Consolidation of Power

NJPIRG Law & Policy Center

November 2005

Consolidation of PowerHow Exelon’s Bid to Acquire PSEG

Could Raise Rates, Reduce Reliability,and Risk Public Safety

Consolidation of Power

Travis MadsenSuzanne Leta and

Dena Mottola

NJPIRG Law & Policy Center

November 2005

How Exelon’s Bid to Acquire PSEGCould Raise Rates, Reduce Reliability,

and Risk Public Safety

Acknowledgments

The authors thank all those who took the time to review this paper and provide input,including Tyson Slocum of Public Citizen, Ev Liebman of New Jersey Citizen Action,David Lochbaum of the Union of Concerned Scientists and Jerrold Oppenheim ofDemocracy and Regulation. Thanks also to Peter Bradford and Richard Cowart forvaluable guidance in conceptualizing this project. Raymond Shadis of the New En-gland Coalition, Paul Gunter of the Nuclear Information and Resource Service, Dr.Kymn Harvin, Oscar Shirani, Diana Moss of the American Antitrust Institute, and thestaff at the New Jersey Board of Public Utilities all provided helpful guidance andinformation. Tony Dutzik and Susan Rakov of the Frontier Group and Rob Sargent ofthe state PIRGs generously provided editorial assistance.

NJPIRG Law & Policy Center thanks the Educational Foundation of America for itsgenerous support of this report.

The authors alone bear responsibility for any factual errors. The recommendations arethose of NJPIRG Law & Policy Center. The views expressed in this report are those ofthe authors and do not necessarily reflect the views of our funders.

© 2005 NJPIRG Law & Policy Center

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Design: Kathleen Krushas

Table of Contents

Executive Summary 4

Introduction 9

The Takeover Would Increase Exelon’s Market Power 11

The Takeover Could Threaten The Viabilityof New Jersey’s Electricity Auction, Leading to Higher Rates 18

Exelon’s Cost-Cutting Measures Could ReduceElectric System Reliability and Quality of Service 22

Exelon’s Business Strategy Depends on Increasing theOutput of Nuclear Power Plants, Risking Public Safety 25

New Jersey Regulators Would Lose the Power toProtect Consumers from Risky Investment Decisions 30

Concessions Will Not Solve the Long-Term ProblemsInherent in the Takeover 33

New Jersey Regulators Should Reject the Proposed Takeover 37

Appendix 38Consumer Principles for the Electric System 38A Note On Electricity Units 40

Notes 41

4 Consolidation of Power

Executive Summary

O n February 4, 2005, Chicago-based Exelon Corporationrequested formal permission from

New Jersey regulators to acquire PublicService Enterprise Group (PSEG), thelast remaining New Jersey-based energycompany that hasn’t been taken over bya large out-of-state corporation.

As the voice of New Jersey’s electric-ity consumers, the state Board of PublicUtilities should reject Exelon’s proposal.The takeover would increase the mo-nopolistic tendencies of the electricitymarket, threaten the reliability of elec-tric service, increase risks to public safety,and reduce the ability of state regulatorsto defend the interests of electricity cus-tomers in New Jersey, leading to highercosts and poorer service.

The takeover would increase Exelon’smarket power.

• If approved, the takeover wouldcreate the largest electric utilitycompany in the country, with $79billion in assets, 9 million customeraccounts and business operations in

electricity generation, distributionand marketing, plus natural gassupply and delivery. The new Exelonwould:

o control over half of the generat-ing capacity in the regionalelectricity market, PJM-East (SeeFigure ES-1);

o operate the nation’s largest powermarketing business with 6.5percent of national market share;and

o own 40 percent of firm naturalgas supply capacity in the regionstretching from Philadelphia tonorthern New Jersey—where gas-fired generators often set theprice of electricity.

• Because of its large size and widescope, the decisions of the companywould be extremely influential indetermining the nature, quality, andprice of electric service for customersacross New Jersey, the Mid-Atlanticand the Midwest.

Executive Summary 5

PSEG33%

Exelon23%

Competitors44%

Figure ES-1:Exelon Would Control 56 Percentof Capacity in PJM-East

The takeover could threaten theviability of New Jersey’s electricityauction, potentially leading to higherrates.

• New Jersey depends on vigorouscompetition between electricitysuppliers at a bulk auction to holddown electricity rates. However, thenumber of winners at the auction hasdeclined almost two-thirds in the lasttwo years, from 15 to six corpora-tions. At the same time, the fixedprice for electricity resulting fromthe auction has risen 19 percent. (SeeFigure ES-2).

• While other factors, including fuelcosts, account for part of the costincrease, the percentage of supplycontracts going to a single bidder hasrisen as well. In the PSE&G serviceterritory, the maximum number ofbids won by a single bidder increasedfrom 21 percent in 2002 to 36percent in 2004. This pattern followsa national trend of declining num-bers of participants able to competein the electricity market in a mean-ingful way.

• PSEG officials have stated publiclythat PSEG has provided, directly orindirectly, at least 75 percent of theelectricity supply at the auction.

• Further reducing the number ofcompetitors would make NewJersey’s market look more like thedysfunctional power markets in someMidwestern states. For example:

o Illinois is working to set up abasic generation service auctionmodeled after the process in NewJersey. However, Exelon is theonly generating company thatappears prepared to participate inthe auction for its affiliate utility,Commonwealth Edison—puttingit in position to dominate theprocess.

o A large player in the Ohio powermarket recently refused to partici-pate in an auction to supplygeneration service, causing theauction to fail outright. As aresult, consumers in Toledo mustnow pay $2 billion in unscheduled“rate stabilization” fees over thenext several years.

o With fewer effective competitors,New Jersey’s auction system couldproduce similarly disappointingresults, with New Jersey consum-ers paying the price.

Figure ES-2: Auction Winners Declining, Prices Rising

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Exelon’s cost-cutting measures couldharm the reliability of New Jersey’selectricity system and quality of ser-vice to consumers.

• Large holding companies likeExelon have a history of makingcuts that lead to reduced reliabilityof the electricity system, driven bypressure to reduce costs in order todeliver larger returns to sharehold-ers.

• Compared to PSEG, Exelon has apoor reliability and customerservice record.

o Exelon subsidiary ComEdoperated the “worst performingcircuit” in Illinois in 2002. In2003, the company received thelowest customer satisfactionrating of all utilities in the state.

o Pennsylvania-based Exelonsubsidiary PECO has steadilyreduced investment in transmis-sion system maintenance sincethe deregulation debate began inthe mid-1990s. (See Figure ES-3.) After takeover by Exelon infall of 2000, PECO further

reduced transmission mainte-nance investment by one-third.

o In 2003, PECO had the worstoverall customer service satisfac-tion rating out of seven Pennsyl-vania electric utilities. In addition,PECO had the worst record ofjustified customer complaints inthe state, 90 percent higher thanthe average utility.

o In contrast, PSE&G has the bestreliability record in the state—fewer outages and service inter-ruptions than any other NewJersey carrier in the last decade.PSE&G also has over 1,300service employees, including asystem of walk-in customerservice centers, many of which arelocated in urban areas and wherea high percentage of PSEGcustomers pay their bills.

o If Exelon chooses to cut invest-ments in transmission mainte-nance and customer service—as ithas in other states—it couldreduce the reliability and qualityof electric service in New Jersey.

Figure ES-3: Declining Investment in Transmission Maintenance at PECO

$0

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$10,000,000

$15,000,000

$20,000,000

$25,000,000

1994 1996 1998 2000 2002 2004

(200

3 $)

Executive Summary 7

Exelon is basing much of its businessstrategy on increasing the output ofnuclear power plants, potentially risk-ing public safety.

• Exelon is often praised by investoranalysts for what is known as “TheExelon Way,” a system of operatingnuclear power plants at higher ratesof output, thus earning higher ratesof return for shareholders. However,that additional productivity comes atgreat risk to public safety:

o “The Exelon Way” involvescutting on-site staff, firing safetywhistleblowers and pushingnuclear reactor output to itslimits. Although Exelon practicescan result in productivity above90 percent of capacity, seriousdamage to reactor systems canresult.

o Exelon delays necessary repairs tocoincide with planned shutdownsfor refueling to minimize inter-ruptions in power production andmaintain high output. Despite therisks of operating damagedequipment, Exelon is driving atrend toward fewer scheduledshutdowns for maintenance andshorter refueling outages, leavinga much smaller margin for errorwhen it comes to safety.

o Exelon’s business strategy alsodepends upon extending thelicenses of aging nuclear powerplants, like Oyster Creek inOcean County, pushing 1960s-eratechnology 20 years beyond itsintended life and increasing theamount of dangerous nuclearwaste building up at reactor sitesacross New Jersey. Nucleartechnology is inherently danger-

ous and extending reactor life-times could increase the risk of acatastrophic accident or terroristattack.

New Jersey regulators would lose thepower to protect consumers fromrisky investment decisions.

• State regulators would lose theauthority to protect consumers fromrisky non-utility business ventures.These ventures can put pressure on acompany’s credit rating and lead tohigher interest rates—which are thenpassed on to New Jersey families andbusinesses.

o After a potential takeover, PSEGwould become part of a federallyregulated holding company,subject to federal jurisdiction overits financial practices. New Jerseyregulators would lose any signifi-cant power to regulate risk inPSEG’s investment decisions.

o To make matters worse, Congressrecently repealed the PublicUtility Holding Company Act. Asa result, the federal governmenthas far less ability to protectconsumers from any risky invest-ment decisions Exelon chooses tomake.

Concessions will not solve the long-term problems inherent with the pro-posed takeover.

In order to win regulatory approval ofits plan, Exelon is likely to propose dealsor make concessions to federal and stateregulators. Exelon has already revealed aproposal to divest a small amount of itsassets to competitors and claimed that theeconomic efficiencies created by the dealwill benefit consumers.


However, the proposed concessionswould only sugarcoat the deeply rootedanti-competitive and anti-consumerproblems inherent in the merger:

• Exelon’s proposed divestiture is fartoo small to mitigate the marketpower it will gain or the imbalance itwill cause in the New Jersey andPJM wholesale energy markets.Exelon’s claims that the plan willeliminate market power concerns arebased on:

o A mathematical concentrationscreen that fails to analyze pos-sible effects on New Jersey’sunique auction system;

o A screen originally designed formore typical retail commoditymarkets like office supplies orrental cars—not a commoditywith the unique attributes ofelectricity; and

o Arbitrary concentration thresh-olds that are not necessarilyconnected to effects in the mar-ketplace or prices consumersmust pay.

• In addition, Exelon has not formallyproposed sharing any of the eco-nomic efficiencies it expects to createwith ratepayers.

o Even if Exelon did share thesavings, they would amount toonly a token decrease in electric-ity costs for the average residen-tial or commercial electricityconsumer—on the order of 21cents a month per household forthe next four years.

New Jersey regulators should rejectExelon’s proposal.

Exelon’s takeover of PSEG can onlyproceed with approval from the New Jer-sey Board of Public Utilities (BPU). TheBPU should reject the proposal on thegrounds that it does not serve the publicinterest—and in fact could reduce com-petition, raise rates, reduce reliability andrisk public safety.

Such a decision would not be withoutprecedent. In the past year, Arizona andOregon utility regulators stopped out-of-state businesses from buying state-basedenergy companies because the deals didnot provide any public benefit.

Similar action is warranted in this case.President Fox and the New Jersey Boardof Public Utilities Commissioners shoulddefend the interests of New Jersey’s elec-tricity consumers and reject Exelon’stakeover of PSEG.

Introduction 9

Introduction

The provision of electricity service haslong been recognized as a “naturalmonopoly.”1 Integrated utility com-

panies have historically held completecontrol over defined service territories,because the costs of stringing competingsets of poles and wires and building com-peting generating plants to serve a singlemarket would be greater than any eco-nomic benefits that would result. In theabsence of regulation, these companieswould possess almost unmitigated powerto dictate energy prices and terms of ser-vice to their customers.

Thus, almost from the beginning ofthe electric power industry, governmentoversight has been essential to protect-ing the public interest in affordable andreliable service. As utility systems consoli-dated and became more financially andphysically interconnected, state govern-ments—and eventually the federalgovernment—exercised increasing regu-latory control over the provision of elec-tric power. Regulators worked to ensure“just and reasonable” rates and guaran-tees of reliable service to consumers,while allowing utilities the opportunityto earn a fair return on investment.

The past decade, however, has broughtmassive change to the electric power busi-ness in New Jersey. Based on the notionthat markets could succeed where tradi-tional regulatory systems have fallenshort, policy-makers launched an effortto restructure the industry in order to al-low competition and consumer choice—altering traditional relationships amongutilities, regulators and consumers. NewJersey policy makers chose to pursue re-structuring on the assumption that mar-ket forces would lead to lower costs, atleast in the long term. At the same time,policy makers reaffirmed the goal of pro-viding safe, reliable power on reasonableterms to all consumers.

