Change the name but the game is the same................

Mergers & Acquisitions (RSS)
Constellation, FPL Abandon Merger

Giving way to what they characterize as a "perfect storm" of uncertainty and risk, Constellation Energy Group and FPL Group Inc. have decided to abandon their plan to merge.

Constellation and FPL's merger proposal had been facing an increasingly hostile climate for months. Contributing to the storm was the impending end of a retail rate cap in Maryland, rising commodity prices, and a hard-fought gubernatorial race also in Maryland. Citing a mutual conclusion that the path to regulatory approval remained very unclear and was likely to result in a protracted review, FPL acceded to Constellation's request to call it quits.

Constellation and FPL will withdraw their merger approval applications pending before the Maryland Public Service Commission and FERC, and FPL will drop its suit against Maryland and the PSC for a timely decision on the proposal. With the merger put to rest, Constellation plans to turn its attention more fully to the rate stabilization plan developed in a special session of Maryland's General Assembly earlier this year and other Maryland regulatory issues.
This marks the second time in recent weeks that regulatory opposition and uncertainty has stymied a utility merger proposal. New Jersey's opposition killed the planned merger of Exelon and PSEG. The failure of these two mergers calls into question the myriad predictions of a massively consolidated electric utility sector following last year's repeal of the Public Utility Holding Company Act of 1935.
posted Monday, November 13, 2006 7:05 PM by Andrea Kells
National Grid-KeySpan and Babcock & Brown-NorthWestern Mergers Blessed

FERC announced its unconditional approval for two large mergers October 19: one between National Grid and KeySpan Corp., the other between Babcock & Brown Infrastructure Ltd. and NorthWestern Energy Corp.

Under the $11.8 billion National Grid-KeySpan deal, announced in March 2006, KeySpan - currently one of the largest natural gas distributors in the northeast United States - would become a wholly-owned subsidiary of National Grid, a United Kingdom-based company. National Grid, which is already active in electric transmission in the Northeast, has been looking to increase its presence in the U.S., particularly in natural gas markets. Of primary importance to FERC in approving the acquisition was the fact that both companies' electric generation output was already committed well into the future, and thus, the proposed transaction would not increase the merged company's market power in wholesale markets. The merger must now win the approval of New York and New Hampshire state regulators. National Grid and KeySpan have already obtained the blessings of the Federal Trade Commission and foreign investment regulators.

FERC also approved Babcock & Brown's bid to acquire NorthWestern Energy, the Montana-based electric utility. FERC found no problems with the merger, particularly since the combination would not join generating assets that would compete in the same geographic markets. Moreover, NorthWestern offered to protect wholesale sales and transmission customers by holding them harmless from rate increases for five years, and by not passing through any of its acquisition costs to them. The South Dakota PUC, one of the states with jurisdiction over the acquisition, announced last week that it had conducted extensive discussions with both parties and would approve the merger pending FERC's approval. Regulators in Montana and Nebraska will also have to approve the deal.
posted Tuesday, October 24, 2006 10:39 AM by Tracy Davis
FERC Approves ITC Acquisition of Michigan Transco

For the first time, FERC has granted approval of one independent transmission company's purchase of another; it authorized ITC Holdings, the parent of ITCTransmission, to acquire Michigan Transco Holdings, the parent of Michigan Electric Transmission. As a result, ITC will become the largest Transco in the U.S. and one of the ten largest transmission providers in the nation, with more than 20,000 MW of peak load and almost 20 percent of the peak load of the Midwest ISO.

