Hint of shift in the wind at PSC 

Iberdrola SA would be able to own wind farms in New York state if it acquires Energy East Corp. under a scenario proposed by the staff of the Public Service Commission.

The wind-farm issue has been one of the biggest stumbling blocks to the proposed $4.5 billion merger, which must get approval from the five-member PSC to move forward.

Iberdrola is the world’s largest wind-farm developer and has proposed investing as much as $2 billion in wind projects across the state over the next five years.

The PSC staff, which advises the commissioners, has been arguing against the deal. It has said the Spanish company would hold too much sway over New York’s wholesale electric market in an abuse of what is called “vertical market power”: buying Energy East’s electric transmission and distribution system, and developing and owning its own power plants, including wind turbines.

New York regulators have discouraged utilities from owning power-generation plants as part of deregulation of the state’s energy markets.

In a brief filed Thursday as part of the case, the PSC staff said it still opposes Iberdrola owning any power-generation facilities in New York if it buys Energy East, the parent of Rochester Gas & Electric and New York State Electric & Gas.

However, in a move that appears to offer a hint of compromise, the PSC staff said there are “alternative proposals” that the commission could adopt that would allow Iberdrola to own wind farms while still protecting consumers.

Under this alternative, the PSC would address vertical market power issues with Iberdrola’s wind projects on a case-by-case basis.

“If it can be demonstrated that Iberdrola has exercised (vertical market power) in any such proceeding, permission to build another wind facility could be denied,” the PSC staff said.

The staff suggested that Iberdrola also be forced to enter into long-term contracts with its wind facilities “that divorces the profit from the market price.”

The PSC staff also wants Iberdrola to set up a $200 million fund that will be disbursed to customers if it fails to live up to its promise of developing $2 billion in wind projects in the state.

On Tuesday, Iberdrola discounted the PSC staff’s suggestions.

“The PSC staff has not changed its position at all,” said an Iberdrola spokesman. “They make it clear, they still prefer prohibition.” He said Iberdrola believes the alternatives “do not make sense.”

One party in the case, the state Consumer Protection Board, said it was happy with the PSC staff’s alternative scenario.

Mindy Bockstein, executive director of the watchdog agency, said she was “pleased” that the PSC staff is considering lifting its outright prohibition against Iberdrola owning wind generation in the state.

“Such a prohibition is not required to protect ratepayers, as our agency has advocated throughout this proceeding, as other measures are available to guard against potential anti-competitive conduct,” Bockstein said. “Indeed, as Governor Paterson has previously stated, it is important to find a compromise that enables the development of clean energy and still protects consumer and state interests.”

Previously: As part of Iberdrola SA’s $4.5 billion acquisition of Energy East Corp., an administrative law judge recommended that the five-member Public Service Commission approve the deal only with significant conditions, including barring Iberdrola from owning wind farms in Energy East’s service territory.

The latest:In a brief filed as part of the case last week, the PSC staff offers a scenario under which Iberdrola could own wind farms in the state, if the PSC commissioners want to allow it.

What’s next: Additional briefs are due Thursday, and the commission could vote on the merger at its August or September meeting.

By Larry Rulison
Business Writer

Times Union

2 July 2008