The transition to a restructured elec-tric system has not gone smoothly. Con-sider:

• Residential consumers in New Jerseyenjoy little more choice than theydid before restructuring, with lessthan 0.05 percent choosing analternative electricity supplier.2

• Restructuring has thus far failed toreduce costs for the bulk of electric-ity consumers—especially residential


customers. While rate caps mandatedin the first few years of restructuringheld rates down temporarily, theirexpiration in August 2003 led toimmediate rate hikes of more than 15percent.3 To make matters worse,consumers now must pay back fixedrate savings—with interest.

• The reliability of the electric systemhas been degraded.4 The Northeast-ern U.S. blackout of August 14, 2003was just the most severe of a numberof major system disturbances thathave occurred in the decade sincerestructuring began. Economic lossesfrom the Northeastern blackout havebeen estimated at approximately $6billion to $10 billion.5 The damagecaused by this single event, triggeredby problems in one small part of theelectric grid, represented about six-hundredths of a percent of the U.S.gross domestic product in 2002.6

• Meanwhile, the prospect of financialgain has created pressure to draweven more power from existingnuclear plants—generating addi-tional nuclear waste and potentiallycreating safety problems.7

The New Jersey Board of Public Utili-ties (BPU) is charged with mitigatingthese problems and making the systemwork. To get around the lack of mean-ingful competition at the retail level, theBPU created a bulk wholesale auction,encouraging suppliers to compete for theright to serve groups of customers in eachmajor service area within the state. TheBPU is depending on vigorous competi-tion between suppliers at this auction todeliver New Jersey electricity consumersthe best deal.

However, effective competition cannotexist when one behemoth company, oreven a handful of large players, dominate

the market. Think of a mom-and-popcorner store, or even a New Jersey-fo-cused retail chain, trying to competeagainst Wal-Mart. When one companycontrols too much of the market, its de-cisions become paramount in determin-ing the cost, nature, and quality of serviceprovided to all customers in that market.

That is why the BPU should be con-cerned about Exelon Corporation, a largeout-of-state utility holding company, at-tempting to take over Public Service En-terprise Group (PSEG), a NewJersey-based company focused on pro-ducing and delivering much of NewJersey’s energy supply.

Allowing Exelon to take over PSEGwould add to a growing wave of inves-tor-owned utility takeovers. In the pastfive years, all of New Jersey’s four inves-tor-owned electric utilities, two of fourgas suppliers, and four of the largest wa-ter companies have been involved inmergers or takeovers by out-of-state cor-porations in $35 billion worth of deals.8

The trend is not limited to New Jersey;utilities all across the country are merg-ing and acquiring competitors, threaten-ing the growth and development of a trulycompetitive electricity marketplace.

If the trend continues, a handful ofutility companies could end up with con-trol over the lion’s share of electricitygeneration and distribution across thecountry. Increasing consolidation threat-ens to distance companies from localcommunities, ratepayers and regulators,harming the public interest.

In the coming months, the Board ofPublic Utilities has a critical choice tomake.

If the BPU truly believes in the powerof competition to deliver reliable electric-ity service to New Jersey electricity cus-tomers at “just and reasonable” rates, thenit has no choice but to deny this merger.

If the BPU truly believes in the power of competition to deliver reliable electricity service to New Jerseyelectricity customers at “just and reasonable” rates, then it has no choice but to deny this merger.

Market Power 11

On February 4, 2005, Exelon Cor-poration requested formal permission from New Jersey regulators

to acquire Public Service EnterpriseGroup (PSEG), the last remaining NewJersey-based energy company that hasn’tbeen taken over by a large out-of-statecorporation. If allowed to proceed, thistakeover would increase Exelon’s marketpower and significantly impact New Jer-sey electricity consumers.

Exelon and PSEG are two of the larg-est utility companies in the country.Combining their operations and assetswould create the single largest utility en-tity in business today.9

The size and scope of this entity wouldthreaten the viability of New Jersey’s fledg-ling energy market. Both companies pro-duce power for New Jersey’s electricitymarkets. Moreover, the two companies arecompetitors in the region managed by PJMInterconnection, which includes New Jer-sey, Pennsylvania, and other areas in theMid-Atlantic and Midwest (See “PJM—theBasics” on page 13.) Their consolidationwould impair the development of effectivecompetition in the PJM wholesale electric-ity market as well.

The Takeover Would IncreaseExelon’s Market Power

The new company’s service territorywould comprise 18 percent of the entirepopulation in the PJM region.10 Thecompany would control the nation’s larg-

PSEG Headquarters in Newark.

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Market power “signifies the degree ofcontrol that a single firm or a small

number of firms has over the price andproduction decisions in an industry.”13

In the electricity industry, marketpower can be exercised by large suppliersunder the right conditions. For example,under conditions of relatively high de-mand, suppliers can withhold output froma power plant in order to drive up pricesand earn a higher return overall (especiallywhen imports are limited due to transmis-sion constraints).14 Enron and other en-ergy suppliers engaged in a variety of thesetactics during the California energy crisisto earn a greater profit.15

Electricity is unusually prone to anti-competitive (and therefore, anti-con-sumer) practices, due to its uniqueattributes:

• Electricity service tends towardmonopoly because of the complicatedrequirements of energy delivery toconsumers over an intricate system ofgenerators, transformers, and wires;

• Companies acting alone, withoutcollusion, can have significant im-pacts on prices and on the overallfunction of the system;16

• Electricity demand does not quicklyor easily respond to changes in price,unlike more typical products;

• Electricity cannot be stored on alarge scale;

• Demand fluctuates from second tosecond; and

• The nature of the transmissionsystem can result in constraintslimiting the ability of distant suppli-ers to effectively compete in a localmarket.

Market Power in the Electricity IndustryMergers between competitors can in-

crease the opportunity for abuse of mar-ket power. When market concentrationlevels reach the point of “tight oligopoly”(in which the four leading participantshave 60 to 100 percent of the marketshare), market concentration can:17

• Allow the profitable exercise ofmarket power at a lower demandlevel;18

• Increase the margin above competi-tive levels at which prices can bemaintained;19

• Cause prices to track corporatestrategies and the bargaining powerof individual players more closelythan actual costs;20

• Lead to higher profits for majorplayers than would exist undereffective competition or regulation;21

• Create barriers to market entry forpotential competitors;22

• Enhance the benefit of strategicbehavior against rival companies;23

• Promote greater attention to thedemands of the largest electricityusers, including offering secret lowrates and selective concessions;24

• Create price rigidity, preventingcustomers from benefiting when thecosts of service fall;25

• Induce utilities to prioritize goalsother than adequate and reliableservice; and26

• Encourage utilities to de-prioritizesocietal goals like universal service,conservation, and infrastructureenhancement.27

Market Power 13

est power marketing business and wouldenlarge what is already the nation’s larg-est fleet of nuclear power plants. Addi-tionally, it would own 40 percent of firmnatural gas supply capacity in the regionstretching from Philadelphia to northernNew Jersey—where gas-fired generatorsoften set the price of electricity. 11 Thecompany would have $79 billion in as-

PJM—The BasicsPJM Interconnection is a regional transmission organization (RTO) that man-ages and coordinates the movement of electricity through all or parts of Dela-ware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, Ohio,Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Colum-bia. It operates a variety of energy trading markets, from a real-time spot mar-ket to annual auctions.

PJM has expanded significantly in the last year. On May 1, 2004, Common-wealth Edison (a subsidiary of Exelon) joined PJM. On October 1, 2004, Ameri-can Electric Power joined PJM, followed by Duquesne Light Co. on Jan 1,2005. Virginia Electric and Power Co. (a subsidiary of Dominion Resources)joined PJM in May 2005.

Territory served by the PJM Interconnection.

sets and annual revenues on par with theentire New Jersey state government.12

The decisions of the new Exelon, givenits control over assets and infrastructure,would become extremely influential indetermining the nature, quality, and priceof electric service for customers across theMid-Atlantic and the Midwest.


Market Concentration in PJM

Market concentration is already an issue in the PJM Interconnection. According tothe PJM Market Monitoring Unit, the system faces the following competition

challenges:28

• “Market Power is endemic to the structure of PJM Capacity Markets;”

• The market has “high levels of supplier concentration.” In other words, a fewlarge companies supply large amounts of generation capacity;

• When demand rises, individual suppliers become critically necessary and irre-placeable, creating conditions for the exercise of market power.

• Electricity demand does not respond quickly to changes in price.

The Market Monitoring Unit characterizes concentration as moderate overall, withhigh concentration in the peaking and intermediate load segment of electricity supply,and moderate concentration in base load suppliers.29

A 1997 study of the New Jersey electricity market found that transmission con-straints can make the eastern region of PJM (encompassing New Jersey) a geographi-cally distinct market and enhance opportunities to exercise market power.30 The studyfound that, under conditions prevalent in New Jersey when there were five major NewJersey utilities, market prices began to exceed competitive levels when demand reached88 percent of the annual peak, a frequent occurrence in the summer season.

Although PJM as a whole expanded in 2005 with the addition of Dominion VirginiaPower, market power issues are much more likely to arise in the eastern part of PJM.In filings with the Securities and Exchange Commission, PSEG notes:

Due to transmission constraints, [prices] may be higher in congested areasduring peak demand periods, reflecting the bid prices of the higher cost unitsthat are dispatched to supply demand. This typically occurs in the eastern por-tion of the grid, where many of [PSEG] Power’s plants are located.31

Paul Joskow at MIT examined concentration levels in PJM-East under a variety ofdemand conditions and found that on average only four suppliers effectively exist.32

The Federal Energy Regulatory Commission (FERC) defines any market with aconcentration index above 1,000 as “concentrated.” (However, this standard does notmean that market power cannot be exercised in markets with a lower index—see“Divestiture Will Not Fully Mitigate Market Power Concerns” on page 33.) PJM-East currently has a concentration index up to 1,500 under periods of high demand,and 1,270 under low demand.33

The Market Monitoring Unit at PJM concludes that “market structure issues in thePJM Energy Markets have been offset to date by a combination of high levels of sup-ply, moderate demand and competitive participant behavior.”34

However, consolidation of two of the major players in the PJM region could changethis situation significantly. In an October 2005 report, the Market Monitoring Unit atPJM notes that “the proposed merger would significantly increase concentration inthe Energy, Capacity and Regulation markets and therefore raises concerns about po-tential adverse competitive effects, absent mitigation.”35

Market Power 15

PSEG33%

Exelon23%

Competitors44%

The Takeover Would MakeExelon the Largest Utilityin the PJM Region and theNation’s Largest Utility Overall

If Exelon succeeds in acquiring PSEGto form “Exelon Electric and Gas Com-pany,” it will become the largest utilitycompany in the country.36 Table 1 sum-marizes the basic attributes of Exelon,PSEG, and the proposed new company.

Combined Generating CapabilityPSEG and Exelon are the two largest

players within the eastern sub-market ofPJM (PJM East). According to analysisby the New Jersey Board of Public Utili-ties (BPU), PSEG currently owns 10.1gigawatts (GW) of generating capacity inPJM East, and Exelon owns 7.2 GW—33 percent and 23 percent of local gen-erating capacity, respectively.54 Together,these two companies would control 56percent of the total capacity within PJMEast, before any proposed mitigationmeasures.55 (See Figure 1.)

Generation controlled by the newcompany would be absolutely necessaryto ensure the stability of the electricitygrid under peak load conditions. If forsome reason the new company chose notto supply energy, its competitors wouldnot be able to meet demand. As a result,prices would skyrocket to the PJM bidcap of $1,000/MWh and the electricitysystem would fail. This places Exelon intoa position of strategic importance in theelectricity market.

Figure 1: Exelon Would Control 56Percent of Generating Capacity inPJM East

PSEG Exelon “Exelon Electric and Gas”

Electricity 2.1 million37 5.2 million38 More than 7 million39

Customers

Gas Customers 1.7 million40 460,00041 More than 2 million42

Generating 14,600 MW43 34,500 MW 50,000 MWCapacity (25,800 MW of plants (40,000 MW of plants

and 8,700 MW of and over 9,000 MW oflong-term contracts long-term contractsand deals)44 and tolling deals)45

Nuclear Generating 3,484 MW46 16,751 MW47 20,200 MWCapacity

Gross Annual $11 billion48 $15 billion49 $27 billion50

Revenues

Net Annual Profit $1 billion51 $1.9 billion52 $3.2 billion53

Table 1: The Attributes of PSEG, Exelon, and the Proposed “Exelon Electricand Gas”


Extensive Power MarketingActivity

In addition to supplying large amountsof electricity to the wholesale market,Exelon would also be one of the largestbrokers of this power to others. If allowedto acquire PSEG, Exelon would control6.5 percent of national market share inthe wholesale energy trading and market-ing business.56

Exelon would become one of the mostpowerful energy marketers in New Jer-sey. The company’s size would enable itto pressure competitors in New Jersey’sauction as well as in negotiations withlarge commercial and industrial custom-ers who buy their power individually.

