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Wednesday, November 30, 2005
Posted 5:36 PM by

Exelon, PSEG merger death knoll for competition

Electric competition in Pa. - the state that started the deregulation movement - has been short circuited. Instead, state regulators are beging urged to approve a merger that would create the nation's largest power company.You won't read it in Thursday's newspapers, but electric competition quietly died today in Pennsylvania - the state where the industry's deregulation movement started less than 10 years ago.

The idea, which lit up the dark political landscape like a light bulb in 1996, was to force the market to lower electricity costs to consumers and businesses by encouraging competition among power companies.

The companies were then supposed to build more cost-efficient power plants in order to better compete.

Instead, a Pennsylvania judge yesterday recommended that state regulators approve the merger of Newark-based PSEG (Public Service Enterprise Group Inc.) and Exelon Corp., which owns PECO Energy Co. (formerly the Philadelphia Electric Co.)

The move would create the nation's largest electric company.

Yet, administrative law judge Marlane R. Chestnut found the merger "is in the public interest, provides substantial, affirmative benefits, and is not likely to result in anticompetitive or discriminatory conduct or the unlawful exercise of market power in the retail electric and natural gas markets."

Under a Sept. 13 settlement reached with merger opponents - which included the city of Philadelphia, labor and advocacy groups, and the state Department of Environmental Protection - PECO will provide $120 million over four years in rate discounts for customers and cap its rates through the end of 2010.

After that, all bets are off.

This isn't the way deregulation was supposed to work.

In 1996, the year then-Gov. Tom Ridge signed the measure into law, Irwin A. Popowsky, the state's Consumer Advocate, argued in favor of lessening restrictions, saying, "If there were generation competition, a utility like PECO would not be able to sell its extraordinarily expensive nuclear power at anything close to its current total cost. Rather, it could only charge the market rate, which would be set by competition among a host of generation suppliers. Only a monopoly could charge the high embedded costs of a plant like Limerick, and only a captive monopoly ratepayer would pay such costs when reliable lower cost alternatives are readily available."

But now, less than 2 percent of PECO residential customers use an alternative electric supplier, according to October 2005 state statistics. That's down from 7.9 percent three years ago.

It turned out alternative energy suppliers charge more than conventional suppliers and still had to pay freight on the local company's wires.

Coincidentally, as regional electric companies grabbed more of the market share legally, the industry's PAC contributions to Congress nearly doubled between 1994 and 1996 (from $5.96 million to $10.4 million) and continued climbing until they hit $21.5 million in 2002.
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