FERC last Thursday approved the merger of KeySpan Corp. and London-based National Grid. Separately, the Commission approved NorthWestern Corp.’s merger with Babcock & Brown Infrastructure Ltd. (BBI), a company based in Sydney, Australia.

The Federal Energy Regulatory Commission (FERC) acted on the deals at its latest open meeting.

National Grid owns and operates transmission facilities and distributes electricity and natural gas in New York State, and owns and operates transmission facilities in New England. KeySpan, a holding company headquartered in Brooklyn, NY, provides utility and nonutility services in the Northeast U.S., primarily in the New York and Long Island region. KeySpan is also the largest natural gas distributor in the Northeast.

The combination “of their electric generation resources is not likely to harm competition in any relevant market,” the Commission found.

National Grid has and will likely continue to have significant POLR (provider of last resort) obligations, and has all of its generation resources dedicated to serving those obligations, thus removing that generation capacity from the wholesale market, FERC noted. Therefore, National Grid will have no available economic capacity that would increase the market concentration in any relevant market. In addition, most of KeySpan’s generation is committed under long-term contracts to the Long Island Power Authority, FERC said.

The Commission determined that the National Grid-KeySpan merger would not adversely affect wholesale power rates, noting that the companies have stated their commitment to hold ratepayers harmless from transaction-related costs in excess of transaction-related savings for five years.

The Commission also granted the applicants’ request that, after the merger, KeySpan’s subsidiaries may pay dividends out of common equity funds, which before the merger had been retained earnings.

In August, KeySpan shareholders overwhelmingly approved the $11.8 billion merger with National Grid (see NGI, Aug. 21).

National Grid and KeySpan announced the agreement to merge in February (see NGI, March 6). National Grid will pay $42 per share in cash in a transaction valued at approximately $7.3 billion, with an enterprise value of $11.8 billion.

FERC also gave the green light to the NorthWestern-Babcock deal. The Commission found that the merger is consistent with the public interest, because it will not have an adverse effect on competition, rates or regulation, and will not result in cross-subsidization of a non-utility associate company.

The merger of BBI and NorthWestern “does not result in any new combination of generating assets that would compete in the same geographic markets,” the Commission found. In addition, NorthWestern has committed to hold wholesale sales and transmission customers harmless from rate increases that are the result of merger costs for five years and to not pass on any acquisition costs to its customers.

Butte, Montana-based NorthWestern and its power marketing subsidiaries, NorthWestern Energy Marketing LLC and Clark Fork and Blackfoot LLC, operate in the upper Midwest and Montana. NorthWestern acquired the electric and gas transmission and distribution of Montana Power Co. in 2002. In 2004, NorthWestern voluntarily reorganized under Chapter 11 bankruptcy. Northwestern also provides natural gas service and retail electric service in South Dakota as well as Montana, and provides gas service in Nebraska.

BBI owns and manages infrastructure in Australia, New Zealand, Europe, and the United States. Among its U.S. projects, BBI and its affiliates own interests in wind-power facilities from California to New York.

As a subsidiary of BBI, NorthWestern will continue to provide utility services. The merger only involves a change in upstream ownership.

Under the Federal Power Act and the standards set under the Commission’s 1996 merger policy guidelines, Order No. 592, the Commission reviews public utility mergers to evaluate the transaction’s effect on competition, rates and regulation. The Commission must approve a merger if it finds it is consistent with the public interest. The Commission also must determine that the transaction will not result in cross-subsidization of a non-utility associate company (Order No. 669).

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