Natural Gas SupplyPSEG and Exelon together control a

large natural gas supply and delivery busi-ness. Control of natural gas assets aggra-vates the potential for market powerproblems, since natural gas-fired genera-tors set overall market prices during pe-riods of peaking demand.

The introduction of negotiated ratesfor open-access pipelines transporting gasover long distances, coupled with mar-keting of gas at the retail level by affiliatecompanies, creates a clear potential forvertical price discrimination that thecompany could use to its advantage.57

Small changes in fuel price could have alarge impact on consumers’ electricityand gas bills.

PSEG is the dominant natural gas sup-plier in New Jersey, serving 60 percentof all residential customers and over 70percent of all commercial and industrialcustomers.58 PSEG owns 1.17 billioncubic feet-per-day or 427 cubic feet an-nually of natural gas transportation ca-pacity under contract to supply the needsof its own power plants and its retail natu-ral gas customers.59 The company also

owns 82 billion cubic feet of storage ca-pacity it uses to meet a peak winter de-mand of 940 million cubic feet-per-day.

Exelon subsidiary PECO is the domi-nant natural gas supplier for a 1,900square mile area surrounding Philadel-phia. PECO annually purchases 46 bil-lion cubic feet of natural gas underlong-term contract, supplemented by liq-uefied natural gas, underground storage,and other sources. Peak gas demand canreach 718 million cubic feet-per-day.60

Together, the companies represent thedominant natural gas suppliers in the re-gion stretching from Philadelphia tonorthern New Jersey. To give a sense ofscale, PSEG and Exelon together are ca-pable of supplying more than 473 billioncubic feet of natural gas per year, morethan three-quarters of New Jersey’s an-nual demand of 610 billion cubic feet.61

According to analysis by the BPU, themerged company would own 40 percentof firm natural gas supply capacity in theregion, and the natural gas market wouldbe extremely concentrated.62 FERC andthe Federal Trade Commission defineany market with a concentration indexabove 1,000 as “concentrated.” Analysisof the gas market in PJM East shows thatthe concentration index is currently1,469—and after the merger it would riseto 1,942.63

With control over such a large gas sys-tem, seemingly small decisions by Exelonabout the availability of gas, the timingof use, or the timing of refilling reservescould have large impacts on the overallmarket price of gas.64

Manipulating gas prices would havesignificant impact on the electricity mar-ket. In PJM East, gas-fired generators setthe price for electricity during 60 percentof the hours of peak demand—and 40percent of the time overall.65 Duringthese periods, increased gas prices willdirectly translate into more expensiveelectricity.

Market Power 17

As described by the BPU in their fil-ings with FERC, Exelon would have anincentive to use its control over the gasmarket to its advantage. By raising theprice of gas to all users (including itself),Exelon could raise the cost of electricity.

With higher electricity prices, Exelonwould realize higher revenues from itscontinually-operating base load genera-tors—in effect earning payments in ex-cess of their energy costs.66

Nuclear power plants make up part of PJM East’s base load generation.


A llowing Exelon to take over PSEGcould threaten the viability of NewJersey’s electric service auction sys-

tem and lead to higher electricity bills forconsumers.

New Jersey depends on competition inthe wholesale electricity market to giveconsumers the best deal. After it becameclear that retail competition in New Jer-sey had failed (particularly for small cus-tomers), New Jersey regulators set up anauction for electricity generation compa-nies to compete for the right to serve cus-tomers in bulk.

However, the number of winners at theauction has declined almost two-thirds inthe last two years, from 15 to six corpo-rations. At the same time, the fixed pricefor electricity resulting from the auctionhas risen 19 percent. Although an in-crease in natural gas costs accounts forsome of this increase, the overall patternfollows a national trend of declining num-bers of ever-larger companies able tocompete in the electricity market in ameaningful way.

Further consolidation of major play-ers in the wholesale electricity market willonly aggravate the problem. For example,

The Takeover Could Threaten TheViability of New Jersey’s ElectricityAuction, Leading to Higher Rates

Illinois is working to set up a basic gen-eration service auction modeled after theprocess in New Jersey. Because of a lackof meaningful competition, Exelon is theonly generating company that appearsprepared to participate in the auction inthe territory of its utility affiliate, Com-monwealth Edison. In Ohio, a largeplayer in the Ohio power market recentlyrefused to participate in an auction tosupply generation service, causing theauction to fail outright. As a result, con-sumers in Toledo must now pay $2 bil-lion in unscheduled “rate stabilization”fees over the next several years.

Allowing Exelon to take over PSEGwould make the New Jersey market morelike the dysfunctional power markets insome Midwestern states. Consumerswould end up paying the price.

New Jersey Depends onWholesale Competition toHold Down Rates

Over the past decade, the electricpower business in New Jersey has under-

New Jersey’s Electricity Auction 19

gone massive change. Based on the no-tion that markets could succeed wheretraditional regulatory systems have fallenshort, policy-makers launched an effortto restructure the industry in order to al-low competition and consumer choice.

Restructuring has taken place on twolevels. In New Jersey, retail restructuringhas allowed consumers to choose theirsuppliers of electricity and allowed com-panies that generate electricity to com-pete for consumers’ business. Across thecountry, wholesale restructuring haschanged the way utilities and other firmsproduce, trade and sell power by open-ing the wholesale power system to mar-ket competition.

Retail restructuring has largely provedunsuccessful in the states that have pur-sued it. In New Jersey, less than 0.05 per-cent of residential consumers haveactually switched electricity suppliers tofind a better deal. Including commercialand industrial customers, only 0.27 percentof customers have switched suppliers.67

To solve this problem, the New JerseyBoard of Public Utilities (BPU) set up abulk auction for suppliers to compete forthe right to serve large blocks of de-mand—consumers who stayed with their

default supplier. At the auction, genera-tors bid to meet a certain amount of en-ergy demand for a fixed price over athree-year term. The actual prices paidby consumers are updated every year basedon the result of the past three auctions.

New Jersey’s WholesaleElectricity Auction isTrending Toward FewerCompetitors and Higher Prices

Since the first auction in 2002, thenumber of companies with winning bidsin the auction has declined significantly.At the same time, the final auction priceof electricity has risen. While these twofacts are not necessarily linked, they aresuggestive of a trend towards industryconsolidation and less competitive pres-sure to deliver the best deal.

The number of winners at the auctionhas declined almost two-thirds in the lasttwo years. In 2002, 15 suppliers won bidsto supply electricity, and the average re-sulting bid price was 5.1 ¢/kWh.68 In themost recent auction carried out in Feb-ruary 2005, only six suppliers won bids,and the average winning price rose to 6.6

0

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Figure 2: Trends in the Number of Winning Companies and the AverageWinning Bid Price in New Jersey’s Basic Generation Service Auction70


¢/kWh, an increase of 19 percent.69 Fig-ure 2 compares the two trends.

Increases in natural gas prices likelyplayed a partial role in the cost increase.However, the percent of energy supplyrights going to a single bidder is increas-ing as well (Figure 3). In the PSE&G ser-vice territory, the maximum number ofbids won by a single bidder increasedfrom 21 percent in 2002 to 36 percent in2004.71

In 2004, PSEG Energy Resources &Trade (PSEG’s energy marketing subsid-iary) was the dominant player in the auc-tion, both for residential and smallcommercial load and industrial load. Inthe residential auction, PSEG won ex-actly one-third of the energy contracts upfor bidding.72 Although the BPU doesnot require bidders to disclose thesource(s) of the power that is bid into theauction, PSEG officials have also statedpublicly that they have provided, indi-rectly or directly, at least 75 percent ofthe supply to the auction.73

This pattern of energy supply rightsgoing to a single bidder follows a nationaltrend of declining numbers of ever-largercompanies able to compete in the elec-tricity market in a meaningful way.

The New Jersey BPU, after analysisof the auction procedure and results, hascertified all of the bulk auctions to dateas sufficiently “competitive”.75 AllowingExelon to take over PSEG could threatenthe viability of New Jersey’s auction sys-tem by further increasing the ability ofone company to provide the vast major-ity of electricity supplied to New Jersey’sannual BGS auction. The BPU may dis-cover that its auction process has becomeuncompetitive, and that the auction pro-cess no longer delivers the best deal.

Market Consolidation WillFurther Reduce Competitionand Lead to Higher Rates

Further consolidation of major play-ers in the wholesale electricity market willaggravate the trend toward less competi-tion and higher rates.

New Jersey regulators need only looktoward more dysfunctional energy mar-kets in the Midwest to see the effects of alack of meaningful competition. Exelonappears to be the only company preparedto participate in the upcoming auction for

demand in the ser-vice territory of its Il-linois transmissionand distribution sub-sidiary ComEd. InOhio, FirstEnergyhas taken advantageof uncompetitiveconditions to negoti-ate a deal with stateregulators to impose$2 billion in “ratestabilization fees” onits customers.

With fewer effec-tive competitors,New Jersey’s auctionsystem could pro-$0

$5,000,000

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Figure 3: The Maximum Percentage of Energy Supply Rights Going to aSingle Bidder (36-Month Contracts for the PSE&G Service Territory)74

New Jersey’s Electricity Auction 21

duce similarly disappointing results, withNew Jersey consumers paying the price.

Exelon May Be the Only SupplierParticipating In the UpcomingIllinois Auction

In Illinois, Commonwealth Edison ispreparing an auction where generatorswill bid for the right to supply demandwithin its service territory. Exelon, theparent of ComEd, appears to be the onlygenerator able to participate in the auc-tion. Other companies face barriers toentry that could sink the auction beforeit even begins.76

Midwest Generation is the only othermajor power supplier competing withExelon in Northern Illinois. However, itis a much smaller company, with roughly9,300 MW of generating capacity.

Midwest Generation has been almostcompletely dependent upon Exelon forits operating revenue. In the early part ofthe decade, the company derived up to99 percent of its revenues from sales toExelon. However, at the end of 2004, itscontracts with Exelon expired, exposingthe company to the volatility of the spotmarket. The company announced thepossibility of bankruptcy.77

From the start, auction rules requir-ing participants to post collateral couldexclude a variety of competitors.78 Evenif those barriers are removed, the auctionhas the potential to pit companies thatare much smaller than Exelon, some ofwhich have historically depended on rev-enue from Exelon in order to operate, ascompetitors with Exelon for the serviceterritory of one of Exelon’s affiliates. Asa result, Exelon holds all the keys to theauction and stands in a position where ithas a lot of power to influence the auc-tion results.

Lack of competition in the Illinois auc-tion is likely to lead to higher electricitycosts for Illinois consumers.

FirstEnergy Refuses to Participatein its Own Auction

Ohio’s recent auction demonstratedother negative effects for consumers thatcan result when meaningful competitionfails to develop.

In December 2004, Ohio held an auc-tion for the right to supply energy toFirstEnergy’s service territory. The auc-tion was dramatically uncompetitive.FirstEnergy’s generation subsidiary, oneof the largest and most powerful playersin the market, refused to participate inthe auction altogether.79 The auctionlasted only two hours, and delivered aprice reduction of only 0.05 cents perkWh below the starting bid.80

State regulators declared the resultuncompetitive, and proceeded to approvea plan submitted by FirstEnergy to col-lect more than $2 billion in “rate stabili-zation” charges over the course of threeyears, beginning in 2006.81 The chargesare an unscheduled extension of astranded cost recovery plan for failed in-vestments in nuclear generation. FirstEnergy justified the rate stabilizationcharges by saying, “If the commission hadchosen the auction alternative, our cus-tomers’ generation price would have in-creased by more than 20 percent.”82

However, because FirstEnergy (the larg-est player) chose not to participate in theauction, that outcome was practicallyguaranteed from the start.

Market consolidation in New Jersey’sauction system, and in PJM as a whole,could create conditions where one largeplayer is able to exert similar control overthe price-setting process, placing its com-petitors at a disadvantage and deliveringits customers a flawed deal.


P articipants in restructured electric-ity markets, where regulators nolonger set fixed rates of return on

investment, are under enormous pressureto reduce costs to deliver higher returnsto shareholders.

