PSC OKs sale of RG&E's parent, Energy East, to Iberdrola
The state Public Service Commission voted Wednesday to allow the sale of the parent of Rochester Gas and Electric Corp. to Iberdrola SA, which says it plans to spend up to $2 billion on wind power projects in New York.
The long-awaited vote came after months of wrangling between the big Spanish utility and the PSC staff.
Approval clears the way for Iberdrola to complete the $4.5 billion purchase of Energy East Corp., which owns New York State Electric and Gas Corp. as well as RG&E.
Rochester-area business leaders, who lobbied ardently for approval, expressed relief.
“Finally,” said Dennis Mullen, chief executive of Greater Rochester Enterprise and soon-to-be upstate president of the Empire State Development Corp. “Iberdrola is in the forefront of renewable energy.”
Rochester Business Alliance CEO Sandy Parker said Iberdrola would make a “significant economic investment” in the state and “will be, I think, a good partner.”
After the 4-to-0 vote, the PSC will issue a formal order within a week, with Iberdrola expected to accept it a few days after that.
“We look forward to reviewing the order to determine the next steps,” an Iberdrola spokesman said.
Gov. David Paterson said he was sure the company would go through with the deal, which was proposed by Iberdrola and Energy East in June 2007.
“I anticipate the company will readily embrace this decision and accept its conditions, and I welcome Iberdrola to New York,” Paterson said.
The condition that will affect RG&E and NYSEG customers most directly is a 5 percent cut in the delivery costs of their natural gas and electricity for five years, a total saving of $275 million.
“That’s real money,” said Commissioner Maureen Harris, who previously had expressed reservations about the takeover. There was no immediate word on how an average monthly bill would change.
“It’s not a perfect deal, it may not even be a great deal, but it is a good deal,” Harris said.
Another condition requires Iberdrola to spend at least $200 million on new wind generation facilities in the state within five years. Company spokesman Robert Bellafiore said Iberdrola’s plan is to spend $2 billion over that period.
Harris and other critics of the deal were concerned that letting Iberdrola both generate power as well as distribute and transmit it — a setup known as “vertical market” power — might give the company too much marketplace muscle. But in the end the commissioners decided it was worth the risk.
“Vertical market concerns and our steadfast policy (against it) weren’t taken lightly at all,” said commission Chairman Garry Brown. He called the $275 million break for ratepayers “a very significant balance” that offset the risks.
The purchase price amounts to $28.50 a share, representing a premium of more than 20 percent from Energy East’s average stock price in June 2007. The shares closed at $28.01 on Wednesday, up 69 cents.
Between them, RG&E and NYSEG have about 1.2 million electric and 562,000 natural gas customers across a broad swath of upstate.
The state now has about 700 megawatts of wind power with an additional 588 under construction, according to the Alliance for Clean Energy, an industry group. That is still a small portion of the more than 38,000 megawatts of power in the state. A megawatt is enough power to supply about 1,000 homes.
If Iberdrola spends $2 billion, it could add 1,000 megawatts of wind power, the PSC said.
In addition to Paterson and business leaders, New York’s U.S. senators, both Democrats, applauded the approval.
The ruling “appears to strike a good balance between protecting New York consumers and encouraging investment in alternative energy,” said Sen. Charles Schumer.
Sen. Hillary Clinton called the action “another step in cementing New York’s reputation as a leader in bringing renewable energy solutions to an economy and energy industry that are in need of a balanced, long-term energy policy.”
Jay Gallagher
Albany bureau chief
4 September 2008
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