- Iberdrola Accepts New York PSC's Terms for Energy East Deal
- September 25, 2008
- Law Firm: Troutman Sanders LLP - Atlanta Office
In a public meeting on September 3, 2008, the New York Public Service Commission (“PSC”) approved the $4.5 billion acquisition of Energy East Corporation (“Energy East”) and its affiliates — New York State Electric & Gas Corporation and Rochester Gas and Electric Corporation — by Iberdrola S.A. (“Iberdrola”). Energy East delivers electricity and gas to three million customers in upstate New York and four other northeastern states, including Massachusetts, Connecticut and Maine.
While PSC staff and an administrative law judge initially expressed concern over the merger, the PSC approved a revised deal, which imposed additional terms and conditions, by a 4-0 vote. The PSC’s decision requires provisions to enhance ratepayer financial benefits, mitigate vertical market power, protect the utilities’ assets and financial condition, improve transmission and distribution system reliability, and strengthen service quality. Among the conditions included in the deal are $275 million in rate reductions and other ratepayer benefits. The PSC accepted Iberdrola’s offer to divest fossil fuel generating plants. Iberdrola will be able to continue to own Energy East’s hydroelectric facilities.
The PSC backed off a previous push to require Iberdrola to sell off its wind assets in the state, despite concerns that joint ownership of wind generation and Energy East’s transmission lines could produce vertical market power issues. Instead, Iberdrola’s wind assets will be reviewed one-by-one for market power concerns. In its decision, the PSC reaffirmed its statement of policy regarding vertical market power. Under the policy, the presumption that it is unacceptable for a company owning transmission and distribution facilities to also own generation can be overcome by a demonstration of substantial ratepayer benefits and mitigation measures. The PSC will allow Iberdrola to develop and own wind generation, but imposed several conditions on the transaction. In addition to the $100 million Iberdrola previously committed to wind development, the PSC ordered an additional $100 million be firmly committed. If the company fails to invest the additional $100 million, it will use up to $25 million in shareholder funds to invest in economic development projects in its service territories.
The PSC’s order, issued September 9, is available online at http://www.dps.state.ny.us/Case_07-M-0906.html.