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The fate of the nation’s biggest utility deal hangs on whether or not Congress repeals a 1935 law that limits mergers and acquisitions in the utility sector. On Tuesday Administrative Law Judge Robert Mahoney ruled that the 2000 merger of Columbus, Ohio-based American Electric Power Co. and Central and South West Corp. of Texas was illegal under a provision of the 1935 Public Utilities Holding Company Act. PUHCA allows for utility mergers if the resulting combination can be shown to serve a single area or region. But Mahoney ruled that the AEP-CSW merger does not constitute a “single, integrated public-utility system” because CSW’s operations comprise a group of utilities bordering on Mexico, while AEP’s border on Canada. AEP said it will appeal the decision to the Securities and Exchange Commission, which enforces PUHCA and which had sought the opinion from Mahoney. AEP must launch an appeal within 21 days of the ruling. But the outcome of that appeal could be moot if a comprehensive energy bill gets to President Bush’s desk in the next few months. Repeal of PUHCA has been included in every energy measure for the past decade and is a provision of the House of Representatives’ version of the bill approved last month. It is also expected to be included in a Senate energy bill that is likely to be debated this month. “If PUHCA is repealed, this just goes away and the deal stands,” said Adam Wenner, a Washington-based partner in the energy group of law firm Chadbourne & Parke’s Washington office. Moreover, the appeals process could take months, allowing AEP to wait out passage of an energy measure. “If the commission agrees with the judge’s decision, the case will then be appealed to the appellate court, and nothing will happen for some time,” said Wenner. Wenner said the Mahoney decision itself shows how outdated PUHCA is. “The decision wasn’t based on any finding that the deal has been harmful to consumers or investors,” he said. “It was found not to comply with PUHCA.” Wenner, whose firm represents companies that would benefit from PUHCA’s repeal, said the law was enacted when there were no state regulators or any other federal agencies overseeing utilities. “The fact of the matter is 11 state regulators, the Nuclear Regulatory Agency, the [Federal Energy Regulatory Commission] and the SEC all approved the deal,” said Wenner. People opposed to PUHCA’s repeal say it’s the only thing that protects consumers from the consequences of risky investments with ratepayer revenues and dangerous concentrations of corporate control over critical utilities, both of which could result in higher rates. Lynn Hargis, an attorney for consumer watchdog Public Citizen, said the Mahoney decision proves that PUHCA is as important today as when it was enacted 70 years ago to protect consumers from “excessive consolidation of utility ownership and resulting electricity price-gouging.” The American Public Power Association and the National Rural Electric Cooperative Association also praised Mahoney’s decision. “As corporate scandal follows corporate scandal in the headlines, can there be any doubt about the continued relevance of consumer protections against the misuse of power by giant corporations”? the groups said in a joint statement. APPA and NRECA said PUCHA should not be repealed unless FERC at the same time is given the authority to address the probable consequences of repeal. Rep. Edward Markey, D-Mass., also warned that Mahoney’s decision may accelerate efforts already under way to repeal PUHCA. “The Senate needs to take this opportunity to very carefully consider the likely adverse impact on electrical and gas utility ratepayers if Congress eliminated all of PUHCA’s protections and unleashed a wave of utility mergers and risky diversifications that could make the Enron [Corp.] and MCI [Inc.]/WorldCom scandals look like a walk in the park,” he said in a prepared statement. While it is uncertain whether the SEC will follow the judge’s recommendations, industry observers say it would be very difficult to unwind this deal. The two companies have been together for more than four years and have integrated work forces and management teams. “To unscramble this egg would be impossible,” Wenner said. Copyright �2005 TDD, LLC. All rights reserved.

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