The Federal Energy Regulatory Commission gave the go-ahead lastweek for two New England Electric System (NEES) utility companiesto sell their fossil fuel and hydro generation business to USGenNew England Inc. (USGen), a subsidiary of PG&ampE Corp.

The sale is seen as a major step toward closing the $1.59billion sale of NEES’ power plants and contracts that representmore than 5,100 MW of generating capacity. The divestituretransaction calls for USGen to acquire from NEES subsidiaries, NewEngland Power Co. (NEPCO) and Narragansett Electric, 18 fossil andhydroelectric generating plants and the ongoing contractobligations in 23 utility and non-utility power purchaseagreements.

A product of a settlement between the NEES utilities and thestates of Massachusetts and Rhode Island, the divestiture-sale isseen as precursor to customer choice for electric customers inMassachusetts and Rhode Island. “The sale cuts our strandedinvestment in half, allowing us to increase customers’ savings to18% – well above the guaranteed 10% decrease all consumers willreceive off their bills” when Massachusetts’ customer-choicelegislation goes into effect March 1, said NEES President RickSergel.

Specific generation assets to be divested include: about 4,000MW of fossil-fired and hydroelectric generating capacity owned byNEPCO; Narragansett’s 10% ownership interest in the ManchesterStreet generating station (NEPCO owns the other 90% interest, whichis being sold); and affiliate Narragansett Energy’s 20% interest inOcean State Power, an independent power project. In addition, USGenwill buy NEPCO’s entitlements in about 1,100 MW of power procuredunder long-term contracts with independent power producers andnon-utility generators. The sale also is subject to review by fourNew England states – Massachusetts, Rhode Island, New Hampshire andVermont.

Last week, the Commission approved the sale of transmissionfacilities that are associated with the generation plants to beacquired by USGen. The sale will make USGen subject to FERCregulation, according to the order [ER98-6]. It currently owns nogeneration or transmission facilities, and its affiliates have onlya minor amount of committed capacity in the New England Power Pool.Even with USGen’s acquisitions, “we find that market powerconcentration may likely decrease,” said Commissioner WilliamMassey. “So from our perspective, this is a no-brainer.” Thetransaction also “eliminates in large measure vertical marketconcerns…”

The two novice commissioners – Linda Breathitt and Curt HebertJr. – lauded the states for their efforts. This an “example of thecooperation that needs to occur between state commissions and stategovernments and this agency if we continue looking at divestiture,”Breathitt noted. “I think it would be worthwhile for us to look atadditional measures brought on by the states, not necessarily justISO’s and incentive rates but other opportunities as well,” Hebertagreed.

Chairman James Hoecker said he saw the divestiture-sale as”certainly emblematic of great change in the bulk power market,”particularly considering that it wasn’t long ago when many peoplechoked on the “D word.”

Susan Parker

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