PSC approves $4.5B Iberdrola deal to take over Energy East
Spanish utility Iberdrola SA will be allowed to purchase Energy East Corp., the New York State Public Service Commission determined today.
The 4-0 vote by the PSC’s board ended a year-long process involving Iberdrola’s $4.5 billion proposal to take over Energy East (NYS: EAS).
“The approval requires Iberdrola to pay $275 million in customer benefits to offset future rate hikes. Iberdrola must invest $200 million in new wind energy projects. Initially, Iberdrola said it would invest $100 million. If Iberdrola does not invest the additional $100 million it faces a penalty.
“This isn’t a perfect deal,” said Commissioner Maureen Harris. “It may not even be a great deal. But in my opinion it’s a good deal. I’m not comfortable gambling that the company might walk away.” She said it was in the best interest of consumers to approve the deal. Any stricter provisions could have deterred Iberdrola from moving forward with the merger.
An Energy East subsidiary, New York State Electric & Gas, has 1.7 million upstate customers and 63,000 customers in the Albany, N.Y., area. Iberdrola is the second largest producer of wind power in the U.S.
The PSC typically requires companies to provide rate benefits for customers before it approves mergers.
New York state regulations prohibit “vertical market power,” or the ability for power providers to also operate as power generators, and PSC staff initially recommended denying Iberdrola’s proposal.
The PSC staff said if the deal was approved Iberdrola should provide $600 million in “positive benefit adjustments,” or PBAs, to its New York customers. The benefits are used to reduce customer rates for gas and electric service.
Iberdrola had argued that the benefits were too high, and was considering dropping the merger plans if the PSC didn’t lower the amount.
PSC staff recently lowered the acceptable range to between $250 million and $300 million. Earlier, it agreed to support the merger if each wind farm built by Iberdrola was approved by the state on a case-by-case basis.
The vote initially was scheduled for Aug. 27, but was postponed after one board member resigned and another was unable to attend the meeting. Only four members remain on the five-member board following the recent resignation of Cheryl Buley.
By Pam Allen
3 September 2008
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