The same order, the first issued under FERC's new EPAct 2005 merger authority, also authorized an intra-corporate reorganization of Michigan Electric and Trans-Elect NTD Path 15 that will occur before the ITC acquisition.
FERC's only concern with the proposed acquisition was the lack of a comprehensive hold-harmless agreement to protect ratepayers from increased rates resulting from the transaction. While ITC stated that it would not seek to recover a transaction premium from ratepayers, and that transmission rates would remain formula rates under the Midwest ISO tariff, FERC worried that inputs to the formula rates could change due to the acquisition and adversely affect transmission rates. To mitigate that possibility, FERC conditioned its authorization on ITC providing a hold-harmless provision requiring ITC to seek specific FERC approval before recovering merger-related costs in transmission rates. ITC agreed.
posted Wednesday, October 11, 2006 2:34 PM by Andrea Kells
Constellation Merger and Rate Increase in Jeopardy

Constellation Energy Group announced on May 31 that it has stopped the planning and integration process that it had undertaken to prepare for its proposed merger with FPL Group. Constellation cited as reason for the delay the political climate in Maryland, where consumer advocate groups, members of the Maryland General Assembly, and others have voiced strong opposition to the merger that would occur at the same time Constellation-affiliate Baltimore Gas & Electric (BG&E) and other Maryland utilities implement significant retail rate increases. See Constellation-FPL Merger Snags in Maryland. Constellation did not give any indication when or if the merger integration process would begin again, which may signal the beginning of the end for the Constellation-FPL alliance.

In a related development, on June 2, a Maryland Circuit Court rejected a plan to phase in BG&E's proposed 72% rate increase over a 12-month period, as proposed by the company and Maryland Governor Robert Erhlich. Rejecting the Maryland PSC's April 28 order, Circuit Court Judge Albert Matricciani ruled that the PSC had failed to consider the plan and had not allowed sufficient time for interested persons to intervene. He sent the plan back to the PSC for a full administrative hearing. It is unlikely that the PSC will be able to conduct a full hearing by its July 1 deadline for the rate increase. In place of the rejected phase-in plan, Judge Matricciani directed that the PSC could either extend the retail rate cap or enforce its March 6 order, which would limit BG&E's increase to 21% and allow the company to recover any under-collected revenue over a two-year period. In response, the PSC indicated it would not defer the end of the rate caps past July 1, which it viewed as ultimately more expensive for consumers and more likely to lead to protracted legal battles. Its only option is thus to enforce its March 6 order.
posted Tuesday, June 06, 2006 9:54 AM by Tracy Davis
FERC Lessens Burden of Merger, Holding Company Rules

In two April 24 orders, FERC attempts to coordinate its overlapping merger and utility holding company rules. FERC also aims to strengthen its protection of customers from risks perceived to arise from repeal of the Public Utility Holding Company Act of 1935 (1935 Act). Driving these rules, FERC explains, is the agency's desire to stimulate investment in the electricity sector and accommodate public utilities' day-to-day financial operations.

In Order No. 667-A, FERC tweaked its December 2005 Order No. 667, which implemented the Public Utility Holding Company Act of 2005 ("PUHCA 2005") primarily a recordkeeping statute that replaced the 1935 Act. As originally proposed, these recordkeeping requirements were criticized as an unreasonable burden. The April 24 order amplifies exemptions to the recordkeeping requirements. For example, holding companies that own only QFs, EWGs, or FUCOs, while meeting the definition of a "holding company," would nevertheless be exempt from the recordkeeping requirements. FERC also affirmed an exemption for holding companies that operate primarily within a single state, and explained that a company would qualify for this exemption if no more than 13% of its revenues from public utility operations were derived from outside that state.

