believes that that the benefits to ratepayers will be insufficient. “I renew my call for the DPUC to reject this merger or, at the very least, impose stricter conditions on ConEd that will safeguard our consumers, our economy, and our environment for the long term,” he said.
Blumenthal believes that history reflects negatively on the CEI/NU merger. “History is not on this merger’s side. Connecticut’s experience with utility takeovers by out-of-state companies has shown that the honeymoon is brief, and the results can be very bad. When SBC sought to takeover SNET, I vigorously opposed that merger for many of the same reasons contained in this case. As I predicted would happen, SNET is now seeking to raise local service rates, reduce its service quality accountability, avoid sharing any merger savings with consumers, and shut down its cable operation, despite repeated assurances to the contrary. I fear that the results will be similar here.”
ConEd and NU still needs the approvals of New York and the Securities and Exchange Commission, final rulings from New Hampshire and Connecticut, and a Department of Justice review. A DPUC spokesperson said it expects the commission to reach a final decision on Oct. 19.
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