Shift in wind power barrier by LARRY RULISON

ALBANY -- Spanish utility Iberdrola SA would be allowed to own and build wind farms anywhere in New York as part of its $4.5 billion acquisition of Energy East Corp. under a proposal unveiled Wednesday before the state Public Service Commission.

Concerns over Iberdrola's ability to manipulate the state's wholesale electric market by owning both transmission and distribution lines and wind generation were "milder" than previous cases that have come before the agency, senior advisory staff told the five PSC commissioners.

It's unclear whether the commissioners will support the proposal. The panel plans to discuss the merger at a special session on Wednesday could vote on the deal the same day.

Maine-based Energy East has 1.7 million customers in upstate New York served by its New York State Electric & Gas and Rochester Gas & Electric subsidiaries.

The PSC regulates electric utilities in the state and has used its power for the past 10 years to oversee a policy that prohibits utilities from owning generation plants. The policy is designed to ensure that utilities do not use two types of assets to drive up electricity prices in what is known as vertical market power.

Exceptions can be made to the policy, and senior staff suggested Wednesday a number of conditions that the PSC adopt as part of the merger so Iberdrola cannot manipulate pricing.

Senior advisory staff also unveiled three proposals for the commissioners to consider regarding so-called positive benefit adjustments that Iberdrola would be required to give to consumers as part of the deal.

The benefit proposals ranged from $202 million to $300 million, with Iberdrola having to share some of its earnings in New York state with consumers.

The amount is much less than what was sought originally by PSC staff, who were asking Iberdrola for $646 million in benefit adjustments. Iberdrola at first offered nothing, but later offered $202 million.

The wind farms issue has played a central role in the public debate over the merger because Iberdrola is the world's largest wind developer and New York has aggressive goals to increase renewable energy generation.

But PSC Chairman Garry Brown said wind is not the only focus of the PSC.

"It's clear the issues are more complex and varied than that," he said.

Some of the commissioners also seemed to dispute whether Iberdrola's claims that it would greatly help the state with up to $2 billion in wind farm investments over the next five years would provide consumers with major benefits.

Commissioner Cheryl Buley noted wind farm developers like Iberdrola get huge state and federal subsidies to build wind farms.

"I view the wind projects in almost a neutral position," she said. "It really is not as captivating as it might appear. It's the ratepayers who are subsidizing it."