The Pennsylvania Public Utility Commission (PUC) during its regular meeting last Thursday approved the merger of Morristown, NJ-based GPU Energy and FirstEnergy Corp. by a 5-0 vote on a motion by Commissioner Terrance J. Fitzpatrick, but decided to postpone a decision on GPU’s request to raise rates by a 4-1 count with Commissioner Nora Mead Brownell dissenting.

The PUC said GPU could merge with Akron, OH-based FirstEnergy, provided the companies agreed to certain conditions, including not charging customers for costs associated with the merger and maintaining current levels of community support programs for three years following the merger. In approving the merger, the commission said it must be beneficial to both GPU ratepayers and Pennsylvania.

Fred D. Hafer, chairman of GPU, said that while he is “pleased” that the commission voted to approve the merger, he is “disappointed” that the commission did not adopt the Administrative Law Judge’s recommendations calling for rate relief to reflect GPU Energy’s energy costs in excess of those currently reflected in its charges to customers. “I remain hopeful that the collaborative and, ultimately the commission, will recognize both the need for and propriety of this relief,” Mr. Hafer added.

Under the merger agreement announced in August 2000 (see NGI, Aug. 14, 2000), FirstEnergy would acquire all of GPU’s outstanding shares of common stock for about $4.5 billion in cash and common stock with the absorption of $7.4 billion of GPU’s preferred stock and debt. The marriage would create the sixth largest investor-owned electric system in the country with the largest customer base — 4.3 million customers — in the Pennsylvania-New Jersey-Maryland power pool.

“The public utility code clearly states that mergers must bring substantial, affirmative benefits to consumers, and that benefits to the companies alone do not provide sufficient evidence for approval,” Fitzpatrick said. “While the merger is expected to create synergies and efficiencies that may improve the operations of the GPU companies, these factors alone would not support a finding that the merger is in the public interest. Thus, the conditions are critical to our approval of the merger.”

To ensure that customers continue to receive reliable service, the commission ordered that the new merged company could not withdraw GPU’s transmission facilities from the operational control of the PJM Interconnection without the PUC’s approval. It would also have to implement a service quality index to measure and improve, where necessary, GPU’s reliability and service quality.

Regarding the rate postponement, the commission directed parties to the case to meet beginning May 29 to negotiate a settlement.

“We’re holding in abeyance the request for rate cap relief in order to afford the parties an opportunity to resolve that issue in a commission-facilitated collaborative,” Fitzpatrick said. “It is in the best interest of the utilities, other parties to the case and consumers that we continue to discuss this issue and work together to reach an amicable settlement.”

The PUC said it has effectively used collaborative settlement talks in the past to resolve divisive issues. Fitzpatrick said the talks will conclude no later than June 20 and, whether the collaborative is successful or not, the PUC will issue a final decision no later than July 13.

Because the merger proposal did not identify potential job losses, the PUC is requiring the companies to submit a detailed plan of anticipated job cuts within 60 days of the effective date of the merger to ensure that Pennsylvania does not face a disproportionate share of job cuts.

The commission said the companies have 30 days from the entry date of yesterday’s order to notify the PUC if they accept the merger conditions.

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