FERC took the opportunity in Order No. 669-A to simplify its merger rules under Federal Power Act § 203. FERC extended to domestic mergers the four-part test, which heretofore had applied only to foreign acquisitions. A utility will now be required to verify that a transaction does not result in: (1) transfer of facilities between traditional public utility associate companies with captive customers and associate companies; (2) new issuances of securities by traditional public utility associate companies with captive customers for the benefit of associate companies; (3) new pledges or encumbrances of assets of traditional public utility associate companies with captive customers in favor of associate companies; and (4) new affiliate contracts between non-utility associate companies and traditional public utility associate companies with captive customers. If merger applicants cannot make these showings, then they may withdraw from the merger or undertake a more detailed demonstration that the transaction nonetheless would be consistent with the public interest. FERC also clarified that companies owning only QFs, EWGs, or FUCOs are authorized to acquire securities of additional QFs, EWGs, or FUCOs. Order No. 669-A also grants banks and financial institutions blanket authorization for the acquisition of securities in connection with their fiduciary, underwriting, and hedging activities. In addition, FERC expressed support for public utilities' participation in holding company intra-system cash management systems, and simplified its regulations to ensure that public utilities possess blanket authorization to acquire securities in connection with such money pools.
posted Thursday, April 27, 2006 5:55 PM by Tracy Davis
Constellation-FPL Merger Snags in Maryland

With the repeal of PUHCA, (see Congress Enacts Energy Bill and FERC Pares Back Accounting & Record Keeping, but Retains Strict Transfer Pricing for Public Utility Holding Companies under PUHCA 2005) many in the industry expected to see an explosion of merger activity. The bloom may be wearing off that rose a bit, at least in the state of Maryland. With the prospect of significant retail rate increases looming, Maryland's legislature has sought to strike back by holding up the proposed merger between Constellation Energy Group and FPL Group, Inc. Last week, Maryland lawmakers passed two separate bills that would halt the merger unless Constellation softens the impact of an expected 72% retail rate increase to customers of its local subsidiary, Baltimore Gas & Electric, scheduled to take effect this summer. While the rate increase is apparently unrelated to the merger, and comes as a result of increased fuel costs and the expiration of retail price caps that have been in place since electric deregulation in Maryland, the legislature has seized on the Constellation-FPL merger as a potential means to avoid the politically unpopular rate jump.

One bill, HB 1713, would give the legislature the right to veto the merger. Another bill, SB 1099, would undo major sections of electricity deregulation in the state, and would prohibit the merger unless Constellation returns to its customers $528 million in stranded cost recovery it received under deregulation. Another recently passed bill, SB 1102, would remove from office the current members of the Maryland Public Service Commission, each of whom was appointed by the governor. Proponents of removing the current commissioners contend that they are too closely aligned with the electric industry and have failed to adequately protect consumers. All three bills are now being considered by Governor Robert Ehrlich (R). While it appears Gov. Ehrlich may veto the bills, the Democratic-controlled Maryland General Assembly may have the votes necessary to override a veto. The General Assembly adjourns April 10.

Constellation executives have been meeting with the governor and legislative leaders in an attempt to design a rate plan that lessens the retail rate impact. Under the current proposal, BG&E would borrow $750 million and phase in the rate increase over the next year, instead of implementing it all at once. Whether it can come up with a plan that can satisfy public officials in time to save the merger remains to be seen.
posted Friday, April 07, 2006 10:00 AM by Tracy Davis
Legislator Questions Value of Post-PUHCA Consolidations to Ratepayers

National Grid USA (National Grid) announced its proposed acquisition of Keyspan, the largest distributor of natural gas in the Northeast and New York state's largest electricity generator. At the completion of the merger, National Grid will have a combined 3.4 million natural gas customers and 8 million electric consumers in the New York and New England area. Keyspan will continue to operate in its own name, although it will be a wholly owned subsidiary of National Grid. The companies have targeted to close the transaction by early 2007.

This announcement comes on the heels of Exelon's purchase of PSEG, Mid-American's purchase of PacifiCorp, Duke Energy's planned acquisition of Cinergy, and the merger of Florida-based FPL Group with Constellation Energy ― all made feasible by last year's repeal of the Public Utility Holding Company Act of 1935 (PUHCA). (See Energy Policy Act of 2005 Hands FERC a Long To-Do List, FERC Pares Back Accounting & Record Keeping, but Retains Strict Transfer Pricing for Public Utility Holding Companies under PUHCA 2005 and Congress Enacts Energy Bill) Some legislators, such as Rep. Edward Markey, have begun to question whether these consolidations will benefit utility ratepayers, and have expressed concern that FERC may not properly scrutinize utility mergers and acquisitions, even though FERC was given authority to do so in connection with PUHCA's repeal. Rep. Markey has called on the states to strengthen state laws concerning such mergers because due to the repeal of PUHCA, the Securities and Exchange Commission no longer has the authority to review debt financing associated with such transactions.
posted Thursday, March 09, 2006 3:28 PM by Jackie Java
Mergers, Acquisition and Transmission Management Plans Sail through FERC

