State Acts on Merger of FirstEnergy and Allegheny Energy

Settlement stipulates $13 million in cost reductions for customers of Jersey Central Power & Light

The state has approved the merger of FirstEnergy Corp., the parent of Jersey Central Power & Light (JPC&L), with Allegheny Energy Inc. — providing that customers see lower electric bills over time.

Under a stipulated settlement signed by two state agencies and JCP&L, the utility will make no attempt to recover through rate increases transaction costs associated with the deal. It also will provide its nearly 1 million customers with $13 million in cost reductions they would have seen from previously negotiated contracts with nonutility generators.

The reductions in bills result from JCP&L agreeing to share a portion of the net synergy savings from the transaction with its customers, according to state officials.

In the settlement, the state’s second-largest electric utility asserted the $8.5 billion deal will have no impact on its day-to-day operations and will result in Jersey Central having greater financial resources and stability by being part of a bigger energy conglomerate.

Mega-Company, Megawatts

The deal will create an energy company comprising 10 regulated electric distribution companies and a fleet of power plants with a capacity of 24,000 megawatts. One megawatt is enough to power about 800 homes.

The transaction has triggered little controversy compared to previous deals involving acquisition of utilities in New Jersey. JCP&L has come under fire from the Board of Public Utilities (BPU) in the past over extended power outages, a problem state regulators blamed on not enough attention given to the utility by its parent, FirstEnergy in Ohio.

FirstEnergy and Allegheny announced the stock-for-stock transaction in February 2010, a merger that would create a company with $16 billion in annual revenues and $1.4 billion in annual net income. The company will remain headquartered in Akron, Ohio, and Anthony Alexander, the current president and chief executive officer of FirstEnergy, will remain in that position.

“It creates a very large energy company, but that appears to be the trend,” said Stefanie Brand, director of the New Jersey Division of Rate Counsel, who noted the U.S. Justice Department did not raise any objections to the merger.

The settlement concluded the transaction will not impair competition in the wholesale electricity markets in the PJM Interconnection, the regional power grid, nor diminish retail competition in New Jersey’s electricity market.

The former issue was the major stumbling block that helped kill a proposed merger between Public Service Enterprise Group and Exelon back in 2006. The two companies balked at concessions sought by the state to address those concerns, including the sale of several power plants to assure the merged company could not exercise control over wholesale energy markets.

The settlement also provides that JCP&L will not impose any involuntary layoffs of employees for at least two years, except for bargaining unit employees at its Red Bank billing center. The utility also agreed to maintain a regional headquarters in the northern region, similar to the one now operating in Morristown, as well as a regional headquarters for its central region.

The approval from New Jersey leaves only the merger deal to be approved in Pennsylvania, where there is also a stipulated settlement and a recommendation by an administrative law court judge that it be approved, according to Ellen Raines, a spokeswoman for FirstEnergy.

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