Power companies agree to $12.5 billion merger

Exelon-Public Service deal would create top operator

December 21, 2004|By KNIGHT RIDDER/TRIBUNE

PHILADELPHIA - Exelon Corp., the electricity giant born four years ago with the merger of Philadelphia's Peco Energy Co. and Chicago's Unicom Corp., announced an agreement yesterday to buy New Jersey's Public Service Enterprise Group Inc., creating the nation's largest utility.

If the deal wins approval from regulators and shareholders, the combined company - to be called Exelon Electric & Gas - would be the nation's largest power generator and a commanding force in the wholesale power markets.

The merger also would consolidate Exelon's position as the largest U.S. producer of nuclear energy, by adding PSEG's three nuclear reactors to Exelon's 17. All told, the new company would run almost a fifth of the nation's reactors.

It would serve about 7 million electricity customers and 2 million natural gas customers in Pennsylvania, New Jersey and Illinois.

Under the agreement, Public Service stockholders would receive Exelon stock with a current market value of about $12.5 billion.

Although analysts and regulators said it was too soon to tell what effect the merger would have on customers, officials at Exelon and Public Service said the deal would help consumers and shareholders.

John W. Rowe, the chief executive of Exelon who is slated to keep that post at the merged company, said both would benefit from cost savings. He said they expected to save $400 million in expenses in 2006, and $500 million a year after that.

Rowe and his Public Service counterpart, E. James Ferland, who will be chairman of the new company, said they were confident the deal would win approval from agencies with oversight authority, including the Federal Energy Regulatory Commission and state utility commissions in New Jersey and Pennsylvania.

Part of the projected savings would come from a 5 percent reduction in the combined work force of 28,000, though they said they hoped to eliminate many of the 1,400 positions through retirement or attrition.

The merged company's corporate headquarters would remain in Chicago. Headquarters for its generation operation would move from Kennett Square, Pa., to Newark, N.J., where Public Service is based, but the Chester County site would become the new headquarters for Exelon's nuclear operations.

Exelon's success in operating nuclear plants may have been one key to the deal. In the past several years, the company has operated its reactors at more than 90 percent efficiency. As recently as 1997, Unicom's output from its Illinois nuclear units averaged about 49 percent.

Even while the deal is pending, Exelon hopes to provide some of its nuclear expertise to PSEG. Under a separate contract that begins Jan. 17, Exelon will assume a management role at PSEG's sometimes-troubled Salem-Hope Creek nuclear facility, which includes three reactors.

The future of nuclear power is likely to figure prominently in debate over the merger. Exelon has staked its future on nuclear energy's stability as a power source as the nation has been rocked by volatile fossil-fuels prices. But its trust in nuclear power sometimes puts it at odds with consumer and environmental advocates.

The New Jersey Public Interest Research Group, with support from at least two members of Congress and former Gov. Jim McGreevey, has called for the decommissioning of Exelon's Oyster Creek nuclear plant when its certification expires in 2009. Exelon has announced plans to seek approval to operate the plant for an additional 20 years.

"We're very concerned about the safety of the plant," said Emily Rusch, an NJPIRG energy advocate. Rusch said the boiling-water reactor, which began operating in 1969 and is the nation's oldest active nuclear reactor, was based on an "inherently flawed" design that General Electric Co. quit marketing.

Exelon spokesman Craig Nesbit said the concerns were unwarranted, and called Oyster Creek "a very safe plant." He said more than $1 billion has been spent to modernize Oyster Creek over the past 35 years.

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