In stark contrast to the protracted merger proceedings of recent years, FERC approved MidAmerican Energy Holdings’ acquisition of PacifiCorp, and the merger of Duke and Cinergy, with no strings attached and only five months after the proposals were filed with the agency. At the same meeting, FERC also affirmed its previous approval of the contested PSEG-Exelon merger. Concurrently, FERC blessed MidAmerican's and Duke’s proposals to hire independent operators for their transmission grids, but these measures were not a condition of the utilities' respective mergers.

Not more than a few years ago, FERC routinely leveraged its gatekeeper control over mergers to force merger applicants to take other steps to the agency’s liking. A favored step of late was requiring the utilities to join an RTO, which FERC required of AEP when it acquired CSW. But FERC did not use it leverage in connection with these latest transactions. None was even set for evidentiary hearing. Exelon and PSEG had chosen to be proactive regarding any market power concerns and had proposed divestiture of generation, but the other applicants did not take this step. They proved to be right, as FERC was satisfied that none of these transactions would harm competition, rates or regulation. However, these utility mergers still require authorization from other regulators, including affected state regulators.

FERC separately approved Duke and MidAmerican's proposals to hire independent transmission coordinators to perform open-access transmission functions, including calculation and posting of total and available capacity, processing of transmission and interconnection service requests, operation of the OASIS, and coordination of transmission planning. The utilities would retain other authority, however, including the setting of prices for transmission services. FERC approved both proposals because it found they would increase transparency in the provision of transmission services. FERC accepted Duke's proposal without condition, and MidAmerican's proposal subject to further steps by the utility.

FERC's approval of these proposals demonstrates its retreat from its policy under previous chairmen of encouraging participation in RTOs or ISOs. Neither Duke nor MidAmerican is a member of an RTO or ISO and it would seem unlikely that either will join one soon. Instead, they appear to be following the lead of Entergy, a forceful opponent of RTOs, which developed the independent transmission coordinator concept as an alternative to RTO or ISO participation. The Entergy proposal went further than the latter two, however, as it also surrendered transmission pricing to the entity. The common denominator of these proposals is that they eschew creation of organized, short-term energy or capacity markets, which have been a hallmark of RTO’s and ISOs, and which arguably increase competitive opportunities for power sellers and marketers.

Notably, Entergy has proposed hiring the Southwest Power Pool, an RTO, to serve as its ICT. Duke would use Midwest ISO, another RTO, while MidAmerican has yet to select an entity. See Duke Energy Asks FERC to Approve MISO as ICT for Duke Facilities; Entergy and SPP Come to Terms on ICT Agreement. It will be worth monitoring to see whether these affiliations will mature into membership over time in the absence of merger conditions or other directives.
posted Wednesday, December 28, 2005 12:37 PM by Gunnar Birgisson
Updates to FERC's Merger and Acquisition Rules in the Works

In one of its latest move to implement the EPAct of 2005, FERC, on October 3, 2005, issued a notice of proposed rulemaking (NOPR) that proposes amendments to its merger policy regulations, in accordance with the EPAct amendments to section 203 of the Federal Power Act. To be considered by the agency, public comments on the NOPR are due November 7, 2005.