Large holding companies like Exelonhave a history of making cuts that lead toreduced reliability of the electricity sys-tem. Exelon subsidiary CommonwealthEdison earned the ranking of “worst per-forming circuit” in Illinois in 2002, andranked lowest in residential customer sat-isfaction in Illinois in 2003. Exelon sub-sidiary PECO in Pennsylvania hassteadily reduced investment in transmis-sion system maintenance since thederegulation debate began in the mid-1990s. After takeover by Exelon in fall of2000, PECO further reduced transmis-sion maintenance investment by one-third.

In contrast, PSEG (the only New Jer-sey energy company not owned by an out-of-state holding company) has the bestreliability record in the state and com-prehensive quality of service.

Exelon has a PoorReliability Record

Exelon has a history of cutting costs inways that contribute to reliability prob-lems.

ComEdIn 2002, the Illinois Commerce Com-

mission gave Commonwealth Edison(Exelon’s electricity and transmission dis-tribution subsidiary in Illinois) poor reli-ability marks. The report concluded that:

• “The most serious… recommenda-tion concerns how ComEd willmaintain or improve reliability andcustomer satisfaction with futureprojected distribution capital invest-ment amounts less than the levels inthe mid-1990s…Staff noted a declin-ing annual compounded growth rateof 6.48%…83

• “The second most serious recom-mendation concerns the number ofinterruptions that ComEd classifiedas being controllable. Staff found it

Exelon’s Cost-Cutting Measures CouldReduce Electric System Reliability andQuality of Service

Reduce Reliability 23

absurd that in 2002 ComEd classifiedonly 2.6% of the total interruptionsas controllable. Staff believes thatmost service interruptions arecontrollable…84

• “Staff remains concerned by ComEd’spoor ranking compared to otherjurisdictional utilities in 2002 forworst performing circuit. Staffcontinues to recommend that ComEdfocus on improving customer ser-vice…85

• “Staff did state that field observationsindicate that there is much potentialfor improvement in ComEd’s vegeta-tion management program…Staffnoted that ComEd’s future treetrimming budgeted spending levelsare declining from 2002 actuallevels.”86

In 2003, the Illinois Commerce Com-mission noted many of the same prob-lems:87

• ComEd had the lowest overallresidential customer satisfactionrating among the nine utility compa-nies in Illinois.

• The duration of interruptions for theaverage consumer worsened from2002 to 2003 in all of ComEd’sservice regions.

• ComEd’s worst performing circuit(in Chicago), is the worst performingcircuit in the entire state in terms ofaverage interruption duration, andthird-worst in terms of interruptionfrequency.

• ComEd projects further cuts intransmission and distribution spend-ing in the future. The Commissionnotes, “While … ComEd states thatit ‘is constantly striving for ways toimprove operating efficiencies andinternal processes,’ the Commissionis concerned about the trends …[toward reduced transmission anddistribution spending] because oftheir potential reliability implicationstowards the end of this decade.”

PECOSimilar behavior is exhibited by

Exelon’s transmission and distributionsubsidiary in Pennsylvania, PECO. Fig-

Figure 4: Declining Investment in Maintaining TransmissionInfrastructure at PECO88

$0

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ure 4 shows a consistent decline in spend-ing on transmission system maintenance.PECO began reducing investment intransmission maintenance in the mid1990s, at the beginning of the nationaldebate over electricity industry restruc-turing. However, after Exelon took overPECO in October of 2000, the trend con-tinued.

The priorities of the company are alsoreflected in its customer service perfor-mance. In 2003, PECO had the worstoverall customer service satisfaction rat-ing out of seven Pennsylvania electric dis-tribution utilities. PECO also rankedworst in the ease of reaching the com-pany on the phone, in using thecompany’s automated phone system, andin satisfaction with how a service em-ployee handled the interaction.89 In ad-

dition, PECO had the worst recordof justified consumer complaints inthe state, 90 percent higher thanthe average utility.90

PSE&G Has the BestReliability Record inNew Jersey

In contrast, PSE&G has the bestreliability record in the state over

the past decade, as compared to the otherthree investor-owned utilities, all ofwhich have been taken over by out-of-state holding corporations.91

The New Jersey Board of Public Utili-ties monitors the performance of the elec-tricity system by keeping track of thefrequency and duration of service inter-ruptions within each of the four majorservice territories in the state. Between1994 and 2003, PSE&G has had a con-sistently low number of interruptions,and the lowest frequency of disturbancesamong New Jersey utilities (although thefrequency increased slightly over time).92

One factor in this record may be re-flected in the generally increasing levelof investment PSE&G has made in main-taining its transmission network. (SeeFigure 5.)

PSE&G also has over 1,300 serviceemployees, including a system of walk-in customer service centers, many ofwhich are located in urban areas andwhere a high percentage of PSEG cus-tomers pay their bills.93

If the merged company chooses to cutinvestments in transmission maintenanceand customer service jobs—as it has inother states—it could reduce the reliabil-ity and quality of electric service in NewJersey.

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Figure 5: Trends in PSE&G’s Transmission Maintenance Investment94

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Risking Public Safety 25

E xelon is often praised by investoranalysts for what is known as “TheExelon Way.” This phrase refers to

a system of operating nuclear powerplants at higher rates of output, thus earn-ing higher rates of return for sharehold-ers.

However, “The Exelon Way” involvescutting staff, firing whistleblowers whoraise safety issues and ramping up nuclearreactor output to well above 90 percentcapacity. Exelon’s business strategy alsodepends on petitioning the NuclearRegulatory Commission (NRC) to ex-tend the operating licenses of agingnuclear power plants for 20 years beyondtheir designed lifetime. Nuclear technol-ogy is inherently dangerous, and theseaggressive practices increase the risk of acatastrophic accident.

Exelon is already the nation’s largestowner and operator of nuclear powerplants.95 Exelon currently owns onenuclear reactor in New Jersey: the Oys-ter Creek nuclear power plant in OceanCounty. If Exelon succeeds in taking overPSEG, it will own and operate all four ofNew Jersey’s nuclear plants: Oyster

Creek, Salem I, Salem II and HopeCreek. Additional productivity fromthese plants will come at great risk topublic safety.

“The Exelon Way” MeansFiring Staff and Ramping upOutput at Nuclear Plants

Exelon’s safety record in New Jersey,Illinois and Pennsylvania is less than ex-emplary, showing a consistent pattern ofplacing productivity over safety. Exelonhas cut on-site staffing levels, extendedor sought to extend the licenses of agingplants, experimented with increases inpower output, instilled a work culture inwhich staff are restricted from raisingsafety concerns, and delayed criticalmaintenance projects. Exelon manage-ment is pushing the nuclear industry as awhole toward shorter refueling outages,longer times between outages, and fewerscheduled shutdowns for maintenance,leaving a much smaller margin for errorwhen it comes to safety.

Exelon’s Business Strategy Dependson Increasing the Output of NuclearPower Plants, Risking Public Safety


“The Exelon Way” and Job CutsExelon’s strategy of ongoing job cuts

and downsizing creates a work climatethat inhibits raising safety concerns, de-creasing plant safety.

After Unicom merged with PECO toform Exelon in 2000, Exelon manage-ment announced plans to eliminate 2,900jobs, or 9 percent of its work force.96 Thenuclear division was slated for an 11 per-cent cut in staff—maintenance positionsin addition to clerical staff.97 AlthoughExelon claimed that staff were perform-ing at higher productivity levels and thatthe merger created opportunities toeliminate duplicative positions, unionworkers claimed that the jobs were nec-essary.98

When Exelon announced the new“Exelon Way” business strategy in April2003, executives celebrated the fact thatthe company had successfully eliminated2,000 jobs and cut $340 million in an-nual expenses. Executives announcedtheir intention to eliminate many moreredundant positions to continue earningsgrowth.99

On-site staffing levels at Exelon-owned nuclear plants have dropped dra-matically during this process. Accordingto Three Mile Island Alert founder EricEpstein, Three Mile Island staffing lev-els declined from 804 in 1998 to 643 in2002; and Oyster Creek staffing levelsdeclined from 1,000 (in 1990 whenowned by GPU) to 440 in 2003.101

Union workers at Oyster Creek sent aletter to the NRC complaining that anearly 2003 Exelon plan to eliminate 50jobs would impact plant safety. The jobs

slated for elimination included fire pro-tection positions, whose responsibilitieswould be transferred to the instrumenta-tion and control workers, who did nothave adequate training and were already“struggling under [their] ownworkload.”102

“The Exelon Way” of ongoing staffreduction silences workers who mightotherwise raise safety concerns. Since noworkers have job security, workers equateflagging safety problems with volunteer-ing for the next round of downsizing. Ineffect, “The Exelon Way” inhibits work-ers from ensuring that nuclear plants op-erate as safely as possible.

Exelon’s management of New Jersey’snuclear plants could involve a similar re-duction in staff with a reduction in mar-gin of safety.

Exelon Has Fired WhistleblowersAfter Safety Complaints

Exelon’s safety culture has been a ma-jor problem in Illinois, wherewhistleblowers have been fired after mak-ing safety complaints. Oscar Shirani isone such whistleblower. He worked as asenior quality assurance manager forExelon when he raised concerns about thesafety of Holtec brand dry casks used tostore highly-radioactive spent nuclearfuel rods. He was ultimately fired.103

Mr. Shirani, a 23-year veteran nuclearengineer, found a variety of design, manu-facturing, and regulatory code violationswith Holtec dry casks for storing nuclearwaste. In May 2000, he asked Exelon toissue a “Stop Work Order” to force

“The Exelon Way is ‘a program to cut employees,’”– Frank Kuders, maintenance technician at Exelon’s Eddystone plant in Pennsylvaniaand president of the International Brotherhood of Electrical Workers local union,October 17, 2003.100


Holtec to correct its faulty practices. Soonafter, Shirani was asked to conduct anaudit and submit a report. Shirani com-pleted his work in August 2000, report-ing nine significant problems with theHoltec dry casks. On December 13,Exelon sent a censored version of the re-port to Dr. Ross Landsman at the NRC,the official in charge of dry casks in theMidwest. Although Shirani didn’t knowit at the time, Exelon altered the conclu-sion of his report, falsely stating that theproblems had been resolved.

The following January, Dr. Landsmansent a memo to Bruce Jorgensen, chiefof the decommissioning branch at NRC,citing serious concerns with Holtec drycasks. Landsman noted, “The audit wasdone in June-July 2000, and still the is-sues are not resolved. Worse yet, I justdiscovered that the Audit Team Leader[Shirani] is being moved sideways on site,out of the audit group. These findings willbe dropped.” Landsman concluded,“This audit indicates that in no way dothey [Exelon] meet our Region III re-quirements in implementation of theprogram. Cost and scheduling are con-trolling the work.”104

Shirani was eventually transferred outof Exelon’s nuclear division to the finan-cial division—a move Exelon and othercompanies commonly employ to removewhistleblowers. Shirani stayed within thefinancial division until he was laid off thefollowing October—unfortunately toolate to file a formal complaint with theNRC.

However, many other employees havefiled formal complaints. In fact, betweenJanuary 2001 and January 2005, the NRCreceived 98 complaints about Exelonpractices from employees working atExelon plants that the NRC judged tobe justified, accounting for 21 percent ofall such complaints nationwide.105

Among the most serious cases, Exelonwas found to have deliberately discrimi-

nated against a former Exelon employeeat Pennsylvania’s Byron reactor for rais-ing safety concerns in August 2000. Be-cause Exelon admitted fault to the NRC,the company was not charged, the casewas settled, and the employee remainsanonymous.106

The high level of formal complaintsfiled by Exelon workers stems from thesilencing effect of “Exelon Way”downsizing. At most plants, workers raisesafety concerns to their supervisor orto a company ombudsman. However,Exelon workers are more likely to sub-mit concerns to the NRC as allegationsor not raise them at all because of fear oflosing their jobs.

Exelon’s problems with treating em-ployees who bring up safety concernswith fairness may continue at PSEG’snuclear plants in New Jersey. Exelon hasnot addressed serious problems with thework environment at Salem County’snuclear plants since the company tookover management in January 2005.107

Exelon replaced Christopher Bakken (thepresident and chief nuclear officer atPSEG Nuclear, and also the man incharge of PSEG’s program to improvethe safety culture at the Salem I, II andHope Creek reactors) with Bill Levis, anExelon manager. Exelon proceeded tomake a variety of staffing changes andterminations at the New Jersey reactors.However, it is unclear whether Exelonhonored previous commitments made byPSEG to the NRC, including obtainingapproval from an independent ExecutiveReview Board established to ensure thatall employees receive fair and consistenttreatment, even if they bring up safetyconcerns. This brings into doubt Exelon’sintention to honor any of the many othercommitments PSEG made in 2004 tokeep the NRC from shutting down thethree troubled reactors in Salem County.


