Millstone around neck of merger

30 March 2001

Millstone 2 and 3 in Connecticut figure prominently in the apparent unravelling of the planned $3.8 billion merger of Northeast Utilities and ConEd of New York.

Three Millstone units (including the permanently shutdown Unit 1) were sold to Dominion Energy of Virginia last summer in a deal set to close in April. As a result, Select Energy, an NU subsidiary that has contracts to sell retail power in the notheast of the USA, will lose its entitlement to low-cost power from the Millstone units at the end of this year. Beginning in 2002, the NU subsidiary will have to find power from other sources.

ConEd said that its major concern about the planned merger is that NU could get caught in the same trap that has nearly bankrupted two major Californian utilities – Southern California Edison and Pacific Gas & Electric – which have been forced to buy wholesale power for billions of dollars more than they can retail it for.

Alleging that Select Energy is guilty of mismanagement which poses a significant risk to NU’s profitability if electricity prices rise, ConEd has asked a US district court in New York to absolve it of any obligations under its 1999 merger agreement. ConEd has also claimed that NU provided misleading information during due diligence about the energy commitments to supply power to CLP. The Connecticut utility, in turn, has declared the merger dead and said it will countersue ConEd, arguing that ConEd “attempted to manufacture excuses, including a meritless claim that there has been an adverse change in the risk profile of one of NU’s unregulated businesses” rather than pay the acquisition premium.

The merger was contingent on ConEd and NU gaining all necessary regulatory approvals. All six state approvals have been granted, and three of the four federal agencies involved have given approval. The last review, by the Securities & Exchange Commission, had been expected to be completed by mid-March. Beyond the approvals, there were limited reasons allowing for a cancellation of the deal.

In a related development, the Nuclear Regulatory Commission on 9 March, approved the transfer of operating licences for the Millstone units to Dominion Nuclear Connecticut, a subsidiary of Dominion Energy which also operates the Surry and North Anna nuclear plants in Virginia. In August 2000, Dominion agreed to buy the Millstone units for $1.28 billion.



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