It’s coming down to the wire for Iberdrola SA’s $4.6 billion bid to buy the company that owns New York State Electric & Gas Corp., and all eyes are on the state’s Public Service Commission.
The PSC is the final regulatory agency that needs to sign off on Iberdrola’s purchase of Energy East Corp. — a deal that already has won approval from regulators in Connecticut, Massachusetts and Maine, the other states the company has utility operations.
While the deal has a long list of supporters, it is opposed by a couple of key players in the review process, the PSC’s staff and a state administrative law judge who reviewed the proposed merger.
That raises questions, not only about whether the deal will go through, but also whether Iberdrola will look elsewhere with the $2 billion it says it could invest in new wind energy projects in New York. Those projects could go a long way in helping the state reach its goal of getting more of its electricity from renewable — and nonpolluting — sources.
“That is totally unrelated to the case for the merger,” says Pedro Azagra, Iberdrola’s director of corporate development.
The administrative law judge, Rafael Epstein, also agrees, arguing in his recommended decision that if the wind projects Iberdrola is considering make economic sense, the company likely would build them regardless of whether the merger goes through. And if not Iberdrola, then another wind power developer probably will.
Azagra, however, points out that while the state has as much as 7,000 megawatts of wind power projects on the drawing board, very few of those have actually been built. Iberdrola, he notes, has the financial clout to do it and is the world’s largest owner of wind power projects. The company also has enough turbines for 1,000 megawatts of wind projects in the United States.
“I think New York should be targeting 15 megawatts to 20 megawatts of [wind] capacity,” Azagra says. “You’re missing huge investments. You’re missing huge opportunities.”
At the crux of the issue is the PSC’s 13- year-old policy that aims to keep utilities from owning power generation facilities in an effort to spur a competitive wholesale electricity market.
Owning power plants, the PSC staff and Epstein say, gives utilities too much market power and the opportunity to use their transmission and distribution capabilities to favor their own power plants.
“They would impair the potential economic advantages of wind generation and deter potential competitors from developing wind energy resources,” Epstein wrote. A utility, for example, could make it difficult for a competing power project to connect to the power grid.
Iberdrola’s Azagra says there’s a big difference between utilities owning baseline power plants on the scale of the Huntley Station in the Town of Tonawanda, and owning wind power projects that provide only a small percentage of the state’s overall electricity demand.
Big, conventional plants “are the ones that can fix the market price,” says Azagra, noting that utilities continue to own small hydroelectric stations and that Rochester Gas & Electric Corp. owns some sizable conventional power plants that Iberdrola has agreed to sell if the merger goes through. “Wind power can not fix the market price.”
Iberdrola says it will rethink its plans for its potential $2 billion investment if state regulators reject the Energy East deal when it comes before the full PSC, possibly as early as its July 16 meeting.
“We believe in predictable and consistent regulation. If those things are not there, there are many other states and countries where it is,” Azagra says. “If you’re in a state where regulation is not predictable, we’re out of there.”
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