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N.Y. questions $4.6B sale of Energy East Corp. utility

The last objection to a Spanish power company’s proposed $4.6 billion acquisition of the regional utility Energy East Corp. is from New York regulators who question the deal’s promise to stabilize rates, boost the upstate economy, and generate more wind power.

Public hearings on the proposal end this week in upstate New York.

In January, Maine’s regulator signed off on the sale of Energy East to Iberdrola SA. The deal would affect 3 million customers from upstate New York to Maine and would put Rochester Electric and Gas Corp. and New York State Electric & Gas Corp. under foreign ownership.

New York staff members, however, advised the state Public Service Commission that the deal won’t lower rates or be in the public interest. The staff argued that the deal could discourage wind power development unless Iberdrola and Energy East are prohibited from owning traditional power plants. They argued there would be little incentive to develop alternative fuels if the energy provider also owned traditional power plants.

The staff also says the deal doesn’t adequately shield New York customers from paying for Iberdrola’s other business ventures. And they are concerned that the Spanish company’s financial records might not be fully available to state regulators, making it difficult to enforce measures to ensure the system is reliable and responsive to customers.

“This merger will create jobs, help New York State achieve its renewable energy goals, help rate payers and strengthen the upstate economy,” Iberdrola said in a statement released Wednesday. “We’re confident that the strength of our case will remain clear throughout these public hearings and we look forward to continuing our dialogue with the Public Service Commission.”

As for the staff’s concern about foreign ownership, this deal wouldn’t be the first. Syracuse-based Niagara Mohawk Corp. was purchased by British-based National Grid in 2002.

The Iberdrola proposal is supported by Greater Rochester Enterprise, a regional economic development organization that said the deal would benefit current and future customers as well as boost the stagnant upstate economy. The state Department of Economic Development said the deal, if properly structured, would provide clean, reliable and affordable power and shouldn’t result in any lost jobs or closed headquarters upstate. The state Department of Environmental Conservation also supports one of the deal’s objectives: bringing more wind power to New York.

But the Natural Resources Defense Council and the New York Association of Public Power along with the New York State Rural Electric Cooperative Association object to provisions of the deal. The power company associations say it would worsen the reliability of power in some rural areas.

The Independent Power Producers of New York argues that the proposal runs counter to the state’s trend toward keeping power providers from also being the generators of power, which supporters say is best for consumers because competition will keep prices lower and force better service.

“We’ve worked very hard in New York to create some very competitive markets,” said Gavin Donohue of IPPNY, which represents more than 100 operators and developers of power projects, power marketers, and suppliers. “And competition has been good.”

He said, for example, that under the proposed deal, Iberdrola would have a competitive advantage by erecting wind power facilities paid for by an existing power plant it would acquire in Rochester. Other wind power developers wouldn’t have the same resource, Donohue said. Iberdrola owns Oregon-based PPM Energy, which operates several wind farms in the U.S.

Gov. Eliot Spitzer is backing a major initiative to increase the development of renewable energy.

Iberdrola, based in Bilbao, has business operations in gas and electricity in 28 countries and is a global leader in renewable energy.

Hearings were held this week in Putnam County, Binghamton and Ithaca and on Wednesday night in Lancaster, Erie County. More hearings are scheduled in Rochester today and in Plattsburgh on Friday.

On the Net: www.dps.-state.ny.us

By Michael Gormley
Associated Press


21 February 2008