Safety Problems Abound atExelon-Managed Nuclear Plants inNew Jersey

On January 17, 2005, Exelon took overmanagement at PSEG-owned Salem I, IIand Hope Creek reactors in southernNew Jersey. Exelon decided to go aheadwith a planned restart of the Hope Creekreactor, which had been shut down sinceOctober 2004 after a pipe burst and re-leased radioactive material into a turbineroom.108 The shutdown offered an oppor-tunity to replace an 80,000-pound recir-culation pump with a wobbly shaft thatexperts believed would lead to furtherproblems.109 Despite protests from theNew Jersey Department of Environmen-tal Protection (DEP), Exelon decided torestart the reactor without fixing the re-circulation pump.110 Exelon chose to de-lay repairs until the next refueling outage,scheduled for the spring of 2006, eventhough NRC Region I AdministratorSamuel Collins stated that a replacementpump would be ready to install in March2005.111

Oyster Creek, the oldest nuclear powerplant in the country, has also had its shareof staffing and maintenance problemssince Exelon bought the plant from GPUin 1999.

In the summer of 2003, employees atthe plant belonging to the InternationalBrotherhood of Electrical WorkersUnion Local 127 went on strike in partbecause of safety concerns. Ed Stroup, thelocal union president, said the companyproposed sweeping changes in workplacerules that would allow it to transfer em-ployees to positions for which they wereinadequately trained or skilled, and thathis union members were “terrified” aboutthe impact on the plant’s safety. He alsosaid, “There just aren’t enough people todo everything that needs to be done.…Our members are the last line of de-

fense of safety at that plant and that’s whatthey’re [Exelon management officials]trying to break down.”112

The NRC has also cited Exelon formaintenance problems at Oyster Creek.In February 2004, the NRC found thatExelon failed to prevent the failure of acable providing power to two back-upgenerators during the previous year. Thesame cable failure had already occurredtwice before, in 1996 and again in 2001.If Exelon management had taken the timeto review the original design documentsto understand the full scope of the prob-lem, the company would have likely pre-vented the failures from occurring a thirdtime.113 In March 2005, NRC officialsincreased oversight at Oyster Creek af-ter plant workers failed to adjust a thresh-old used to classify serious emergencies.The mistake could have delayed timelyresponses by emergency managers dur-ing a radioactive release.114

Increased Productivity at Exelon’sIllinois Reactors Has CreatedSafety Problems

In Illinois, Exelon repeatedly at-tempted to increase power production atthe Quad Cities and Dresden reactors,with dangerous consequences.115 InMarch 2002, Exelon increased powerproduction at the Quad Cities reactor by20 percent. Leaks were soon found in thecontrol system for the main turbine, butExelon restarted the reactor anyway. ByApril, the plant was vibrating so muchthat a drain line broke off one of the pipes,and monitors were shaken off from foursteam pipes. When managers finally re-duced the output to historical norms, in-spectors found a gaping hole in the steamdryer. Pieces had fallen off the dryer intothe water system where they could po-tentially prevent reactor safety mecha-nisms from working properly. Instead of


replacing the dryer, managers simplypatched the hole and added braces.116

In July, Exelon restarted the plant andagain pushed reactor output above nor-mal levels. The following May of 2003,plant employees discovered a 9-foot longcrack in the steam dryer. Despite the se-rious damage, Exelon does not plan toreplace the steam dryer until a scheduledrefueling outage in the spring of 2006.117

At another reactor, a 6 1/2-by-9 inch pieceof the outer hood bank of the steam dryerdisappeared. Repair staff never found orremoved the missing pieces. An automaticsafety valve also broke because of exces-sive vibration, preventing its operation inthe event of an accident. Although thereactor license only allowed operation inthis damaged condition for 14 days, thereactor had operated without a functionalsafety valve for 110 days. Exelon left thesteam dryer in its damaged state, insteadscheduling repair to coincide with a re-fueling outage in March 2005.118

Exelon’s Business Strategy Restson License Extensions for OldNuclear Plants and Building NewReactors

One of Exelon’s primary business strat-egies is to operate nuclear power plantslonger than their intended lifetimes, aswell as applying to the NRC for permitsto build new nuclear power plants.

Exelon has won 20-year license exten-sions for six nuclear reactors in Pennsyl-vania and Illinois from the NRC, pushing1960s-era nuclear technology beyond itsdesign limitations.119 Exelon is planning

to formally file an application in August2005 for license extension at New Jersey’sOyster Creek nuclear reactor, built in1969, in addition to preparing for licenseextensions at its other plants.120

This business strategy comes at a highprice for New Jersey, including:

• Degraded habitat for fish and otheraquatic life in nearby waterways, baysand estuaries as a result of once-through cooling systems;

• Continued production of highlyradioactive nuclear waste, for whichno safe disposal options exist;

• The risk of catastrophic accidents,similar to (or worse than) the ThreeMile Island accident in 1979; and

• The potential for large releases ofextremely dangerous radiation to theatmosphere after a potential terroristattack on an active reactor or a spentfuel storage pool.

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A PSEG Nuclear Plant.


A fter a potential takeover, PSEGwould become part of a federallyregulated holding company, sub-

ject to federal jurisdiction over its finan-cial practices. If Exelon succeeds in takingover PSEG, important regulatory author-ity that currently rests with the New Jer-sey Board of Public Utilities (BPU) willmove to federal jurisdiction.

Specifically, New Jersey regulatorswould lose the authority to protect con-sumers from the financial burden of riskybusiness ventures. State regulators wouldnot be able to stop Exelon from makinginvestments in non-utility areas that carryhigher financial risk. These ventureswould put pressure on Exelon’s credit rat-ing and could lead to higher interest rateson loans. These costs would then be borneby Exelon’s electricity consumers, includ-ing citizens and businesses of New Jersey.

To make matters worse, Congress re-cently repealed the Public Utility Hold-ing Company Act (PUHCA), a federallaw setting important limits on largeholding companies like Exelon. Exelonwas a vocal advocate for loosening theselimits. As a result, the federal governmentnow has far less ability to protect con-

New Jersey Regulators Would Losethe Power to Protect Consumersfrom Risky Investment Decisions

sumers from any risky investment deci-sions Exelon chooses to make.

The Takeover WouldReduce State Oversight ofPSEG’s Finances, ExposingConsumers to Greater Risk

PSEG is a New Jersey-based energycompany. Because the company is head-quartered in Newark and is primarily fo-cused on domestic utility business in NewJersey, the New Jersey BPU has authorityover the company’s non-utility invest-ments.121

To limit ratepayer exposure to poten-tially risky investments, in May 1993 theBPU issued an order that limited PSEG’snon-regulated investments to 20 percentof its overall assets.122 BPU issued the rulein order to keep PSEG focused on serv-ing the main interest of New Jersey con-sumers: affordable, reliable and safeelectricity service. Utility investmentstend to be relatively secure compared toinvestments outside of the company’s coreexpertise in producing and providingelectricity and gas service.

Risky Investment Decisions 31

When a utility is allowed to takegreater investment risks, credit ratingagencies may lower the company’s bondratings. With a lower bond rating, a com-pany must pay higher interest rates inorder to obtain a loan. With higher capi-tal costs, a utility company could pass theincreased cost of capital onto its custom-ers. For example, Xcel Energy, whichserves more than 3 million customers inthe Midwest and West, saw its bond rat-ing downgraded two notches due to thebankruptcy of its non-regulated genera-tion subsidiary.123 The higher costs thatXcel Energy will incur for credit in thefuture may well be passed on to consum-ers of the company’s regulated productsthrough their rates.

BPU issued its 1993 order to protectconsumers from paying for these typesof utility mistakes. However, Exelon is afederally regulated utility holding com-pany. If Exelon succeeds in taking overPSEG, state regulators would lose juris-diction over PSEG. The BPU would nolonger have the authority to shield con-sumers from risky investment costs.

New Jersey has Better Toolsto Protect Consumers thanthe Federal Government

If PSEG becomes part of Exelon, thefederal government will not be able tooffer the same level of consumer protec-tion as the BPU.

Congress recently repealed the PublicUtility Holding Company Act(PUHCA), a federal law that had set im-portant limits on large utility holdingcompanies. (See “Origins and Evolutionof the Federal Role in Regulation” onpage 32.) As a result, companies likeExelon now have more flexibility to en-gage in risky business activities, whichtheir customers could ultimately pay for.If the merger succeeds, PSEG custom-

ers would thus become more vulnerableto abuse.

Exelon was a vocal advocate for thispolicy change. Exelon claimed that themost effective way to bring new vitalityand investment to the industry was to freeutilities from regulations that limitedtheir geographic spread and ownership,allowing new types of investors to ownpublic utilities and pumping needed capi-tal into the system.124

However, the repeal of PUHCA wasan exceedingly risky step. It will have avariety of negative effects, including:

• Greater industry consolidation,reducing the potential for meaning-ful competition in both retail andwholesale markets;

• Greater leeway for holding compa-nies to manipulate (and conceal)their finances in order to gainfavorable regulatory treatment inrate setting; and

• Greater financial instability forutilities along the lines of the insta-bility facing merchant generators andother unregulated energy companies.

Indeed, far from increasing the flowof capital into regulated utilities, repealof PUHCA will likely make utility capi-tal acquisition far more expensive bystripping utilities of their status as a safe,regulated investment. Standard & Poor’sRating Services, for example, recentlyconcluded that in the years beforePUHCA was repealed, the relaxed en-forcement of PUHCA did not benefitinvestors and that, “[i]f PUHCA is re-pealed, companies would have a greaterability to increase deregulated invest-ment. If these companies choose to pur-sue those options, we could seedeterioration in credit quality for utili-ties whose corporate parents have an ap-petite for greater risk.”125


After a potential merger, PSEG will nolonger be subject to the authority of theBPU. The federal government, havingrepealed PUHCA, will not be able toshield New Jersey consumers from in-creased risk. Moreover, the industry con-solidation that PUHCA repeal hasenabled will likely reduce competition,again with potential rate impacts for con-sumers.

Origins and Evolution of the Federal Role in Regulation

The federal government’s role in electricity regulation dates back to the 1930s,when serious flaws in the state regulatory system began to make themselves

apparent. Electric utilities created a system of holding companies that allowedthem to shift and conceal expenses and revenues in order to gain favorable treat-ment in state rate-setting. In addition, these financial structures allowed for specu-lative activity and the shifting of regulated revenues to support non-utilityinvestments—threatening the stability of the electricity system. Meanwhile, theincreasing interconnection of power systems over state lines required that au-thority be asserted at a level higher than individual states.

The Federal Power Act (FPA) and Public Utility Holding Company Act(PUHCA)—both enacted in 1935—established the basic framework for the fed-eral role in utility regulation. Under the two laws, states retained the centralmission of establishing retail electric prices, determining the amount of moneythe utility will be permitted to collect, and deciding how prices can be set amongresidential, commercial and industrial consumers. The federal government wasgiven jurisdiction over and charged to regulate interstate transactions, wholesalerates, interconnection and transmission (wheeling) of wholesale electricity.

PUHCA charged the Securities and Exchange Commission (SEC) with regu-lating electric utilities’ corporate structure and business ventures. PUHCA elimi-nated the many-tiered structure of holding companies that utilities had used toconsolidate control over the industry and manipulate their finances, requiringthat holding companies could be no more than twice removed from their operat-ing subsidiaries.126 In addition, PUHCA required that multi-state utilities pro-vide detailed financial information to the SEC, similar to the financial informationthat had long been required under state public utility regulation. Finally, PUHCArequired holding companies to receive approval from the SEC before purchas-ing holdings from other companies and limited the ability of regulated utilitiesto participate in non-related business ventures.127

Congress repealed PUHCA as part of the Federal Energy Policy Act of 2005.

Concessions 33

Concessions Will Not Solve theLong-Term Problems Inherent

in the Takeover

The anti-competitive and anti-con-sumer problems inherent in Exelon’sproposed takeover of PSEG are

deeply rooted.In order to win regulatory approval of

its plan, Exelon is likely to propose dealsor concessions to federal and state regu-lators and other stakeholders. Exelon hasalready revealed a proposal to divest asmall amount of its assets to competitorsand claimed that the economic efficien-cies created by the deal will benefit con-sumers.

However, Exelon’s proposed divesti-ture is far too small to mitigate the mar-ket power it will gain or the imbalance itwill cause in the New Jersey and PJMwholesale energy markets. The marketpower screen applied to prove the dives-titure will work has a variety of flaws thatleave substantial opportunities for theexercise of market power. In addition,Exelon has not formally proposed shar-ing any of the economic efficiencies it ex-pects to create with ratepayers. Even ifExelon did share the savings, they wouldamount to only a token decrease in elec-tricity costs for the average residentialelectricity consumer.

