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Although federal energy regulators approved one of the largest-ever mergers of utility companies in the U.S. more than a month ago, consumer groups hope they can win a more aggressive package of divestitures from state regulators and the U.S. Department of Justice, or even federal court. Consumer groups’ primary objection to the $12.6 billion merger of Chicago-based Exelon Corp. and Public Service Enterprise Group Inc. of Newark, N.J., is the threat of higher consumer prices for natural gas and electricity. “This merger is pretty overtly anti-competitive,” said Diana Moss, a vice president at the American Antitrust Institute, a consumer-advocacy organization. But the deal raises a host of other issues, including the safety and efficacy of nuclear power, electricity generation and natural gas transportation. Then there are several antitrust matters to sort through that will likely set a precedent for a wave of energy mergers expected in the wake of the recent repeal of longstanding utility ownership restrictions. Industry experts predict a rush of utility consolidation following the demise of the Public Utility Holding Company Act of 1935. (The law was scuttled as part of the Energy Policy Act of 2005, which President Bush signed into law in August.) “I think we’ll see more mergers,” Moss said, “With companies trying to establish these big, regional footprints, there are a lot of captive customers. As a result, the antitrust scrutiny and the regulatory scrutiny must be very intensive.” Moss, who did merger review work at the Federal Energy Regulatory Commission before moving to AAI, said now that oversight of regulated utility mergers is shifting away from the Securities and Exchange Commission, there’s an opportunity for agencies with energy and antitrust expertise to do more work in the energy industry. For instance, state officials have entered the fray, worried that federal regulators won’t be strict enough on the Exelon/PSEG combination, which would provide a range of natural gas and electricity services to about nine million customers from Illinois to New Jersey. FERC, responsible for regulating energy services, already approved the deal with no additional requirements other than the concessions the companies offered, but the Department of Justice’s Antitrust Division is continuing to review a range of issues. Federal regulators have historically led the battle on most merger reviews, but the states have muscle to flex and have increasingly protested federal approval on deals they see as harming their constituents. Regulators in most affected states have weighed in and some are pursuing local, isolated fixes. For example, FERC’s decision to approve the merger without holding hearings, has sparked not only outrage but also requests for a rehearing from a number of states, including Illinois Attorney General Lisa Madigan and the New Jersey Board of Public Utilities. But if FERC rejects a rehearing, utility regulators in 11 states must still approve the deal, creating more opportunities for divestiture orders. On its own, FERC is unlikely to undo its approval. Exelon and PSEG have asked FERC to dismiss opponents’ request for a rehearing on the deal and the consumer groups concede that FERC would be loath to reconsider its position unless a judge orders it. “We’d like the federal court to decide this,” said Tyson Slocum, research director for Washington-based consumer advocacy group Public Citizen. “FERC did not accurately interpret the Federal Power Act.” Slocum added that the federal courts could be one reason why they are not eager to have them intervene. “The federal court hasn’t been kind to FERC, they’ve gotten spanked over the years and I can’t remember the last time they won a high court case.” However, whether an appeal will ever get to the federal court is uncertain. FERC issued a notice in late August that it would respond to the rehearing request. Slocum complains that FERC has been too slow to answer, preventing merger opponents from going to court. “They’re sitting on it and legally they’re allowed to.” FERC approved the Exelon/PSEG deal without evidentiary hearings, and after accepting the companies’ offer to sell 6,600 megawatts of power by relinquishing control over some plants’ output while still owning and operating them. In its approval order, FERC said it would keep its eye on the new entity, Exelon Electric & Gas, and might require further mitigation if the company did not properly implement its divestiture plans. That type of approach differentiates FERC from DOJ and the Federal Trade Commission, Moss said. Both DOJ and the FTC are more likely to require “structural remedies” such as pre-merger divestitures. FERC, on the other hand, is prone to monitor deals and impose “conduct remedies” if problems surface post-merger. Moss said she’s optimistic the DOJ will impose greater restrictions on this case. The next round of fireworks are expected to flare in October when the deal goes before New Jersey officials. Copyright �2005 TDD, LLC. All rights reserved.

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