FirstEnergy wins its $8.5 billion bid for Allegheny Energy

By Joe Napsha, PITTSBURGH TRIBUNE-REVIEW
Friday, February 25, 2011

The state Public Utility Commission narrowly approved FirstEnergy Corp.'s merger with Allegheny Energy Inc., with some members raising concerns that an electric utility conglomerate serving more than one-third of the state's electric customers will reduce competition and hurt consumers.

FirstEnergy won its $8.5 billion bid for Greensburg-based Allegheny Energy on a 3-2 vote after members voiced strong reservations about the merger.

"A review of the evidence leads to the conclusion that the merger will likely prevent a market with these (competitive) characteristics from developing" because FirstEnergy's existing capacity, along with Allegheny Energy's, "will put the company in a position to dominate the Pennsylvania market," said PUC Chairman James Cawley.

Citizen Power, a Squirrel Hill-based environmental and economic policy advocacy group, remains opposed to the merger and believes it was not in the public's best interest despite the conditions imposed and a settlement of some objections, said Ted Robinson, the group's attorney.

"I don't think the merger will result in substantially lower rates in the near term. The rates are pretty low now," Robinson said.

Robinson said he sees long-term problems with the merger as well, even though local utility West Penn Power Co. will give rate credits worth $10.7 million to residential customers over three years.

"We believe the impact from a competitive standpoint will result in anti-competitive behavior and ultimately will result in higher prices for consumers," Robinson said.

Conditions attached to the merger by the PUC would make a more competitive environment for consumers, regulators said. They plan to conduct a statewide investigation within 60 days to ensure a workable competitive retail electricity market exists in the state.

Pennsylvania was the last of the state and federal agencies that FirstEnergy of Akron, Ohio, needed before it could complete its deal with Allegheny Energy.

The merged FirstEnergy will supply power to 6.1 million customers in Pennsylvania, Ohio, Maryland, West Virginia, Virginia, New Jersey and New York with 10 separate utility companies.

FirstEnergy is reviewing the commission's decision and plans to close the transaction "in a timely fashion," CEO Anthony J. Alexander said in a statement. The signing of final merger documents could occur next week, spokeswoman Ellen Raines said.

Neither FirstEnergy nor Allegheny Energy commented on the conditions the PUC set for approving the merger.

Commission members and opponents are concerned because the merger puts FirstEnergy in command of four electricity distribution and generating companies in the state -- Allegheny Energy's West Penn Power Co. in Greensburg and three it owns: Pennsylvania Electric, Pennsylvania Power and Metropolitan Edison.

The four will serve 2.02 million customers, or about 36 percent of Pennsylvania's 5.5 million electricity customers. Its territory would cover 50 of the state's 67 counties. West Penn Power will have about 715,000 customers in the state.

The deal was announced in February 2010, with FirstEnergy touting it as an opportunity for growth with low risk.

When concerned parties raised objections over the deal's impact on rates and jobs, FirstEnergy reached a comprehensive settlement last year with 18 groups, including the Pennsylvania Consumer Advocate, West Penn Power and Metropolitan Edison industrial users and Pennsylvania State University.

Because of conditions reached under the settlement, state Consumer Advocate Irwin "Sonny" Popowsky said that he believes the merger will not pose a problem for consumers.

State Sen. Kim Ward, R-Hempfield, was concerned about the impact on competition among electric providers in the state because the merged company will have so many customers with fewer choices.

When the Federal Energy Regulatory Commission determined that the merger would not create a monopoly, "it was a moot point" to oppose it on those grounds, Ward said.

Once the merger is complete, Allegheny Energy's headquarters in Greensburg will become the regional headquarters of West Penn Power. The headquarters has about 850 employees, and Allegheny Power has about 1,100 employees in the county, including crews at service centers.

FirstEnergy has agreed to keep at least 800 jobs at the headquarters for the first 12 months and no less than 600 jobs after five years.

Power companies serving other parts of the state include Pittsburgh-based Duquesne Light Co., which has 580,000 customers in Allegheny and Beaver counties, Philadelphia-based PECO, which has 1.6 million customers, and PPL Electric Utilities, which has 1.4 million customers in the Wilkes-Barre/Scranton area.