Section 203 is the provision that requires FERC's authorization for certain mergers, acquisitions, and dispositions of jurisdictional assets. Currently, FERC focuses on three major factors when analyzing whether a proposed transaction is consistent with the public interest, as required by section 203: the effect on competition; the effect on rates; and the effect on regulation. The amended section 203 language adds a new factor to FERC's review process, requiring that FERC find that a transaction will not result in cross-subsidization, such as where a regulated utility subsidizes a non-utility associate company at ratepayer expense. FERC seeks comment on what evidence parties should be required to submit to support their positions here.

EPAct 2005 also amends section 203 to include an increase in the value threshold from $50,000 to $10 million for certain transactions subject to section 203, and an extension of FERC's review to include transactions involving the transfer of electric generation facilities and the transfer of public utility holding companies. With regard to the "value" threshold, FERC seeks comment on whether the "market value" is an appropriate benchmark for determining whether asset transfers or the sale of transmission facilities or existing generation facilities trigger the jurisdictional value threshold; for wholesale contracts, FERC proposes to define "value" based on total expected contract revenues over the remaining life of a contract.

EPAct 2005 also adds a requirement that FERC adopt an expedited review procedure for certain classes of transactions. In its NOPR, FERC proposes that the following transactions generally receive expedited review: a disposition of only transmission facilities; certain transfers involving generation facilities that do not require an Appendix A analysis under FERC's Merger Policy Statement; internal corporate reorganizations that do not present cross-subsidization issues; and the acquisition of a foreign utility company by a holding company with no captive customers in the U.S. It is intended that the new rules will take effect on February 8, 2006. [Tansactions Subject to FPA Section 203, 113 FERC ¶ 61,006 (2005)]
posted Wednesday, October 12, 2005 11:06 AM by Jackie Java
Reconsider Exelon-PSEG Merger, NJBPU Urges FERC

Apprehension over the effect of the Exelon-PSEG merger continues, as the New Jersey Board of Public Utilities ("NJBPU"), along with several other regional interests, including New Jersey's Ratepayer Advocate and Pennsylvania's Office of the Consumer Advocate, asked FERC to rehear its July 1 order approving the merger and instead set the merger for hearing.

The NJBPU argues in its request that FERC violated Section 203 of the Federal Power Act ("FPA") by failing to determine affirmatively that the merger is in the public interest in advance of authorizing the transaction. Instead, complained the NJBPU, FERC's order recognized that the merger's harm to competition may not be adequately mitigated by the Applicants' proposed mitigation plan. According to the NJBPU, FERC's reliance on the imposition of additional mitigation after the merger closes, if necessary, is in error. Additionally, FERC failed to address significant aspects of PJM's merger analysis as well as the affect of the merger in the natural gas market. The NJBPU also stated that, to the extent FERC is relying on its ability to revoke the Applicants' market-based rates and impose cost-of-service regulation as a means of addressing market power, this would harm consumers because cost-based rates may be higher than those that existed in pre-merger competitive markets.

Since the NJBPU is independently reviewing the merger, and therefore, may condition its approval on concessions different from those imposed by FERC, the NJBPU contends that administrative efficiency demands a single evidentiary hearing before FERC in which all merger issues can be resolved. [Exelon Corporation and Public Service Enterprise Corporation, Inc., 112 FERC ¶ 61,011 (2005)]
posted Wednesday, August 24, 2005 8:57 PM by Jackie Java
Congress Enacts Energy Bill

One month after the Senate approved its version of a comprehensive energy bill, see Senate Votes in Favor of Energy Bill, Tumultuous Conference Awaits, Congress enacted the Energy Policy Act of 2005. Although maligned by energy and taxpayer watchdogs as a "piñata of perks and pork" for big oil, big nuclear and other entrenched energy industries, the 2005 Act, as it affects certain aspects of the power and natural gas industries, promises to profoundly change the structure and prospects of new energy business organizations and the viability of new liquefied natural gas and power transmission projects.

