Tuesday, August 15, 2006

GridSpan Goes to Washington

On April 26, 2006 representatives of National Grid and KeySpan met privately with the FERC Chairman and two FERC Commissioners in Washington, D.C. to brief them regarding the proposed acquisition of KeySpan by National Grid. National Grid is a British holding company with utility and non-utility operations in the United Kingdom, United States, Australia, and elsewhere in Europe. KeySpan is also engaged in utility and non-utility operations in Massachusetts, New York, New Hampshire and Rhode Island.

Section 203 of the Federal Power Act requires FERC approval of the proposed merger. The primary purpose of the Federal Power Act is the protection of consumers. The standards currently used by FERC to evaluate whether a merger is in the public interest include consideration of the effects upon competition, rates, and regulation. The utilities bear the burden to prove to FERC that the merger qualifies for approval under each factor, and other factors can be considered.

Under federal law, private ("ex parte") contacts by utilities with FERC decision makers who will act on their petitions are not illegal, but they must be disclosed by filing a public notice of the contact and what transpired in the official record of the proceeding so that other parties and the public are aware of the communication and can have a fair chance to counter it.

No disclosure of the April presentation to Commissioners was filed when the FERC merger case began in May. The law is being interpreted by FERC and the utilities as applying only after the case has begun with the filing of a formal petition by the utilities, even though the filing was inevitable and was a topic of the meeting.

Public Citizen obtained from FERC copies of some of the documents related to the Commissioners' meeting with the merging utilities by filing a request under the Freedom of Information Act and filed a protest seeking more complete disclosure. National Grid defended the pre application meeting with Commissioners in its answer to the motion, and Public Citizen filed a forceful rebuttal in its reply papers.

Customer Benefits from the Takeover?
Local presence?
A document from the pre application meeting with the Commissioners, Exhibit D to the Public Citizen protest, touts putative “benefits for consumers” from the proposed merger, claiming that after the merger, customers “will be served by a larger company that has a significant local presence.”

National Grid has no walk-in customer service offices for its upstate New York residential electricity and natural gas customers. Since taking over Niagara Mohawk Power Corporation, National Grid has made repeated efforts to adopt harsher deposit and collection policies.

In a survey of utility customers conducted by the University of Michigan in the first quarter of 2006, National Grid ranked last in its sector in terms of customer satisfaction for gas and electric service while KeySpan was ranked second in its sector for gas service. According to the survey, National Grid’s customer satisfaction rating has declined by 11% since first being surveyed in 2002, declining 9.7 % since last year alone.

In contrast, KeySpan’s customer satisfaction rating has increased 4.4% since first being surveyed in 2001. See ACSI Survey, 1st Quarter 2006.

Another claim at the FERC presentation was that “[E]fficiencies from combined operations will benefit customers.” The document does not describe what will be changed or cut at National Grid or at Keyspan, which have no overlapping or adjacent service territories, to achieve those “efficiencies”. According to a May 31, 2005 Buffalo News article, Niagara Mohawk Not the Same Power Company "The electric and natural gas utility has gotten a lot leaner since National Grid Transco acquired the company three years ago, trimming its work force by about 20 percent and reducing its overall costs by a similar amount. . . . The company also has saved money by consolidating some of its facilities and selling others, including the historic Electric Building in downtown Buffalo that was the headquarters of NiMo's Western Region offices."

The FERC Commissioners were also told that “National Grid continues its commitment to safe, reliable energy delivery....” In New York, the PSC "penalized National Grid 8.8 million dollars for not meeting two important standards for reliability in 2005: the frequency of non storm related power outages, and the duration of those outages. Last year, 98 percent of national grid customers experienced a loss of power at least once. The state standard is 92 percent. Those outages also lasted longer, an average of two hours 20 minutes or about 15 minutes longer than the state allows." National Grid has also been the subject of criticism for frequent outages slow post-storm servoce restoration in upstate New York.

National Grid has failed to meet electricity reliability performance standards in other states. According to the Massachusetts Attorney General, “[w]hen comparing the performance over the past four years of two safety and reliability performance benchmarks, System Average Interruption Duration Index (“SAIDI”) and System Average Interruption Frequency Index (“SAIFI”), National Grid accrued penalties in two of the four years for failing to meet the SAIFI benchmark (for a total of approximately $6.2 million before offset by incentives) and three of the past four years for failing to meet the SAIDI benchmark ($9.2 million before offset by incentives).

Other Parties Express Concerns
New York City filed comments with FERC raising questions whether the combination of the companies will exacerbate the apparent problems of electricity market power in New York City, citing concerns about possible withholding of .capacity by sellers in New York City markets seeking to drive prices higher.

The New York State Department of Public Service commented to FERC on the issue of vertical market power, “[t]hat is, the merged entity would own generating facilities in the transmission-constrained New York City area and transmission assets in the upstate area. Thus, the entity may potentially be able to influence both the amount of electricity that may be transmitted into New York City and in-City electric prices.”

The Massachusetts Attorney General comments
raise concerns about the intent of the utilities not to seek approval of the merger in Massachusetts. Massachusetts has stringent requirements for merger approval that include a showing of net benefits to consumers, and which could limit the extent of job cuts. Regarding the effect on competition, the MA Attorney General stated that the utilities in their application “have not analyzed the effect of the merger on the gas-electric convergence market and the control that the combined companies will hold over the combined gas-electric retail distribution system and retail gas-electric service.”

New York State Considering Approval of the KeySpan Takeover
New York State PSC approval of the proposed merger is required, in addition to FERC approval. National Grid and KeySpan have filed a petition with the New York State Public Service Commission on July 20, 2006. For more information see PULP's web page on the GridSpan merger.

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