Mammoth.
Monumental. Record-setting. Apt words to describe the proposed $16.7
billion merger of Exelon and Public Service Enterprise Group, the
parent of electric and gas company PSE&G. And also the words that
should describe the benefits to New Jerseyans if the plan to create
America's largest utility wins approval from the state Board of Public
Utilities.
The BPU, which has the final say on the proposed merger, and the
electric compa nies are deep into secret negotiations to decide the
issue.
No one on the outside knows quite what is being offered in possible
rate relief for customers, reliability standards or other demands. But
there is no mystery about the framework the BPU must insist upon before
it gives Exelon, a Midwestern mega-corporation, the green light to
swallow a company that has been an integral part of New Jersey's
economic and social fabric since 1903.
Rates and reliability are the main issues for Jerseyans and not just
for the 2.1 million families and businesses that pay their monthly
electric bills to PSE&G. The sheer size of this merger would affect
everyone in New Jersey.
Experts and watchdogs, from state Public Advocate Ronald Chen to
citizens' groups to the BPU's staff, have warned that the wedding of
Exelon and Public Service could create a corporate giant with the heft
to boost electric rates throughout the region.
This is called "market power," and Exelon has an army of its own
high-priced economic experts who say that the worry is groundless. The
company's position got support last month from the U.S. Jus tice
Department, which ruled that price gouging could be prevented if the
new company sells six older coal- and natural gas-fired power plants,
four in New Jersey and two in Pennsylvania.
Critics, however, got further ammunition on Friday, when an independent
analyst for the regional power grid that includes New Jersey said those
sales weren't enough.
The arguments are as complex and nuanced as regulatory issues get and
are impossible for lay persons to judge. But neither the feds nor
anyone else has gotten a firm handle on the dynamics of the deregulated
electricity markets, which have failed to live up to promises of robust
competition and significantly lower rates. Having fewer independent
players in any market creates a serious poten tial for price-setting
mischief.
The sheer weight of expert opposition to the Exelon merger means the
BPU must err on the side of caution. The board's five commissioners
should reject this deal unless it is crafted to eliminate any
legitimate question about the new utility's ability to inflate rates.
Guarding against the prospect of price finagling isn't enough. The BPU
also must en sure that Public Service customers get their fair share of
the immediate financial benefits that are prompting the utilities to
seek merger.
Exelon has publicly talked of a package of rate cuts and deferred
pending rate increases that the firm says total about $500 million. In
addition, the company says consumers will see lower rates, or at least
rates that won't rise as quickly in coming years, because Exelon can
operate Public Service's nuclear plants much more productively.
The theory is correct. A more productive nuclear plant feeds more cheap
power into the electricity grid, helping to hold down wholesale prices.
Exelon says these efficiencies will provide up to $1.1 billion of value
to consumers over the next 10 years.
But this is Jersey. Show us the cash.
A ready benchmark to help judge any Exelon offer is available: Five
years ago, the Ohio company that bought Jersey Central Power &
Light agreed to $300 million in direct rate relief. That was a $4.5
billion merger. Exelon-PSE&G is a deal almost four times larger, a
$16.7 billion combination.
The exact number of Exe lon's direct and definite consumer benefits may
not equal a simple four times the JCP&L figure, but the BPU must
insist that benefits to ordinary citizens and businesses be
proportionate to the scale of the merger.
Ensuring reliable electric service is the other main re quirement for
any merger agreement. Here, the key is not what a merger might bring
but the danger of what it might take away from Public Service.
PSE&G has one of the best records in the nation for minimizing the
number and dura tion of power outages, although citizens suffering the
after-ef fects of last week's violent storms might find it hard to be
lieve. Exelon's current electric operating companies, PECO in
southeastern Pennsylvania and ComEd in Illinois, post less impressive
reliability and customer satisfaction statistics.
Exelon has pledged to continue Public Service's more than $500
million-a-year investment in equipment, lines and the like. The BPU
should insist on guarantees that the new utility does not backslide on
reliability measures, even if that means the infrastructure investment
must rise. The cur rent rate of capital spending should be a floor, not
a ceiling.
Exelon and Public Service will say such conditions are un duly severe.
Some of their critics say that they're too soft and that there are no
circumstances in which a merger would be appropriate. Neither position
is correct.
A merger deal that meets the needs of Jerseyans as well as those of
corporate executives won't be easy to achieve. But the BPU and New
Jersey cannot settle for less.
