Judges recommend PUC delay power merger

March 26, 1998

Judges recommend PUC delay power merger

HARRISBURG (AP) - The planned merger of Maryland's Allegheny Energy Inc. and Pittsburgh's DQE Inc. should be postponed by 18 months, Pennsylvania utility judges said Wednesday.

Before being allowed to merge, the companies should address further the impact on competition for electricity, the judges said.

The $2.6 billion merger would "substantially increase the market power of the applicants in the relevant market, unless significant mitigation measures are taken," said Judges Larry Gesoff and John H. Corbett Jr.

The judges also recommended that the Public Utility Commission approve - with modifications - plans made by the two companies to restructure their operations to take part in a competitive electricity market.


The recommendations will be considered by the PUC in coming weeks, with a final decision expected in late May. The companies had hoped to have obtained regulatory approval by May 1.

Allegheny officials criticized the recommendation of the PUC administrative law judges and said they would push for approval of the merger.

"We think it's completely, totally inadequate," said Allegheny spokeswoman Cyndi Shoop. "It represents a serious threat to the proposed merger ... and also represents a serious threat to our ability to operate."

Allegheny planned to "do everything possible" to press its case with the PUC, she said.

"The process is not over," she said. "These are recommendations that will be heard by the PUC along with a lot of other information that parties will be providing between now and the final determination."

DQE officials need more time to review the decisions before commenting, said company spokeswoman Terri Glueck.

"We have begun analyzing them, but due to the complexity of the issues and the length of the documents, the analysis will not be conducted for several days," a company statement said.

"We still have some very critical pieces of the puzzle to understand," said Glueck.

The merger requires the approval of state regulators in Pennsylvania and Maryland, as well as acceptance by the Federal Energy Regulatory Commission, the Securities and Exchange Commission and the Nuclear Regulatory Commission.

Maryland's Public Service Commission has not approved the proposal.

Shareholders of both companies have approved the deal.

The recommendation by Gesoff drastically reduced the "stranded costs" that Allegheny sought to recover in its restructuring plan. Those costs are investments, generally in power plants, that are included in current rates but may not be recoverable in a competitive market.

Allegheny asked for $1.5 billion in stranded costs. The judge recommended that the company be allowed to recover only one-sixth of that amount, or $241 million.

DQE asked for $1.9 billion in stranded cost recovery. Corbett recommended that the amount be lower, but could not immediately determine a figure. The matter will be resolved by the time the PUC acts on the restructuring, said agency spokesman John Frazier.

Allegheny, based in Hagerstown, serves 1.4 million residential and business customers in Maryland, Pennsylvania, West Virginia, Virginia and Ohio. The company has 663,000 customers in 23 southwestern and central counties in Pennsylvania.

DQE, which operates as Duquesne Light, has 580,000 customers in Allegheny and Beaver counties.

The proposed merger would make DQE a wholly owned subsidiary of Allegheny, although each utility would maintain its own service areas and rates.

The Herald-Mail Articles