The Connecticut Department of Public Utility Control finallypassed 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 markingDPUC’s heavily conditional approval in the win column.

The $7.5 billion purchase, first announced last October, wouldcreate the largest gas and electric utility in the nation with morethan five million electric and 1.4 million gas customers in New Yorkand New England. The combined company would have annual revenues of$11 billion and a total enterprise value of $19 billion (see DailyGPI, Oct. 14, 1999).

DPUC’s decision includes strict guidelines imposing ratereductions and employment rules among other things. “Within 60 daysof the consummation of the NU/CEI merger, an immediateacross-the-board reduction in Connecticut Light & Power’s(CL&P) distribution rates shall go into effect,” said DPUC inits conclusion. “The amount of the rate reduction shall be 3%.”Yankee, another NU subsidiary, also must have rate reductionswithin 60 days of the merger completion. Both rate reductions wouldstay in effect until the company’s next general rate proceedingsare completed. The DPUC also ordered that the “new CEI shall haveno involuntary layoffs in Connecticut, other than for cause,through Dec. 31, 2003.”

Both companies expressed their displeasure with the mergerdecision. NU said, “the DPUC’s decision goes far beyond what it hasever required in the past in other mergers. The Department hasnever required rate cuts or write offs as conditions for mergers,and has held open the opportunity for recovery of the acquisitionpremium at some future date. NU/Con Edison have pledged they willnot seek recovery of the acquisition premium. Left unchanged, thisdecision makes a successful merger difficult, if not impossible, toachieve.”

NU plans on filing written exceptions on Sept. 29, and willparticipate in oral arguments on Oct. 4. The company pointed outthat the decision is only a draft, and it hopes the commission willconsider its arguments.

ConEd also released a somewhat pessimistic statement. “We arereviewing the commission’s draft order on the merger and willassess its provisions over the next several days. While this mergerwill clearly benefit customers, it also needs to make businesssense for the combined companies, and ensure their ability toinvest in infrastructure improvements and enhance servicereliability over the long term. Our preliminary review suggeststhat some provisions of the draft order could prevent us fromachieving these fundamental objectives.”

CEI said it would work closely with the commission members toaddress their questions and concerns, but its goal remainsunchanged — to move forward with a merger that benefits itscustomers, shareholders and employees.

Connecticut Attorney General Richard Blumenthal, who filed withDPUC back in February opposing the merger, was unhappy with thecommission’s decision as well (see Daily GPI, Feb. 29). “This merger is a bad marriage,”Blumenthal said. “Dressing it up in fancy clothes like the DPUCconditions doesn’t correct the fundamental flaws. Con Ed is simply anunacceptable partner — a company with an abysmal record of excessiverates, poor quality of service, and disrespect for theenvironment. “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 irreversiblebad marriage.”

While the attorney general gives credit to the DPUC forattempting to address the merger’s shortcomings, he believes thatthat the benefits to ratepayers will be insufficient. “I renew mycall for the DPUC to reject this merger or, at the very least,impose stricter conditions on ConEd that will safeguard ourconsumers, our economy, and our environment for the long term,” hesaid.

Blumenthal believes that history reflects negatively on theCEI/NU merger. “History is not on this merger’s side. Connecticut’sexperience with utility takeovers by out-of-state companies hasshown that the honeymoon is brief, and the results can be very bad.When SBC sought to takeover SNET, I vigorously opposed that mergerfor many of the same reasons contained in this case. As I predictedwould happen, SNET is now seeking to raise local service rates,reduce its service quality accountability, avoid sharing any mergersavings with consumers, and shut down its cable operation, despiterepeated assurances to the contrary. I fear that the results willbe similar here.”

ConEd and NU still needs the approvals of New York and theSecurities and Exchange Commission, final rulings from NewHampshire and Connecticut, and a Department of Justice eview. ADPUC spokesperson said it expects the commission to reach a finaldecision on Oct. 19.

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.