Divestiture Will Not FullyMitigate Market PowerConcerns

Exelon has indicated its willingness andintention to divest a small fraction of itspower plants in order to pass the marketpower rules of the Federal Energy Regu-latory Commission (FERC).

Exelon has proposed to retain, retireor divest 4,000 MW of capacity. In addi-tion, Exelon has proposed an untestedplan to “virtually divest” the output of2,600 MW of nuclear capacity in PJM-East by selling the power through long-term contracts or annual auctions, whileretaining ownership and operational con-trol over the plants. Exelon claims thatPSEG hasn’t been able to achieve the lev-els of output that are possible at itsnuclear plants, and that Exelon’s abilityto deliver increased productivity justifiesretaining control over the operation ofthe plants but not the energy they pro-duce, despite the heavy concentration ofnuclear capacity this will cause. The com-pany has indicated that 5,300 MW of thetotal 6,600 MW will be in PJM East.


Exelon has submitted testimony de-claring that the divestiture plan bringsExelon’s proposal in line with FederalEnergy Regulatory Commission (FERC)guidelines for minimizing market powercaused by mergers.128

However, there are several problemswith the Exelon analysis. First, the re-quired divestiture depends on what unitsare divested or retired and the character-istics of the buyers. These details have notyet been clarified.129 Second, the FERCmarket power screen is inadequate tosafeguard the interests of New Jersey con-sumers because it has a variety of signifi-cant flaws in design and scope. To ourknowledge, FERC has never rejected amajor merger application based on thismarket power screen. In addition,Exelon’s virtual divestiture plan is un-tested and does not differ substantiallyfrom the normal marketing of nuclearpower plant output.

The Divestiture Plan IsInadequate and Lacks Detail

Exelon proposes to divest 5,300 mega-watts of capacity in PJM East. After thisdivestiture, the company would still con-trol 35 to 39 percent of the market de-pending on where the additionaldivestiture occurs.130 If the proposed vir-tual divestiture is excluded, Exelon wouldcontrol the equivalent of 43 to 47 percentof generating capacity in PJM East.131

The Market Monitoring Unit at PJM(MMU) has analyzed Exelon’s divestitureplan and concluded that it lacks enoughdetail to evaluate adequately.

Exelon has not specified which specificunits would be divested or retired, or thecharacteristics of buyers. The MarketMonitoring Unit at PJM notes, “it is notpossible to determine whether divestiturewill in fact mitigate the issues withoutknowing the exact units and their distri-bution...”132

Under a series of scenarios, and withthe assumption that divestiture is madeto a single company that currently ownsno capacity within PJM, the MMU findsthat “the proposed divestiture levels are notconsistent with the Guidelines for PJMEast.”133 (emphasis added) In other words,even after divestiture, the market wouldbe too concentrated to be adequatelycompetitive. The MMU also expressesconcern about adverse competitive effectson the wholesale market, on New Jersey’sgeneration service auction and within sev-eral locational capacity markets.134

Furthermore, the BPU notes that “partof the mitigation proposal is to sell orretire generating units, and retirementhas the same effect on market prices aswithholding…The combination of thismarket dominance and the potential toretire capacity, rather than sell it to unaf-filiated third parties may enable [Exelon]to effect withholding so as to increaseprices for capacity and for the benefit ofthe post-Merger enterprise.”135

Flaws in the FERC Market PowerScreen

A variety of flaws in the design, scope,and application of FERC’s market powerscreen, the tool used by Exelon to showthat its divestiture plan would remove mar-ket power problems, make it an inadequatesafeguard for New Jersey consumers.

Foremost, the screen does not exam-ine or analyze any possible effects on NewJersey’s unique auction system. Instead,the screen looks at changes in a math-ematical concentration index that are onlytheoretically tied to the potential to ex-ercise market power. A more appropri-ate approach would involve modelingeffects on the marketplace or changes inprices that consumers must pay: out-comes that consumers care about.

The FERC market power screen ismodeled off of a system used in other,

Concessions 35

more typical commodity markets likerental cars, office supplies, or video rental.Electricity markets are fundamentallydifferent because of the unique aspectsof the product, production methods anddelivery. The concentration index doesnot take into account transmission pric-ing constraints, the extent to which otherenergy products or services could substi-tute for electricity, the complex interac-tion between the many geographicallydistinct but interconnected markets onthe grid and the effect of barriers to mar-ket entry, among other complexities onlypresent in the electricity sector.136 Thescreen fails to fully account for these dif-ferences, and thus achieves only limitedusefulness.

The FERC screen defines several “safeharbors” in which mergers and acquisi-tions are allowed.137 However, thesethresholds are arbitrary and do not nec-essarily indicate that there is no dangerof market power abuse. William Baxter,a former Assistant Attorney General incharge of the Antitrust Division of theU.S. Department of Justice and origina-tor of the concentration index, said thatthe level of the safe harbor for mergerswas “as much a political anchorage … asbecause anyone thought that nicelyround number was right.”138 Applied tothe electricity market, the level of the safeharbor is doubly suspect.

In addition, FERC criteria for deter-mining the geographic extent of a mar-ket are too narrow.139 FERC defines acompetitor as relevant if it can deliverproduct within 5 percent of the goingmarket rate. This differential is not largeenough, and may exclude Exelon-ownedplants that could compete in PJM or inPJM-East under the right conditions,contributing to anti-competitive impacts.

FERC also does not provide any firmguidelines about how to take into accountnatural gas activities of merging electric-

ity companies.140 Control of gas supplyin a load pocket like PJM-East could cre-ate opportunities to abuse market power.Exelon summarily dismisses any poten-tial for natural gas business activity toenhance market power in testimony.141

Finally, the number and type of prod-ucts provided by generation companieshas exploded, ranging from baseload en-ergy supply, to peaking energy supply, toancillary services, to power brokering, topollutant emission offset credits andtransmission congestion credits. In con-trast, FERC relies on an overly simplis-tic view of the market. The screenguidelines only require the examinationof three categories: non-firm energy,short-term capacity and energy, and long-term capacity and energy.142

Exelon’s Virtual Divestiture PlanNo acquisition proposal has ever be-

fore included the idea of “virtual divesti-ture,” or selling the output of a plant undercontract while retaining ownership of theplant and control over its operation.

For nuclear capacity in particular, vir-tual divestiture doesn’t differ substantiallyfrom the normal marketing of powerplant output. Exelon runs its nuclearpower plants at near-constant output lev-els for over a year at a time, servingbaseload energy needs that remain rela-tively constant throughout the year.Baseload energy contracts are oftendrawn up for long periods well in advanceof actual needs. Virtual divestiture wouldnot change this situation significantlyenough to mitigate Exelon’s increasedmarket power.

In filings to FERC, the BPU cites nu-merous concerns with Exelon’s virtualdivestiture plan:143

• “Virtual divestiture does not amelio-rate [Exelon’s] operational controlover the units.144


• [Exelon] can hedge in the financialor FTR markets in advance ofdeciding to interrupt energy salesfrom these units.145

• The terms of “virtual divestiturecontracts” may place competitors inthe wholesale market at a disadvan-tage.146

• The process to make certain thecapacity and energy remain subjectto third party commercial controllong-term is unclear.147

• Competing generation ownerscannot take advantage of any syner-gies of regional operations.148

• The “virtual divestiture” does notcreate owners of the units, and“virtual ownership” falls far short ofactual ownership. The “virtualowner” would not be entitled ormotivated to upgrade facilities orlong-term fuel supply arrange-ments.149

• In real divestiture, FERC review isrequired before the divested utilitymay reacquire the divested genera-tion. In contrast, “virtual divesti-ture,” the vertical full re-aggregationoccurs automatically at contractterm.150

• By limiting actual divestiture,[Exelon] may be foreclosing com-petitors from reaching economies ofscale [Exelon] hails as a major publicbenefit of their merger.151

Distributing Merger SavingsWould Be A Temporary andInadequate Fix

Another card Exelon may play in at-tempting to win regulatory approval ofits plan could involve sharing “merger

synergies,” or the profits from economicefficiencies created by eliminating dupli-cative parts of the new company, cuttingcosts and increasing the output of NewJersey’s nuclear power plants. During acall with investor analysts, Exelon CEOJohn Rowe said, “We understand thattime is money and as long as we don’tthreaten our basic synergy analysis we areprepared to share a little in order to getan expedited result.”152 Exelon claims thatthese efficiencies will benefit New Jerseyconsumers as well as Exelon sharehold-ers.

However, Exelon has not formally pro-posed sharing any of the economic effi-ciencies it expects to create withratepayers. Even if Exelon did share thesavings, they would amount to only a to-ken decrease in electricity costs for theaverage residential electricity consumer,easily negated by the harmful impacts ofreduced competition.

Rowe said that in New Jersey “three-quarters of the historic synergies in theregulated operation… are supposed to goto the ratepayer.”153 Exelon claims thatsynergies in regulated business will total$155 million by 2009, an annual savingsof $39 million in the first four years.154

Assuming that regulators only have thepower to force sharing of savings fromregulated aspects of business, that Exelonreserves 75 percent of the synergies intheir regulated businesses for ratepayers($29.25 million), and that all 9.1 millionratepayers in Exelon’s service territoriesbenefit, the average customer will see abenefit of $3.21 a year.

Homeowners and businesses make up80 percent of PSE&G’s revenue base.155

Excluding large industrial customersleaves smaller customers with savings of$2.57 a year for the average residentialand business customer—the equivalent of21 cents per month, well under 1 percentof the average household electric bill.

Regulators Should Reject Takeover 37

New Jersey Regulators Should Rejectthe Proposed Takeover

E xelon’s takeover of PSEG can onlyproceed with approval from theNew Jersey Board of Public Utili-

ties (BPU).When evaluating Exelon’s proposal,

the BPU should apply a minimum stan-dard of “public benefit,” defined broadlyin terms of competition, rates, and theprovision of safe, adequate service at justand reasonable rates.

Regulators must be absolutely confi-dent that the takeover would not:

• Reduce meaningful competition inNew Jersey’s electricity serviceauction or in the regional wholesaleelectricity market, harming consum-ers’ interest in affordable electricitysupplies;

• Aggravate reliability and quality ofservice problems for New Jerseyelectricity consumers;

• Risk public safety due to aggressivemanagement of New Jersey’s nuclearpower plants; or

• Leave consumers vulnerable to thecost of risky business practices.

Regulators must not only be abso-lutely confident that the takeover would

do no harm—they must be able to see realbenefits for consumers; changes thatwould lead to more affordable, reliable,and safe electricity service.

Given the many problems with theproposed takeover, the BPU shouldreject the proposal on the groundsthat it does not serve the public inter-est.

Such a decision would not be withoutprecedent. In the past year, Arizona andOregon’s utility regulators stopped out-of-state businesses from buying local en-ergy companies.156 In each case,regulators applied the “public benefit”standard to the acquisition proposals, andfound that customers would not be bet-ter off. Additionally, regulators refrainedfrom proposing concessions to addressproblems with the deals in a piecemealfashion, instead determining that the ap-plicant alone bore the burden of design-ing the transaction and proving that itwould benefit the public interest.

Similar action is warranted in this case.President Fox and other members of theNew Jersey Board of Public Utilitiesshould defend the interests of NewJersey’s electricity consumers and rejectExelon’s takeover of PSEG.


Consumer Principles for theElectric System

New Jersey PIRG Law & Policy Cen-ter recommends the following generalprinciples as guidance for decisions af-fecting New Jersey’s electric system:

1) Preserving universal access tosafe, reliable, affordable electricityservice should remain a state and na-tional goal.

2) The public interest must guideall decisions with regard to the elec-tric system.

• The goal of electricity regulationshould be to provide adequate,reliable service to consumers atthe lowest cost—including“external” costs such as environ-mental, public health, and socialand economic impacts.Ratepayers must only be requiredto pay for investments that servea legitimate public need and thatcould not otherwise be metthrough lower-cost means.

• Electricity rates should bedesigned to promote economi-cally efficient and socially re-sponsible outcomes—including

energy efficiency, rate stabilityand the protection of low-incomeconsumers.

• The public interest can only bepreserved through an open,accountable regulatory systemthat is explicitly charged withsafeguarding the public.

• An effective regulatory systemmust guarantee due process andfreedom of access to relevantinformation, allow and encouragethe participation of all stakehold-ers, and preserve a right of appeal.

