The foreign invasion of the U.S. electric utility market got offto a good start last week when the Federal Energy RegulatoryCommission approved two separate transactions valued atapproximately $10-$11 billion.

The Commission okayed ScottishPower’s acquisition of Portland,OR-based PacifiCorp for an estimated $7-$8 billion, as well as thedeal by Britain’s National Grid Plc, the world’s largest privatelyowned independent transmission company, to buy New England ElectricSystem (NEES) in Westborough, MA, for $3.2 billion [EC99-50,EC99-49]. It found that neither of the mergers, which weresubmitted to FERC in March, posed any market power concerns.

“These transactions represent the first major mergers anddispositions of U.S. public utilities and foreign companies thathave come before the FERC, yet they present little controversy,”said Commissioner William Massey. “There are no competitiveconcerns raised by the transactions because the merging partners donot sell in the same geographic markets as the utilities they areacquiring.”

Growing foreign interest in U.S. utilities, Massey noted, was tobe expected. “U.S. companies have been increasingly active in theforeign investment market. Investments by U.S. utilities [have]exploded…So it is no surprise that foreign companies are takingan interest in U.S. assets as well.” Chairman James Hoecker saidthe acquisitions “illustrate how attractive U.S. utilities and U.S.utility assets are to international capital markets as we movetowards competition…”

In addition to FERC, the ScottishPower-PacifiCorp deal has beenapproved by Britain’s regulatory authorities. It also requires thenecessary approvals from the Securities and Exchange Commission andregulators in the six western states served by PacifiCorp, whichinclude Oregon, California, Washington, Utah, Idaho and Wyoming.

The California Public Utilities Commission already has given anod to the deal, and the staff for the Washington Utilities andTransportation Commission recommended last Tuesday that regulatorsapprove the merger deal next fall. In Oregon, where the mergerfaces its biggest hurdle, the staff for the state’s Public UtilityCommission said it was continuing negotiations with Scotland’sScottishPower to reach a settlement on key merger-related issues,which could clear the way for a vote by September or October.

The National Grid-NEES transaction still requires the nod ofstate regulators in Massachusetts, New Hampshire and Rhode Island,as well as clearances from the SEC and Nuclear RegulatoryCommission.

Under both deals, the U.S. utilities – PacifiCorp and NEES -would become subsidiaries of their respective foreign owners.PacifiCorp serves about 1.4 million customers in the six westernstates, while NEES and its utility affiliates serve 1.3 millioncustomers in the New England area. The NEES utility affiliatesinclude Massachusetts Electric, Narragansett Electric, New EnglandElectric Transmission, New England Hydro-Transmission, New EnglandHydro-Transmission Electric and ALLEnergy Marketing.

Separately, FERC also approved the merger of CILCORP Inc.,parent of Central Illinois Light Co. (CILCO), and AES Corp., amajor power generation and distribution firm with operationsworldwide. It concluded the deal “will not adversely affectcompetition” in the companies’ respective markets.

CILCO, a Midwest electric and gas utility, provides electricservices to about 193,000 customers in Illinois, and retail gasservice to 202,000 customers. It also owns coal-fired and gas-firedgeneration facilities.

AES is engaged principally in the development, ownership andoperation of power plants and electric distribution firms. It ownsa diverse portfolio of power plants worldwide with a total capacityof more than 30,000 MW.

Susan Parker

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