Officials from National Grid and Keyspan Corp. said last week the proposed merger of their companies, agreed to in principle July 6 by the staff of the New York State Department of Public Service and other parties, will save customers an estimated $602.8 million through a five-year rate freeze.

“This agreement is a major step forward in completing the merger and bringing significant benefits of the combined companies to our customers and other stakeholders throughout New York,” said Steve Holliday, CEO of London-based National Grid.

The settlement is subject to review by the administrative law judges overseeing the merger case and the review and official approval of the New York Public Service Commission (NYPSC). According to the latest procedural schedule, the merger proposal is to go before the NYPSC for a vote on Aug. 22. If approved, the acquisition is to be completed shortly thereafter, the companies said — possibly as soon as Aug. 25.

Approval by the NYPSC is one of the last remaining reviews required in the merger, which was announced in late February 2006 (see NGI, March 6, 2006). Approval of a settlement with the staff of the New Hampshire Public Utilities Commission and other New Hampshire parties is pending. All other major approvals and clearances for the merger — the Federal Energy Regulatory Commission, the Federal Trade Commission, the Department of Justice, the Committee on Foreign Investment in the United States and shareholders (see NGI, Aug. 21, 2006) — have already been obtained.

According to a joint statement issued by the two companies, the merger will provide $602.8 million in savings to gas customers in New York City and Long Island over the next five years. For KeySpan customers in New York City, who last saw an increase in base gas delivery rates in 1993, the proposal calls for a continued rate freeze through 2012. On Long Island, the agreement calls for a one-time increase of $60 million in gas revenues to cover greater increases in property taxes and medical costs for employees. Following the initial increase, base delivery rates on Long Island would freeze through 2012. Base delivery rates on Long Island have not gone up since 1996. The agreement focuses primarily on the delivery portion of customers’ bills — the cost of the gas delivered to customers will fluctuate with market prices.

“The savings that come from merging with National Grid, which are captured in this settlement, provide rate stability for the future,” said KeySpan CEO Robert B. Catell. “Without the merger settlement, KeySpan customers were facing significant rate increases due to rising costs.”

If approved, the agreement would give National Grid the option to enter into a long-term, fixed-price contract for all output from the 2,450 MW Ravenswood Generating Station in Queens, NY. National Grid will have up to three years to complete that option or divest the station. Under terms of the agreement, Niagara Mohawk Power Corp., Brooklyn Union Gas Co. and KeySpan Gas East Corp. will continue to operate as subsidiaries and public utility companies under the overall corporate control of National Grid USA.

In March the companies announced an amended and enhanced seven-year agreement with the Long Island Power Authority (LIPA) to operate the transmission and distribution system on Long Island. The companies said the agreement affirmed that their proposed merger is in the best interest of Long Island electric customers.

National Grid distributes electricity to approximately 3.4 million customers in Massachusetts, New Hampshire, New York and Rhode Island and natural gas to approximately 814,000 customers in New York and Rhode Island. The company owns and operates the high-voltage electricity transmission network and the high-pressure gas transmission system in Great Britain.

KeySpan Corp. is the largest distributor of natural gas in the Northeast United States, operating regulated gas utilities in New York, Massachusetts and New Hampshire that serve 2.6 million customers. KeySpan is also the largest electric generator in New York state, owning approximately 6,650 MW of generating capacity, providing power to 1.1 million LIPA customers on Long Island and supplying approximately 25% of New York City’s capacity needs.

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