Trouble in New York for Iberdrola Deal? 

The proposed $4.5 billion takeover of Energy East by Spain-based energy firm Iberdrola SA ran into new difficulties earlier this week when an administrative law judge recommended the state Public Service Commission deny the deal.

Department of Public Service Judge Rafael Epstein, who issued his recommendations Monday, said that, as it stands now, the takeover does not satisfy the public interest requirement of New York’s utilities law.

Iberdrola needs the commission’s approval to finalize the deal with Energy East, parent company of Rochester Gas & Electric and New York State Electric and Gas (NYSEG). Announced last year, the deal would provide Iberdrola, one of the largest producers of wind energy in the world, with an additional platform for growth within the United States.

Despite this week’s setback, the ultimate fate of the deal has yet to be determined; Judge Epstein’s role in the process is strictly advisory and is one of multiple factors the commission ultimately will take into account, said spokesperson James Denn.

“The commission has not yet made any decision,” he said.

“The recommended decision by the administrative law judge … really is just another step in the deliberative regulatory process,” Gov. David A. Paterson said Tuesday. “I trust the commission will keep in mind the significant statewide and ratepayer benefits that the acquisition offers.”

Paterson said he was particularly pleased with a commitment by Iberdrola to invest $2 billion in wind energy in New York State as well as $200 million in ratepayer benefits.

“Although this amount is less than suggested by the administrative law judge, I hope the commission will not let the perfect be the enemy of the good when it comes to ratepayer benefits.”

Paterson said he was confident creative solutions could be found for the issues of contention.

Reply briefs are due from the active parties on June 26 with July 1 set for a second round of comment, Denn said. No date has been set for final resolution.

Energy East owns power companies serving customers in Connecticut, Massachusetts and Maine, and regulators in each of those states have given the buyout their blessing. New York Public Service Department staff oppose the deal, however, out of concerns over whether it will best serve the public in cost and competitiveness.

Public Service staffers previously issued a list of preconditions that they wanted Iberdrola to meet. Iberdrola has objected to some of those, including the sale of its interest in wind and hydropower generating plants within Energy East’s territory. The department supports the separation of energy producers and distributors in the name of promoting competitiveness. Iberdrola has interests in wind farms in Lewis and Herkimer counties.

In addition to his recommendation to deny, Judge Epstein also recommended a number of conditions the commission should require if the deal is approved. Similar to the ones put out by PSC, these included Iberdrola and its affiliates selling off Energy East-area power-producing facilities, adopting financial and structural safeguards and providing $646 million in rate cuts and other benefits to RG&E and NYSEG customers.

Supporters of the takeover reacted angrily to Judge Epstien’s ruling. U.S. Sen. Charles Schumer, D-N.Y., said it “defies common sense”

“At a time when gas prices are $4 a gallon and we desperately need to develop alternative sources of energy, to place such severe restrictions on the world’s leading wind power producer to develop wind power cries out for reversal,” Schumer said. “The ruling could cost us jobs Upstate, $2 billion in investment and should be rectified by the Public Service Commission.”

State Sen. Jim Alesi, another supporter, agreed and said denying the deal reinforces the message that New York is just not a good place to do business.

Mindy Bockstein, executive director of the state’s Consumer Protection Board, which holds a statutory responsibility to represent consumers before the commission, said Iberdrola’s commitment to make a $2 billion investment in wind energy in New York was not addressed in the judge’s opinion. The board will formally ask the PSC to consider the implications of the investment when making its decision.

— The Associated Press contributed to this report.

Originally published by Eric Walter.

Daily Record

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18 June 2008