Iberdrola again threatens to call off merger 

At odds with PSC staff over wind-farm assets, company says it could scrap deal for Energy East

Officials with Iberdrola SA reiterated Thursday the Spanish company is ready to walk away from its $4.5 billion acquisition of Energy East Corp. if state regulators continue to require the sale of wind-farm assets in New York state.

The issue appears to be the most divisive between Iberdrola and staff at the Public Service Commission, the state agency with final regulatory say over the deal.

Pedro Azagra, Iberdrola’s corporate development director, said in an interview Thursday that the company is ready to scrap the merger if the conditions aren’t right.

“We do deals that make sense,” he said. “We do deals that are good for the shareholders. If we can’t achieve those goals, we don’t do the deals.”

Energy East, based in Maine, has more than 1 million customers in upstate New York through its New York State Electric & Gas and Rochester Gas & Electric subsidiaries.

The merger has received all of the shareholder and governmental approvals it needs to be completed – except for approval from the PSC’s five voting commissioners.

Although staff at the PSC, which gives recommendations and guidance to the commissioners, do not have the final say on the merger, they have been arguing the case in a legal process overseen by an administrative law judge.

Iberdrola has agreed to several concessions in the case, including the sale of Energy East’s fossil-fuel power plants in New York state and rate reductions for consumers. The company has offered to provide upstate customers $50 million in rate relief right after the deal closes.

But it has not budged on the PSC staff demand to get out of the wind-generation business in New York state.

Through a separate company called Iberdrola Renewables, the utility has a 50 percent stake in the Maple Ridge Wind Farm in Lewis County, the largest wind farm in the state. And it has 10 others in development in New York state.

The PSC staff argues that if Iberdrola were to maintain ownership of Maple Ridge and develop other wind farms, it would have too much sway in the state’s wholesale power market, a key component of its deregulated energy industry.

Iberdrola says it would be impossible to influence wholesale pricing with wind farms, especially since wind is an “intermittent and unpredictable” power source.

The company is the largest wind developer in the world and the second-largest in the United States. As part of its offer of concessions to the PSC staff, Iberdrola is offering to promise $100 million in wind-farm investments in New York state over the next three years.

Azagra, the Iberdrola executive, said that investment could go a long way in helping the state reach its renewable energy goals. The state wants to get 25 percent of its energy from renewable sources like hydro power and wind by 2013. The state is currently at 19 percent renewable power, and most of the gains will have to come with wind power. Like his predecessors, Gov. David Paterson is a huge supporter of the goal.

“We don’t want to do $100 million in New York, we want to do more than that,” Azagra said. “How many have committed to investments in New York, in writing? No one. We want to do as much as we can in New York. We want to do as much renewables as we can. We’re credible, and we can deliver.”

Although several state agencies support the Iberdrola-Energy East merger – with certain conditions – the governor’s office is taking a more arm’s length approach.

“The governor recognizes the potential this plan has for New York ratepayers,” said Paterson spokesman Michael Whyland. “However, it is up to the PSC to evaluate the deal and ensure it results in real savings. It’s important to respect this process.”

By Larry Rulison
Business Writer