Maryland PSC Will Watch Allegheny SOS Procurements "Closely," Imposes No Retail Market Conditions on FirstEnergy Merger

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January 20, 2011

As first reported in a flash on EnergyChoiceMatters.com yesterday morning, the Maryland PSC approved the merger of FirstEnergy Corp. and Allegheny Energy without any conditions related to the competitive wholesale or retail market (Case 9233).

The Commission did reiterate that, "we are concerned that this Merger will eliminate a potential bidder for Potomac Edison's SOS load, especially since there have been relatively few bidders in some of those auctions in the first place.  There is no basis on this record to find that Potomac Edison's SOS auction will be harmed by this Merger, although we can, and will, watch the ongoing SOS procurement proceedings closely to see if Potomac Edison's future auctions fail to attract sufficiently robust competition.  To the extent that concern might be realized, we can and will address it in the context of the SOS proceedings; we need not address it by imposing conditions on this Merger" (emphasis by PSC).

One of the benefits proffered by FirstEnergy from the merger was a commitment from FirstEnergy Solutions to enter the Maryland residential retail market.  The Commission ascribed no benefit to this commitment to enter the market, and did not make it a condition of the merger.  Although the PSC welcomed additional residential competition, "we would not want this Order to be read as placing our imprimatur on FES (or any other company) as a preferred market participant."

Among the conditions imposed by the PSC are a $6.5 million direct rate credit to all Potomac Edison residential distribution customers (paid by FirstEnergy Corp. and not the utility), and a requirement that Potomac Edison make a contribution of $600,000 to the Electric Universal Service Program to retire residential customer arrearages.  Potomac Edison is to make a subsequent filing regarding the $600,000 offset to arrearages detailing the mechanics of the contribution; presumably, the contribution will offset both distribution and SOS arrearages.

The Commission did not require full ring fencing, but did impose several credit and debt-related restrictions on the utility, such as those relating to money pools, and will require Potomac Edison to maintain its own credit rating and have its own capital structure.

The Commission accepted the applicants' commitment that FirstEnergy Solutions shall assist in the development of a Tier I renewable energy project in Maryland with at least an annual average output of 13,000 MWh or the MW equivalent thereof.  Such assistance may take the form of ownership, development, or financial support, such as entering into long-term contracts.

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