Despite misgivings, New York regulators on Wednesday cleared the way for Spanish energy giant Iberdrola to buy the parent company of two Upstate utilities while also owning and developing wind power facilities.
The state Public Service Commission voted 4-0 to approve Iberdrola’s $4.6 billion acquisition of Energy East, the parent of New York State Electric & Gas and Rochester Gas & Electric.
As a condition of the deal, Iberdrola must provide $275 million to help lower rates for the 1.7 million customers of NYSEG and RG&E.
NYSEG serves customers in Cayuga County and pockets of Onondaga and Madison counties. RG&E has customers in Cayuga County.
The commissioners said they were reluctant to allow Iberdrola to own both wind turbines and utility-based transmission lines, because the company would have an incentive to operate its lines in ways that could drive up prices for its wind power.
But after more than a year of wrangling between the PSC staff and Iberdrola, the commissioners approved the deal, saying it would help lower rates for utility customers.
The $275 million required from Iberdrola is equivalent to a 5 percent decrease in electric delivery rates for five years for both utilities. The money may be used to offset future rate increases rather than to lower rates, however.
“This isn’t a perfect deal,” said Commissioner Maureen Harris. “And it may not even be a great deal. But, in my opinion, I think it’s a good deal.”
Not only did the PSC allow Iberdrola to continue in the wind business, it required the company to develop more wind power. A condition of the deal is that Iberdrola invest $200 million in new wind turbines over the next two years. If circumstances prevent the investment, the company must set aside up to $25 million in shareholder money to pay for economic development programs.
Iberdrola won many supporters among politicians and economic developers after promising to invest up to $2 billion in new wind power in New York state. The PSC’s senior advisers predicted that New York’s wind industry would continue to develop with or without Iberdrola, but the commissioners expressed interest in the company’s promise of economic development.
“Our economy is lagging, particularly Upstate,” said Commissioner Patricia Acampora.
Approval by the Public Service Commission was the last regulatory barrier to completing the deal, first announced in June 2007, and Wall Street was betting Wednesday that Iberdrola would consummate the purchase. Energy East shares, which Iberdrola agreed to buy at $28.50 each, closed at $28.01, up 2.5 percent.
But Iberdrola officials were noncommittal Wednesday, saying only that they will study the terms of the PSC’s approval as soon as they are available in a written order.
“We look forward to reviewing the order to determine the next steps,” the company said.
Iberdrola, based in Bilbao, Spain, is one of the world’s biggest power companies, with more than 40,000 megawatts of generating capacity and nearly 22 million customers. With 8,000 megawatts of renewable power – mostly wind turbines – the company is a leading producer of renewable energy.
Iberdrola owns 50 percent of the 321-megawatt Maple Ridge Wind Farm in Lewis County, and has other New York projects under development.
The company has promised to invest $8 billion through 2012 to build new wind farms in the United States – including up to $2 billion in New York state. Political leaders, including U.S. Sen. Charles Schumer, D-N.Y., welcomed that commitment and urged the PSC to approve the Energy East deal.
But PSC officials, who encouraged utilities to sell off their power plants a decade ago to create a competitive market, have been leery about letting utilities own generating plants. A utility such as NYSEG can affect the plants’ profits by where and when it invests in new transmission lines, or how it operates the existing system.
The commission on Wednesday reaffirmed its general position that utilities and their corporate affiliates should not own power plants, but made an exception for Iberdrola’s wind facilities after adopting new reporting requirements designed to let it monitor NYSEG’s and RG&E’s transmission operations more closely.
Iberdrola has agreed not to own any fossil-fuel generation, including RG&E’s Russell Station, which will be sold. Iberdrola, but not NYSEG or RG&E, may own wind farms.
Schumer said the PSC made the right decision.
“Today’s Public Service Commission unanimous ruling appears to strike a good balance between protecting New York consumers and encouraging investment in alternative energy,” he said.
If Iberdrola completes the purchase of Energy East, the company will own its first regulated utilities in the United States. Besides NYSEG and RG&E, Energy East owns four small utilities in New England.
NYSEG has 872,000 electricity customers and 256,000 natural gas customers, including customers in southern Cayuga County, southeastern Madison County and pockets of southwestern Onondaga County. RG&E has 360,000 electricity customers and 297,000 natural gas customers in a nine-county area around Rochester, including northern Cayuga County.
What the deal would mean …
To shareholders: They’d receive $28.50 per share for their stock. That’s a gain of 27 percent over the price of the stock when the deal was first announced in June 2007.
To utility customers: New York regulators would require New York State Electric & Gas and Rochester Gas & Electric to provide $275 million toward rate decreases, or to prevent increases in the future.
To utility employees: Iberdrola officials have said there would be few if any changes in the management and work force at NYSEG and RG&E. But state regulators note there is no guarantee the company would not consolidate some operations or impose new management from Spain.
To wind power: Iberdrola would be allowed to continue owning wind turbines in New York, and would be required to invest $200 million in new wind power within two years. If circumstances prevented the investments, the company would have to set aside up to $25 million of shareholder money to be used for economic development programs. Informally, Iberdrola has said it will invest up to $2 billion in new wind power in New York state.
You can contact staff writer Tim Knauss at email@example.com or 470-3023.