• An effective regulatory systemmust balance the long-term andshort-term needs of consumers, aswell as the interests of variousclasses of consumers. To balancelong- and short-term needs,system planning must take placein the public sphere, includeample opportunities for publicparticipation, and explicitlyconsider resource, political andenvironmental constraints. Tobalance the interests of variousconsumer classes, regulators mustencourage broad participation indecision-making and ensure that

Appendix

Appendix 39

the views of small consumers areadequately represented in theprocess.

3) Market mechanisms should beemployed when they benefit the pub-lic interest and supplanted by regula-tory decision-making when they donot.

• The conditions for effective andfair markets in the electric indus-try—particularly in the transmis-sion and distribution of powerand the sale of electricity to smallconsumers—do not currentlyexist and are unlikely to exist inthe foreseeable future. Regulationof rates and terms of service inthese areas of the industry (andperhaps others) is necessary toprotect the public interest.

• Where market mechanisms areestablished, consumers’ basicrights must be protected. Theseinclude the right to choose anelectricity provider, to switchproviders in a timely and conve-nient manner, and to receiveaccurate and timely informationabout rates and service.

• Where market mechanisms areestablished, government retains arole in ensuring that marketsoperate fairly. This includes theneed to prevent the accumulationand exercise of market power andto safeguard consumers’ collectiveinvestments in the electric grid.

• The interests of consumerscannot be abandoned during any“transition” from regulated toopen markets. Consumers shouldnot be subjected to higher-than-warranted rates in order toencourage the entry of competi-tive suppliers to the market.

• Consumers must retain the abilityto pool their resources throughcooperatives or municipal govern-ments in order to negotiate betterrates and service or to providepower themselves.

• Private, unregulated entities mustnot be permitted to shift costs orrisks to the regulated entities thatserve consumers. Similarly,ratepayers must not be forced tomake infrastructure investmentsthat primarily serve privateinterests.

4) Decisions with regard to the elec-tric system should be made at the levelof government most accessible and re-sponsive to the public, keeping inmind the need for broader coordina-tion across jurisdictional boundaries.

• Ideally, decisions should be madeat the lowest level of governmentpossible, in order to maximize thepublic’s ability to participate inthe decision-making process andhold decision-makers accountableto public interest goals.

• All levels of government mustengage in comprehensive energyand electricity planning thatestablishes a long-term vision forthe nation’s energy future. Suchplans should be developed inpublic and invite participationfrom all stakeholders.

• New structures may be requiredto allow democratic governanceof regional energy pools andmarkets in order to bridge thegap between national and statedecision-making.


5) Improved energy efficiency andincreased use of renewable resourcesare in the long-term national interestand often have short-term benefits forconsumers. Government policyshould actively promote the develop-ment and use of these resources.

• Market and regulatory barriersthat deter the use of energyefficiency, renewable energy, ordistributed generation technolo-gies should be removed.

• The long-term benefits of thesetechnologies must be consideredin system planning, ratemakingand other regulatory decisions.

A Note On Electricity UnitsMegawatts (MW) are the standard

measure of a power plant’s generatingcapacity, or the amount of power it couldproduce if operating at full speed. Utili-ties measure their ability to supply de-mand on the grid at any one time in termsof MW. One MW equals 1,000 kilowatts(kW). One thousand MW equals one gi-gawatt (GW).

Power plant output and electricity con-sumption over a fixed length of time aremeasured in terms of megawatt-hours(MWh). For example, a 50 MW powerplant operating at full capacity for onehour produces 50 MWh of electricity. If

that plant operates for a year at full ca-pacity, it generates 438,000 MWh of elec-tricity (50 MW capacity x 8,760 hours/year). To give a sense of scale, an averagehousehold uses about 10 MWh of elec-tricity each year.

Most plants do not operate at full ca-pacity all the time; they may be shut downfor maintenance or they may be operatedat only part of their maximum generat-ing potential because their power is notneeded or their power source (such aswind) is not available. The actual amountof power that a plant generates comparedto its full potential is reported as its ca-pacity factor. Thus a 50 MW plant witha 33 percent capacity factor would pro-duce 144,540 MWh of electricity in a year(50 MW x 8,760 hours/year x 33% ca-pacity factor).

Notes 41

1. James C. Bonbright, Albert L. Danielson andDavid R. Kamerschen, Principles of Public UtilityRates, 2nd Ed., 1988, 18-20.2. Figure refers to residential consumers.Including industrial and commercial customers,only 0.27 percent have switched to a competitivesupplier. New Jersey Board of Public Utilities,New Jersey Electric Statistics, Number of Customers/Accounts Served by Competitive Suppliers, viewed atwww.state.nj.us/bpu, February 2005.3. National Center for Appropriate Technology,National Energy Affordability and AccessibilityProject, New Jersey, downloaded fromneaap.ncat.org/restructuring/nj-re.htm, 9February 2004.4. Jack Casazza, Frank Delea and George Loehr,Contributions of the Restructuring of the ElectricPower Industry to the August 14, 2003 Blackout,August 2005.5. Estimates from Patrick L. Anderson, Ilhan K.Gekhil, Anderson Economic Group, NortheastBlackout Likely to Reduce U.S. Earnings by $6Billion, 19 August 2003; ICF Consulting, TheEconomic Costs of the Blackout, [undated]. GDPfigure from U.S. Department of Energy, EnergyInformation Administration, Annual EnergyReview 2002, 24 October 2003.6. Ibid.7. Matthew L. Wald, “Safety of Adding toNuclear Plants’ Capacity is Questioned,” NewYork Times, 26 January 2004.8. Kevin G. Demarrais, “Mergers Set theCourse for New Jersey Utilities,” The Record

(Hackensack), 7 February 2005; PSE&G remainsthe only New Jersey-based electricity transmis-sion and distribution company in the state.Conectiv Energy (“Conectiv”) formed whenDelmarva acquired Atlantic City ElectricCompany in 1998. In June 2003, PotomacElectric Power Company (“PEPCO”), aWashington, D.C. corporation, acquiredConectiv. The fourth and smallest electricitytransmission and distribution company in NewJersey is Rockland Electric Company(“Rockland”), which was acquired by Consoli-dated Edison (“ConEd”) in 1999.9. American Antitrust Institute, Motion toIntervene of the American Antitrust Institute,Before the United States of America FederalEnergy Regulatory Commission, Docket No.EC05-43-000, 11 April 2005, 2.10. Exelon and PSEG will have 9.1 millioncustomers combined, while PJM’s population is51 million (PJM At A Glance, 2005www.pjm.com/about/glance.html, 6 November2005).11. New Jersey Board of Public Utilities,Request for Rehearing of the New Jersey Board ofPublic Utilities, United States of America Beforethe Federal Energy Regulatory Commission,Docket No. EC05-43-000, 1 August 2005, 41-45.12. The combined company will generateannual revenues totaling $27 billion. ExelonCorporation, “Exelon and PSEG Agree toMerge, Forming the Nation’s Premier UtilityCompany,” (Press Release) 20 December 2004.New Jersey’s state budget totals $27.4 billion

Notes


(see Office of Management and Budget, FiscalYear 2006 Budget in Brief, Acting GovernorRichard J. Codey, 1 March 2005, 1).13. P. A. Samuelson and W. D. Nordhaus,Economics, McGraw Hill, 13th edition, 1998(Chapter 24).14. Diana L. Moss, Electricity and Market Power:Current Issues for Restructuring Markets (ASurvey), 4 March 2005, 5; J. Kwoka, UnilateralWithholding: Market Power and California’sElectricity Crisis,” GWU Center for EconomicResearch, Discussion Paper 01-01, May 2001.15. United States General Accounting Office,Restructured Electricity Markets: California MarketDesign Enabled Exercise of Market Power, GAO-02-828, June 2002; Paul L. Joskow and EdwardKahn, Massachusetts Institute of Technologyand Analysis Group/Economics San Francisco,A Quantitative Analysis of Pricing Behavior inCalifornia’s Wholesale Electricity Market DuringSummer 2000: The Final Word, 4 February 2002.16. John Kwoka, Northeastern University,Foresight, Hindsight, and Market Power in theRestructured Electricity Sector, Remarks Presentedat the AAI Third Annual Energy RoundtableWorkshop, Arlington VA, 21 January 2003.17. For an excellent discussion of these issues,see Harry M. Trebing, Former Professor andSenior Fellow at Michigan State University’sInstitute of Public Utilities, Concentration and theSustainability of Market Power in Public UtilityIndustries, Regulatory Assistance Project IssuesLetter, March 1998; Paper presented at theNARUC annual meetings in Boston, Massachu-setts, 11 November 1997.18. U.S. Department of Energy, Office ofEconomic, Electricity, and Natural Gas Analysis,Horizontal Market Power in Restructured ElectricityMarkets, March 2000.19. Ibid.20. See Note 17.21. Ibid.22. This effect is clearly seen in the UKelectricity market, restructured in 1999, whereincumbent players benefit from market power,despite regulatory attempts to mitigate it: EvensSalies and Catherine Waddams Price, “Charges,Costs, and Market Power: The Deregulated UKElectricity Retail Market,” Regulatory Economics25(3), 2004.23. See Note 16.24. See Note 17.

25. Ibid.26. Ibid.27. Ibid.28. PJM Interconnection, Market MonitoringUnit, 2004 State of the Market, 8 March 2005.29. Ibid: “Concentration ratios are a summarymeasure of market share, a key element ofmarket structure. High concentration ratiosindicate comparatively smaller numbers ofsellers dominating a market, while low concen-tration ratios mean larger numbers of sellerssplitting market sales more equally. Highconcentration ratios indicate an increasedpotential for participants to exercise marketpower, although low concentration ratios do notmean that a market is competitive or thatparticipants cannot exercise market power.Analysis of the PJM Energy Market indicatesmoderate market concentration overall. Further,analyses of supply curve segments indicatemoderate concentration in the baseloadsegment, but high concentration in the interme-diate and peaking segments. Analysis alsoindicates that the ComEd Control Area washighly concentrated overall and in each segmentof the supply curve. Several other geographicareas of PJM exhibited moderate to high levelsof concentration when transmission constraintsdefined local markets. No evidence exists,however, that market power was exercised inthese areas during 2004, both because ofgenerator obligations to serve load and becauseof PJM’s rules limiting the exercise of localmarket power.”30. Severin Borenstein, James Bushnell andChristopher Knittel, “A Cournot-Nash Equilib-rium Analysis of the New Jersey ElectricityMarket,” Review of General Public Utilities’Restructuring Petition, Appendix A, New JerseyBoard of Public Utilities Docket No.EA97060396, 1997.31. PSEG, 2004 Form 10-K, Submitted to theSecurities & Exchange Commission on 28February 2005, page 6.32. Paul L. Joskow, Massachusetts Institute ofTechnology, Market Power and Mergers inElectricity Markets, Presented at Guidelines forMerger Remedies – Prospects and Principles, aconference organized by Ecole des Mines deParis, Cerna, and University of California atBerkeley School of Law, 18 January 2002.33. Ibid.34. See Note 28.

Notes 43

35. PJM Market Monitoring Unit, Exelon/PSEGMerger Analysis, Part 2, 14 October, 2005, 4.36. See Note 9.37. See Note 31.38. Exelon Corporation, 2004 Form 10-K,Submitted to the Securities & ExchangeCommission on 23 February 2005.39. Exelon Corporation, “Exelon and PSEGAgree to Merge, Forming the Nation’s PremierUtility Company,” (Press Release) 20 December2004.40. See Note 31.41. See Note 38.42. See Note 39.43. See Note 31.44. Exelon also owns 230 MW worth offacilities in Mexico that are not included here;See Note 38.45. Including assets owned by PSEG Global inTexas, the total is 52,000 MW; See Note 39; “InPurchasing PSEG, Exelon Would CreateBiggest Power Marketer, Largest Generator,”Platts Power Markets Week, 27 December 2004.46. See Note 31.47. See Note 38.48. See Note 31.49. Revenues were $14.5 billion in 2004 and$15.8 billion in 2003; See Notes 38 and 39.50. See Note 39.51. Net Income was $726 million in 2004 and$1.16 billion in 2003; See Note 31.52. For the year 2004; See Note 38.53. See Note 39.54. New Jersey Board of Public Utilities,Comments in Support of Hearing and in Response toAnswer and Supplement to Section 203 Application,United States of America Before the FederalEnergy Regulatory Commission, FERC DocketNo. EC05-43-000, 27 May 2005, 13.55. Ibid.56. Analysis of FERC Electronic QuarterlyReport Data by Tyson Slocum, ResearchDirector, Energy Program, Public Citizen,Personal Communication, 3 November 2005.57. See Note 17, 4.58. U.S. Department of Energy, EnergyInformation Administration, Retail Unbundling-New Jersey, 31 January 2005, downloaded fromwww.eia.doe.gov/oil_gas/natural_gas/restruc-ture/state/nj.html.

