Only one regulatory hurdle remains standing in the way of the proposed merger of National Grid and KeySpan Corp. following the approval of the New Hampshire Public Utilities Commission (PUC), officials from the two companies said last Monday.

National Grid will acquire KeySpan for $42 per share in cash. The terms of the agreement value KeySpan at approximately $7.3 billion, with an enterprise value of $11.8 billion. The transaction will materially expand the size of National Grid’s U.S. operations and create the third-largest energy delivery utility in the country, with electricity and gas businesses serving nearly eight million customers in the New York State and New England regions.

In April, National Grid, KeySpan, the New Hampshire PUC staff and the Office of Consumer Advocate reached a comprehensive settlement agreement on the KeySpan acquisition covering gas and electric rates, an electric distribution system reliability enhancement plan, incentives for the company to maximize merger-related savings and sharing those savings with natural gas customers, as well as other provisions.

National Grid’s acquisition of KeySpan and the merger of the two companies face just one more regulatory hurdle. Earlier this month officials from the two companies said the staff of the New York State Department of Public Service had agreed in principle to the proposed merger (see NGI, July 16). 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). The merger proposal is to go before the NYPSC for a vote on Aug. 22. An evidentiary hearing was held last week in the commission’s New York City offices, with a public statement hearing scheduled for July 25 in Niskayuna, NY. If approved, the acquisition could be completed as soon as Aug. 25, the companies said.

Approval by the NYPSC is the last remaining review required for the merger, which was announced in late February 2006 (see NGI, Mar. 6, 2006). All other major approvals and clearances for the merger — from the Federal Energy Regulatory Commission, the Federal Trade Commission, the Department of Justice, the Committee on Foreign Investment in the United States, shareholders (see NGI, Aug. 21, 2006) and now the New Hampshire PUC — have already been obtained.

Pursuant to the merger, a newly created subsidiary of National Grid would merge with and into KeySpan Corp., which would be the surviving entity and become a wholly owned subsidiary of National Grid USA. As a result of the transaction, EnergyNorth would become an indirect, wholly owned subsidiary of National Grid. 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. 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.

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 customers on Long Island and supplying approximately 25% of New York City’s capacity needs.

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