For several years the demand for relatively clean-burning natural gas has increasingly outstripped North American production, giving impetus to efforts to import liquefied natural gas ("LNG"). But concerns over the safety of LNG re-gasification facilities in this country, both on- and off-shore, have seen myriad LNG development proposals from coast-to-coast crash in the face of public opposition. The 2005 Act will override that opposition in part by consolidating many of the needed approvals, including siting, in one agency – FERC. State and local authorities are effectively stripped of authority to block the siting of LNG importing and processing facilities.

The 2005 Act also promises to effect fundamental changes in the future structure and operation of power markets. It does so by repealing the Public Utility Holding Company Act of 1935 ("PUHCA") and amending the Public Utility Regulatory Policies Act of 1978 ("PURPA"). At the same time, it gives FERC the authority to certify a new Electric Reliability Organization ("ERO") that (under regulatory supervision from FERC and its Canadian counterpart) will set and enforce standards for the reliable operation of the Eastern and Western Interconnections and the Electric Reliability Council of Texas. The confluence of these developments will be profound and will likely force further consolidation of the power industry.

Since its enactment 70 years ago, PUHCA was amended twice to allow limited holding company investment in power generation — in qualifying facilities under PURPA and in exempt wholesale generators under the Energy Policy Act of 1992. But otherwise PUHCA confined utility holding companies to a single integrated public-utility system and has policed intra-holding company transactions to prevent cross subsidization. Repeal of the PUHCA will knock down the barriers to consolidation of geographically and operationally diffuse utility systems. Pending consolidations, such as Duke-Cinergy and MidAmerican-PacifiCorp, which may well have been barred by PUHCA's single integrated public-utility system requirement, now appear to have been prescient in anticipating PUHCA's repeal. They likely will prove to be harbingers of other consolidations.

The so-called PURPA put also falls victim to the 2005 Act. The PURPA-imposed obligation of traditional public utilities to buy the output of qualifying cogenerators and small, renewable generators at an avoided-cost price ushered competition in wholesale power markets into the 1980s. The Energy Policy Act of 1992 later swelled the ranks of competitive generators by creating an additional class of PUHCA-exempt competitive generators with exempt wholesale generators ("EWGs"). Going forward after implementation of the 2005 Act, qualifying facilities and EWGs will no longer exist. There will simply be power generators selling at wholesale and, where permitted by local law, at retail. FERC is empowered by the 2005 Act to review and approve utility acquisitions of existing generating facilities in order to prevent (among other things) undue concentrations of generation market power. Unclear, however, is who will build new generation under the largely deregulated scheme of the 2005 Act. Arguably, without the price support of the PURPA put and the investment restrictions of PUHCA, only a shrinking universe of highly capitalized investors or existing utilities will build new generation in the future. Some of these may ally with Indian tribes and construct power plant on tribal lands since the 2005 Act has special provisions for encouraging Indian energy development. These provisions include the creation of an Office of Indian Energy Policy and Programs within the Interior Department with authority to pre-approve tribal-energy-resource agreements.

The 2005 Act will also tend to consolidate markets through its introduction of an ERO. While the stated purpose of the ERO is to standardize, and make enforceable for the first time, rules for reliably operating the bulk power systems of North America, the indirect effect of that standardization will be the consolidation of formerly balkanized markets and the facilitation of increased trading in bulk power.
The 2005 Act's provisions dealing with power transportation and transmission are also likely to be consequential. One provision charges the Departments of Agriculture, Commerce, Defense, Energy and Interior with preparing a list designating federal land corridors that are needed for oil and natural gas pipelines and electric transmission lines. Another provision of the 2005 Act creates, for the first time, backstop jurisdiction in FERC to permit (and confer eminent domain authority for) construction of new or upgraded power lines in transmission constrained areas. This jurisdiction is triggered when the relevant state siting authorities are unable to act on a proposed transmission project within one year. This federal authority, in tandem with the designation of federal energy corridors, is certain to induce new interest in major pipeline and power line developments. (H.R. 6) [UPDATE]
posted Thursday, August 04, 2005 11:09 PM by Andrea Robinso