59. See Note 31, 9.60. See Note 38.61. New Jersey’s annual demand in 2004: U.S.Department of Energy, Energy InformationAdministration, New Jersey Natural Gas Sum-mary, (Downloaded through the Natural GasNavigator), 31 March 2005.62. See Note 11.63. Ibid., 43.64. Ibid.65. Ibid., 43-44.66. Ibid., 44.67. See Note 2.68. New Jersey Board of Public Utilities, In theMatter of the Provision of Basic Generation Service(“BGS”) Pursuant to the Electric Discount andEnergy Competition Act, N.J.S.A. 48:3-49 et seq. -Winning Bidders in BGS Auction - Secretary Letter(plus Attachment A), BPU Docket No. \t“_blank” EX01050303, 26 February 2002.69. New Jersey Board of Public Utilities, In theMatter of the Provision of Basic Generation Servicefor the Year Three of the Post-Transition PeriodAuction Results, BPU Docket No. EO04040288,17 February 2005.70. This figure presents the results of theauction for 36-month tranches; Auction resultsavailable at www.bpu.state.nj.us/home/bgs.shtml.71. Maximum percentage of 3-year tranches,BGS-FP Auction, PSE&G Service Territory;Auction results available at www.bpu.state.nj.us/home/bgs.shtml; See Note 68; New JerseyBoard of Public Utilities, In the Matter of theProvision of Basic Generation Service (“BGS”)Pursuant to the Electric Discount and EnergyCompetition Act, N.J.S.A. 48:3-49 et seq.-BasicGeneration Service Auction Results: Attachment B,BPU Docket No. EX01110754, 6 February2003; New Jersey Board of Public Utilities, BasicGeneration Service (“BGS”) Auction Winners2004, February 2004; New Jersey Board ofPublic Utilities, Basic Generation Service (“BGS”)Auction Winners 2005 (FP), February 2005.72. New Jersey Board of Public Utilities, BasicGeneration Service (“BGS”) Auction Winners2004, February 2004, downloaded fromwww.state.nj.us/bpu/home/bgs.shtml on 26February 2005.73. Tom Johnson, Utilities Hurt By Cool Economyand Warm Weather, The Star-Ledger, 23 January2002, 16. Demarrais, Kevin, BPU Approves


Second Auction; Sale Helps Stabilize Cost ofElectricity, North Jersey Media Group, TheRecord (Bergen County, NJ), 7 November 2002,B01.74. See Note 71.75. Foster Associates, Inc., “New Jersey BPUCertifies Wholesale Power Auctions,” FosterElectric Report, 23 February 2005.76. Steve Daniels, “Short-Circuit in PowerBids: Your Electric Bills Could Rise ifMidwestGen Sits Out ComEd Auction,” Crain’sChicago Business, 14 February 2005.77. Ray Pospisil, “Midwest Gen AcknowledgesPossible Chap. 11 As It Eyes Tough Markets,Contract Expirations,” Platts Power MarketsWeek, 22 March 2004.78. See Note 76.79. Mary-Beth McLaughlin, “Auction Fizzles;Toledo, Ohio, Edison Rates Prevail,” The ToledoBlade, 10 December 2004.80. The starting bid was 5.5 cents per kWh:Ibid.; the final bid was 5.45 cents per kWh: JimBohman, “Ohio Utility Power Auction EndsQuickly, Causing Concern,” Dayton Daily News,7 December 2004.81. Jon Chavez, “Ohio Needs More Competi-tion in Attempt to Deregulate ElectricityIndustry,” The Toledo Blade, 16 January 2005.82. Ibid.83. Illinois Commerce Commission, Assessmentof Commonwealth Edison Company ReliabilityReport and Reliability Performance for CalendarYear 2002, Docket No. 04-0114,www.icc.state.il.us/ec/ecReliability.aspx, 2003.84. Ibid.85. Ibid.86. Ibid.87. Illinois Commerce Commission, Assessmentof Commonwealth Edison Company ReliabilityReport and Reliability Performance for CalendarYear 2003, Docket No. 05-0193, 7 March 2005;available at www.icc.state.il.us/ec/ecReliability.aspx.88. Federal Energy Regulatory Commission,Form 1 Database, PECO filings from 1994 to2003.89. Pennsylvania Public Utility Commission,Bureau of Consumer Services, 2003 CustomerService Performance: Pennsylvania Electric andNatural Gas Distribution Companies, 12 January2005.90. Pennsylvania Public Utility Commission,

2003 Utility Consumer Activities Report andEvaluation, 2004.91. New Jersey Board of Public Utilities, ElectricSystems Performance, NJ Utility 1994-2003Comparison Charts, 2004.92. Ibid.93. Noel Christmas, President, Utility WorkersUnion of America Local 601, Personal Commu-nication, 7 October 2005.94. Federal Energy Regulatory Commission,Form 1 Database, PSEG filings from 1994 to2003.95. Exelon, Power Generation: Nuclear,2002-2005.www.exeloncorp.com/ourcompanies/powergen/nuclear/96. Melita Marie Garza, “Exelon to Cut 292Union Workers; Union Says More JobOutsourcing Goal of Company,” ChicagoTribune, 14 June 2001.97. Richard Bickers, “Exelon to Cut 292 Jobs inJuly, Up to 800 More to Follow in 2002,” PlattsNucleonics Week, 21 June 2001.98. Ibid.99. Melita Marie Garza, “Exelon Goes fromShopper to Cost-Cutter,” Chicago Tribune, 30April 2003.100. “Doing it the Exelon Way,” PhiladelphiaBusiness Journal 22, 17 October 2003.101. Eric Epstein, Three Mile Island Alert,“TMI Owner Cutting Jobs to the Marrow,Putting Community at Risk,” Lancaster New Era,16 December 2003.102. Gregory Twatchman, “Job Cuts at OysterCreek Prompt Union to Raise Safety Concerns,”Platts Nucleonics Week, 16 January 2003.103. This section: Oscar Shirani, PersonalCorrespondence, 15 January 2005.104. Memorandum from Ross Landsman,Decommissioning Branch, NRC Region III toBruce L. Jorgensen, Chief, DecommissioningBranch NRC Region III, Subject: Attendance atHoltec Users Group Meeting, 17 January 2001.105. Nuclear Regulatory Commission, Allega-tions Substantiated by CY Received, January 2001-January 2005, downloaded from www.nrc.gov/what-we-do/regulatory/allegations/stats/substant.pdf on 26 April 2005.106. Nuclear Regulatory Commission, Confir-matory Order (Effective Immediately) (Office ofInvestigations Report No. 3-2001-005), 3 October2002.

Notes 45

107. All statements in this paragraph: Letterfrom Dave Lochbaum, Union of ConcernedScientists Nuclear Safety Engineer to Mr. ARandolph Blough, Director, Division of ReactorProjects, NRC Region I, 28 January 2005.108. Bob Ivry, “Exelon Takes Over SalemCounty, N.J., Nuclear Plants,” The Record (NewJersey), 18 January 2005.109. Ibid.; Letter from Dave Lochbaum,Nuclear Safety Engineer, Union of ConcernedScientists to Mr. A. Christopher Bakken,President and Chief Nuclear Officer, PSEGNuclear LLC, 18 November 2004.110. Letter from Bradley Campbell, NJ DEPCommissioner, to NRC Chairman Nils Diaz,NRC ADAMS Document No. ML043650179,29 December 2004.111. Delay: See Note 108; Pump availability:Samuel Collins, NRC Region I Administrator,Statement at NRC Public Meeting, 12 January2005.112. “Oyster Creek Owners, Union Continueto Disagree Over Reductions,” The Asbury ParkPress, July 20, 2003.113. Nuclear Regulatory Commission, OysterCreek Generating Station – NRC IntegrationInspection Report 05000219/2003005 andPreliminary White Finding, Docket No. 50-219,12 February 2004; available at www.nrc.gov/NRR/OVERSIGHT/ASSESS/REPORTS/oc_2003005.pdf.114. Nicholas Clunn, “Oyster Creek Reactor toGet More Oversight,” Asbury Park Press, 3March 2005.115. David Lochbaum, Union of ConcernedScientists (UCS), Snap, Crackle & Pop: The BWRPower Uprate Experiment, UCS Issue Brief, 9 July2004.116. Ibid.117. Ibid.118. Ibid.119. See Note 38.120. Ibid.121. In New Jersey, a “public utility” includesany corporation that owns, operates, manages orcontrols electricity distribution in the state.(N.J.S.A. 48:2-13.a) The Board has “generalsupervision, and regulation of and jurisdictionand control over regulatory oversight over allpublic utilities.” (N.J.S.A. 48:2-13.a)122. New Jersey Board of Public Utilities,Focused Audit Order, Docket No. EA92040459,

cited in New Jersey Board of Public Utilities,Rate Unbundling, Stranded Costs & RestructuringFinal Order, Docket No. O97070461, 24 August1999, 110.123. “more than 3 million” from Xcel Energy,About Xcel Energy, downloaded fromwww.xcelenergy.com/XLWEB/CDA/0,3080,1-1-1_4795-127-0_0_0-0,00.html, 22 March 2004;“downgraded two notches” from JeffreyWolinski, Standard & Poor’s, Is PUHCABeneficial or Detrimental to U.S. Utilities’ Credit,19 February 2004.124. “PUHCA repeal is an important and long-awaited move towards eliminating expensive,pointless restrictions that only create additionalregulatory costs and limit the ability of compa-nies to provide much-needed investment in theelectric sector.” Elizabeth Moler, ExelonCorporation, Executive Vice President, Govern-ment and Environmental Affairs and PublicPolicy, Statement of Elizabeth A. Moler On Behalfof EPSA Before the Senate Energy & NaturalResources Committee, 27 March 2003.125. Jeffrey Wolinski, Standard & Poor’s, IsPUHCA Beneficial or Detrimental to U.S. Utilities’Credit, 19 February 2004.126. Greg Palast, Jerrold Oppenheim and TheoMacGregor, Democracy and Regulation: How thePublic Can Govern Essential Services, Pluto Press,London, 2003, 69.127. See Note 125.128. New Jersey Board of Public Utilities,“Direct Testimony of Rodney Frame on Behalfof Public Service Electric and Gas Company,” Inthe Matter of the Joint Petition of Public ServiceElectric and Gas Company and Exelon CorporationFor Approval of a Change in Control of PublicService Electric and Gas Company, and RelatedAuthorizations, JP-6, February 2005.129. See Note 35.130. New Jersey Board of Public Utilities,Comments in Support of Hearing and in Response toAnswer and Supplement to Section 203 Application,United States of America Before the FederalEnergy Regulatory Commission, Docket No.EC05-43-000, 27 May 2005, 13.131. Ibid.132. See Note 35, 3.133. Ibid., 4.134. Ibid.135. See Note 11, 36.136. See Note 17.137. FERC defines the safe harbor for mergers


as 1) mergers in which the post-merger concen-tration index is less than 1,000, 2) mergers inwhich the post-merger concentration index isbetween 1,000 and 1,800 and the merger inducesan increase of no more than 100, and 3) mergersin which the post-merger concentration index ishigher than 1,800 but the merger causes anincrease of no more than 50.138. William F. Baxter, “Antitrust Policy,” inMartin Feldstein (Ed.), American Economic Policyin the 1990s, (University of Chicago Press),1994, p. 610; as cited in Note 139.139. Heidi Kroll and Richard Rosen, TellusInstitute, A Critique of FERC’s New MergerGuidelines: Implications for Analyzing MarketPower, Mergers, and Deregulation, 30 May 1997.140. Ibid.141. See Note 128, 17.142. See Note 139.143. See Note 11, 39-40.144. Ibid., 39.145. Ibid., 39-40.146. Ibid., 40.147. Ibid.148. Ibid.

149. Ibid.150. Ibid.151. Ibid.152. Exelon Corporation, “Q4 2004 ExelonCorporation Earnings Conference Call,” FairDisclosure Wire, Transcript 012605ad.732, 26January 2005.153. Ibid.154. New Jersey Board of Public Utilities, In theMatter of the Joint Petition of Public Service Electricand Gas Company and Exelon Corporation forApproval of a Change in Control of Public ServiceElectric and Gas Company, and Related Authoriza-tions, (Exelon/PSEG Merger Filings), 4 Febru-ary 2005, 343.155. Energy Information Administration, U.S.Department of Energy, Form EIA-826 Database:Monthly Electric Utility Sales and Revenue Data,2004.156. Oregon Public Utility Commission, HomeCommission Rejects PGE Sale, (Press Release) 10March 2005; Arizona Corporation Commission,Commission Rejects UniSource Acquisition, (PressRelease), 23 December 2004.

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