Proposed merger of Pepco, Connectiv clears a hurdle

Mid-Atlantic suppliers of energy get FERC's OK

more scrutiny ahead

Plan has critics in Md., Del.

September 28, 2001|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

The Federal Energy Regulatory Commission approved yesterday the proposed merger of two mid-Atlantic energy suppliers whose combination will create the region's largest electricity delivery company.

FERC approval is the latest hurdle that Washington-based Potomac Electric Power Co. and Conectiv Inc. of Wilmington, Del., have surmounted since announcing the merger in February. The proposal was approved last month by the Federal Trade Commission and the U.S. Justice Department.

But the stakes are higher now. The merger plan must pass scrutiny from several states and the District of Columbia, or it could be scuttled. It's happened before for Pepco, which shelved merger plans with Baltimore Gas & Electric Co. in 1997 and blamed Maryland's Public Service Commission for imposing unacceptable financial conditions.

Pepco, which services 700,000 customers in Washington, Virginia and Maryland, is paying $2.2 billion in cash and stock for Conectiv, which owns Delmarva Power and Light. Conectiv has more than a million customers in Delaware, Maryland, New Jersey, and Virginia.

The companies still have to gain approval from the Securities and Exchange Commission and state regulatory agencies in Maryland, Delaware, New Jersey, Virginia and Washington. Pepco said it has set schedules for reviewing the merger with these states, and hopes to complete the merger by the first quarter next year.

The merger has already met with criticism in Delaware and Maryland. Maryland's Office of the People's Counsel has told the state's Public Service Commission that the merger could have an adverse effect on ratepayers, unless the companies could guarantee otherwise.

"The major concern is that the company has not quantified any of the benefits that they claim are going to accrue as a result of this merger," said People's Counsel Michael J. Travieso, whose office serves as the consumers' advocate in utility matters.

Charles Taylor, a Pepco spokesman, said the company doesn't "anticipate any issues that can't be addressed or resolved. We believe that this merger is in the best interest of our shareholders, customers and employees."

If potential deal-breaking issues arise, Taylor said, "we would attempt to address whatever the issue is with the utility commission and attempt to resolve the issue to their satisfaction." In testimony filed with the PSC on Sept. 17, Jonathan Wallach, a utility policy expert, said that the merger will benefit Pepco's and Conectiv's shareholders, but disputed the companies' assertions that ratepayers will also benefit.

Wallach, who could not be reached for comment yesterday, said in his testimony that ratepayers will not only bear direct, merger-related costs, but also "the risks of a number of potential indirect costs associated with the merger."

Summarizing other expert testimony in the case, Wallach said there was potential for increased financial risk from the parent company's unregulated operations; degradation in reliability and service; and diluted management attention.

Delaware's Public Service Commission voiced similar concerns. It fears that the new Washington-based company will be more focused on the Washington region, and let electricity service on the Delmarva Peninsula to languish, a Delaware PSC official said.

"We're just afraid that our issues will not be considered very significant as the company grows larger," said Janis Dillard, regulatory policy administrator for the Delaware PSC. "For the commission to be in favor of the merger, it has to be in the public interest, and it's difficult to see, from the filings that the companies made, any benefits to the ratepayers."

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