The New Jersey Board of Public Utilities (NJBPU) on Friday concurred with a staff recommendation that staff not accept a recent proposal offered by Exelon and Public Service Enterprise Group (PSEG) related to the companies’ pending merger. A green light from the NJBPU remains the final regulatory hurdle the merger must clear before it can close.

The NJBPU adopted a resolution inviting the parties in the merger proceeding to meet with NJBPU staff as soon as possible and continue negotiations towards a possible settlement.

“The current proposal still lacks clarity on several essential issues,” the NJBPU said in a statement released at the end of the week. The board’s “primary concern is ensuring against the possibility of increased rates as well as continuing the high standard of safety and reliability currently delivered by PSEG.”

NJBPU said that market power remains an important issue. “Possible market dominance and the ability to set power prices which could lead to higher bills is a subject that needs to be discussed in depth.” The board has ruled that all merger applications must demonstrate a clear positive benefit to the ratepayers and the state.

“With many critical issues still in question, board staff is prepared to negotiate in good faith to see whether all differences can be resolved,” NJBPU said. “We look forward to constructive and expeditious negotiations to reach a resolution that will be in the best interest of ratepayers and New Jersey.”

Top executives with Exelon and PSEG last week told the executive director of the New Jersey Board of Public Utilities (NJBPU) that a settlement proposal tied to the companies’ pending merger “was our last and best offer in an effort to bring the proceeding to a successful, timely conclusion.”

In an Aug. 2 letter, Exelon’s Elizabeth Moler and PSEG’s R. Edwin Selover to NJBPU Executive Director Victor Fortkiewicz, noted that Exelon and PSEG “have considerable flexibility with respect to the various elements within the proposal, but we do not have the ability, consistent with our fiduciary duties and the current financial condition of PSE&G [Public Service Electric & Gas], to increase the overall size of the proposal. We believe that our proposal will provide approximately $1.46 billion of positive benefits to PSE&G’s ratepayers and the state of New Jersey, as depicted in the attached term sheet, which was provided to you last week.”

Moler and Selover noted that the Exelon board was scheduled to meet last Friday afternoon [Aug. 4]. “It is important that Exelon management be able to convey to its board whether the BPU Staff will agree in principle to settle this matter within these overall financial parameters. As you know, many of the active parties in the proceeding, including every major labor union representing PSEG employees, customers, and competitors, have already indicated that these terms are acceptable, assuming the staff is satisfied. If the staff accepts these overall terms, we expect to be able to complete negotiations on a comprehensive merger stipulation with the staff and a majority of the active parties in the case by the third week in August.”

The Exelon and PSEG executives said that if “we can complete a settlement within these parameters and within this time frame, we would file the merger stipulation with the administrative law judge (ALJ) late in August, the ALJ would review the stipulation, and after providing his recommended decision, the BPU Commissioners could consider the stipulation and his recommendation at a BPU meeting at the end of September.”

Moler and Selover said that such a schedule will allow for full due process for all of the parties and would conclude this proceeding approximately 20 months after the petition was filed. It could allow PSE&G to begin providing the “substantial rate credits” embodied in the offer to customers as early as Nov. 1, they added.

If BPU staff “cannot agree in principle to these overall terms or the resultant timetable, we will so inform the Exelon and PSEG boards. In such case we believe it is likely that we will be directed to withdraw the merger application and terminate our merger agreement. In such case the benefits provided by the merger to PSE&G’s customers and to the state will be lost, and PSE&G will need to pursue its pending requests for approximately $200 million per year of electric and gas base rate relief. This is not a threat. It is just a factual statement of where both companies are in terms of financial capability 20 months after entering into their merger agreement.”

But the New Jersey Public Interest Research Group (NJPIRG) said that state regulators should call the bluff of Exelon and PSEG and “let them walk away” from their merger agreement.

“We’re looking to the BPU staff and board, the governor and the public advocate to stand up for consumers and insist that the companies put a proposal on the table that would alleviate market power concerns,” said Dena Mottola, executive director of NJPIRG. “If the companies stay their course and refuse to address market power, then its time for our regulators to say ‘so long’ to Exelon.”

Earlier last week, Exelon CEO John Rowe told Wall Street professionals that Exelon’s board of directors had taken the position that a preliminary agreement related to Exelon’s pending merger with PSEG must be reached with the “principal government parties” in New Jersey “in the next week or so if we are to continue this effort.”

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