[BETA] Fortnightly

Northern States Power Co. (NSP) and Wisconsin Energy Corp. (parent company of Wisconsin Electric Power Co., WEPCO, and Wisconsin Natural Gas Co.), have announced plans to merge, a move NSP says will create the tenth-largest investor-owned utility in the United States, based on market capitalization. The new company (em Primergy Corp. (em would operate as a registered public utility holding company and parent company of NSP and WEPCO, with the gas subsidiary perhaps spun off to comply with the Holding Company Act. NSP and Wisconsin Energy described the move as a "merger of equals" (em alluding to the strong competitive position of NSP and WEPCO.

Richard A. Abdoo, chairman, president, and CEO of Wisconsin Energy, said: "This merger gets us in front of the changing energy marketplace [as] a premier investor-owned energy company." James J. Howard, chairman, president, and CEO of NSP, called the merger "the best and most financially conservative way to ensure continued competitive rates over the long term for both companies."

Howard, 59, will serve as Primergy chairman and CEO after the merger. Abdoo, 51, will become vice chairman, president, and CEO of Primergy, then chairman as of July 2000, Howard's normal retirement date.

Competitively Advantaged

NSP and WEPCO are among the most competitive electric utilities in terms of embedded costs, operating costs, and electric rates. Last October, Merrill Lynch described NSP and WEPCO as "competitively advantaged" in its "Utility Industry Competitive Damage Index." In January, Fitch Investors Service ranked NSP sixth in its "Fitch Competitive Indicator." And each company carries a relatively small embedded-cost nuclear exposure, according to a Bear Stearns report issued last Fall: $532 per kilowatt (Kw) for NSP, and $153/Kw for WEPCO.

NSP operates in the Mid-America Power Pool (MAPP), and WEPCO in the Mid-America Interconnected Network (MAIN). Both regions are widely viewed as low in cost. A new study by Hill & Associates, Variable Cost of Electricity Production in the United States: Plant Specific Forecast for 1993-2005, predicts that by 2000, some 60 percent of MAPP's generating capacity will sport variable generation costs at or below $10 per megawatt-hour (one penny per kilowatt-hour), compared with 48 percent in 1993.

Level of Anxiety

At the Wisconsin Public Service Commission, which is moving along with its electric restructuring and Advance Plan 7 dockets (05-EI-114; 05-EP-7), questions arise over the merger's impact. Dick Wheeler, whose Wheeler PSC Report tracks meetings of the 21-member Electric Advisory Committee (which will report to the PSC in the restructuring docket), says committee members are debating Primergy's impact on the PSC's restructuring plans. Wheeler quotes lawyer Lee Cullen (representing the state's Citizens Utility Board) as wondering whether the Primergy merger might concentrate market power and make the committee's task more difficult. Wheeler cites lawyer Mike May (for the Municipal Electric Utilities of Wisconsin) as predicting that the merger could cause a "level of anxiety that will cause other mergers."

Wheeler also quotes Wisconsin Commissioner Scott Neitzel, who chairs the advisory committee, as saying that the merger complicates the committee's job, but "does give a glimpse of the future." Neal Siikarla of NSP