Can consolidation create sustainable long-term value, or will it prove seductive but, ultimately, disappointing to shareholders, employees, customers, and management alike?
So how can someone who buys shares in that company have any more market power than Energy East does?
Iberdrola has strong plans for windpower in New York, but wind technology is not a market-power technology. Market-power technologies are those that are capable of fixing prices. Wind doesn’t blow when you want it to, plus it isn’t economically efficient. You need tax credits or other mechanisms to make it viable. It’s not a market-power technology if it’s either subsidized or a price taker. It would be the first time in the world that a regulator is treating wind as a market power technology.
Some might argue the problem isn’t really market power in terms of prices, but Iberdrola’s affiliation with the subsidiary that owns the capacity. The subsidiary could call the utilities and say when you’re talking to Iberdrola Renewables make sure the connection gets done faster. But that’s not a market- power issue, but a code-of-conduct issue. The New York ISO has rules for connecting power plants and the public process involved. If you have any doubts about how we’ll behave, you’re saying we won’t obey the law. I have no problem with any enhanced code of conduct, but don’t tell me it’s a market-power issue.
The third category is what the PSC calls the benefits of the transaction. We are offering $200 million in benefits for consumers, $50 million up front in day-one rate reductions. Looking to the last 10 years of comparable transactions, the range of such benefits is from $40 million to $160 million. We wanted to make customers happy, so that’s why we went to the upper end of the range.
Some people in New York might say we don’t need Iberdrola, but New York needs investment. We are the number-one renewable company in the world, and we want to invest a lot in the state. If we send a message that we are out of New York, that’s a bad thing for a lot of people. Turn it around. New York wants to add 7,000 MW of renewable projects. How much of that is real? Can it be built in three to five years as hoped? How many of the people sponsoring projects have turbines? Iberdrola has 1,000 MW of turbines each year for the next five years. We would love to put as much as possible into New York. Ask other people how many turbines they have to put into operation. You’d be shocked.
Fortnightly: What does the Energy East acquisition have to do with Iberdrola Renewables’ investment plans for New York?
Azagra: When going into the United States, we need to focus from a geographical point of view. We can’t do a utilities business in Oregon, wind in New York and gas in Michigan. We like to focus, and we take an integrated position, with supply, T&D and gas storage. Our commitment is to focus in the region. To just do wind in New York doesn’t make sense for us. But New York and New England, as a utility and wind development, it’s the