PSC Considers Iberdrola Sale Terms by Tim Knauss

Senior advisers to the state Public Service Commission laid out several options Wednesday under which the commission could approve Spanish energy company Iberdrola's $4.6 billion acquisition of Energy East, the parent of two Upstate utilities. But it won't be known until next week whether the five commissioners will approve the deal and, if so, on what conditions.

For four hours, senior staff members laid out the risks and benefits of the deal as it affects customers of New York State Electric & Gas and Rochester Gas & Electric, the two New York utilities owned by Energy East.

Several of their recommendations seemed to open the door to a decision that might be acceptable to Iberdrola, which until now has fought tooth and nail with the PSC staff.

In previous papers, the PSC staff had strongly recommended forcing Iberdrola to sell its interest in New York state wind power developments if it acquired the utilities, to avoid a potential conflict of interest. Generally, the PSC prefers utilities that own transmission lines not to own power plants, so they won't be tempted to manage the lines in a way that boosts prices for their generators.

But chief economist Mark Reeder told the commission Wednesday Iberdrola's ownership of wind farms would present a much "milder" potential for problems than existed in previous cases, such as National Grid's acquisition of KeySpan last year. The PSC required Grid to sell KeySpan's giant power plant, Ravenswood, because the plant is located in a congested, high-priced area that could be severely impacted by Grid's Upstate transmission lines.

Reeder and Raj Addepalli, deputy director of the office of electricity, gas and water, laid out several options the commission could pursue to minimize the risks of allowing Iberdrola to own both wind generators and utility companies.

Similarly, senior adviser Doris Stout recommended that the PSC make Iberdrola provide rate cuts and other benefits worth $250 million to $300 million to NYSEG and RG&E customers, plus share its earnings with ratepayers if they exceed a certain threshold. In previous statements, PSC staff members had sought $646 million from Iberdrola, which never agreed to give more than $202 million.

If the PSC accepts $202 million, it should lower the threshold above which Iberdrola must share its earnings with ratepayers, Stout said.

Iberdrola officials could not immediately be reached for comment.

The PSC will reconvene Aug. 27 to rule on the deal.