Leaping another hurdle Tuesday en route to a successfully completed merger, FirstEnergy Corp.and GPU Inc. announced they have reached a stipulated settlement with several parties in their pending merger case, and have filed the agreement with the Pennsylvania Public Utility Commission (PUC).

The parties to the case, which include the Pennsylvania Office of Consumer Advocate, Pennsylvania Electric Co. (Penelec), Metropolitan Edison Co. (Met-Ed), Penelec Industrial Customer Alliance, Met-Ed Industrial Users Group, and Citizens for Pennsylvania’s Future, may comment on the stipulation until noon today. Other parties may still decide to join in the settlement. The PUC is expected to rule on the case Thursday (June 14).

The concerned parties in the filing to the PUC said they “recommend and agree that the commission adopt the administrative law judge’s recommended decision dated April 23, 2001,” except for specific modifications, and further adopt the other matters set forth in the agreement.

Under the stipulated settlement, FirstEnergy will agree to freeze Met-Ed and Penelec total generation rates through Dec. 31, 2010 at specific predetermined levels, provided that the companies may seek relief from the PUC if any condition would arise that would substantially impair the use of FirstEnergy’s generation after Dec. 31, 2005 and prevent the companies from earning a fair rate of return.

The agreement also provides that FirstEnergy will freeze Met-Ed and Penelec distribution rates at current levels through Dec. 31. 2007. Sixty days after the merger is consummated, FirstEnergy will deposit $2.5 million apiece into Met-Ed’s and Penelec’s sustainable energy funds, with the agreement that the company will also spend $10 million on “cost-effective renewable energy projects in GPU Energy’s Pennsylvania and Pennsylvania Power Co.’s service territories over the next five years.” The stipulated settlement included numerous other requirements.

John Hanger, CEO of Citizens for Pennsylvania’s Future (PennFuture), called the settlement a “major win for both the environment and consumers.” This agreement includes the adoption of what should be a model demand response program for the nation, which will enable consumers to use electricity cheaper and smarter, Hanger said. In addition, the agreement protects the rate caps negotiated in the original GPU restructuring case at the PUC.

“PennFuture had three goals going into these discussions: to protect consumers, advance clean renewable energy, and defend the rate cap — and we have achieved each one of our goals,” said Hanger. “Under this agreement, GPU will offer customers advanced meter systems, giving customers the right to know the real-time cost of their electricity, and the ability to shift their electricity use to cheaper times. Allowing ordinary customers to use and pay for electricity based on the real cost, rather than the average cost, will help customers save money and use electricity wisely.”

“In addition, GPU is agreeing to invest at least $15 million in clean renewable energy,” continued Hanger. “This new investment in wind, solar and other clean energy is not just good for the environment. This new investment will also help expand our economy, adding to Pennsylvania’s growing reputation as the renewable energy capital of the eastern U.S. Finally, this agreement leaves the rate cap intact. For all these reasons, this historic agreement is an important step for both the environment and the economy.”

The settlement comes a month after the PUC approved the merger by a vote of 5-0 (see Daily GPI, May 25). The PUC said the companies could merge, provided that they agree to certain conditions, including not charging customers for costs associated with the merger and maintaining current levels of community support programs for three years following the merger. In approving the merger, the commission also said it must be beneficial to both GPU ratepayers and Pennsylvania.

But the merger is not out of the woods yet, as FirstEnergy and GPU have received staunch opposition in New Jersey (see Daily GPI, June 5). Staff at the New Jersey Board of Public Utilities (NJBPU) urged state regulators in late May to reject the pending merger on the grounds the companies failed to back up claims that the merger will not harm ratepayers in the Garden State, among other things. The merger must still clear a number of regulatory hurdles before it can be consummated, including the approval of the NJBPU.

Under the merger agreement originally announced in August 2000 (see Daily GPI, Aug. 8, 2000; Aug. 9, 2000), FirstEnergy would acquire all of GPU’s outstanding shares of common stock for about $4.5 billion in cash and common stock with the absorption of $7.4 billion of GPU’s preferred stock and debt. The marriage would create the sixth largest investor-owned electric system in the country with the largest customer base — 4.3 million customers — in the Pennsylvania-New Jersey-Maryland power pool.

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