With PSC Reviewing Sale Talks Between Iberdrola And Parent Company Of RG&E And NYSEG, Schumer Unveils Plan To Avoid Another "National Grid Debacle" And Protect Over 1.5 Million NY Ratepayers From Spikes In Monthly Bills And Service Outages

Press Release

Schumer: Iberdrola Could Bring Significant Benefits to NYS with Renewable Power and Economic Development, but Company Should Create Trust Fund to Keep Rates Low

With Iberdrola Paying Billions Above Book Value for Energy East - Parent Company of RG&E and NYSEG -- Stock Holders & Top Management will Reap Big Rewards, but No Guaranteed Benefit for Ratepayers

Schumer Also Calls on PSC to Ensure That Deal Will Help Meet State's Renewable Energy Goals and Repower Rochester's Russell Station as a Natural Gas Plant

With the Energy East - Iberdrola sale currently pending before the New York State Public Service Commission (PSC), today U.S. Senator Charles E. Schumer called for the newly created company to set aside a Trust Fund to protect 1.5 million Upstate New York ratepayers from spiking monthly utility bills. Schumer's proposal comes in the wake of National Grid's takeover of Niagara Mohawk in 2001, which resulted in rate increases and unpredictable service. While the purchase price is billions above the book value of Energy East, the parent company of NYSEG and RG&E, the companies have offered few guarantees on how it will keep customer rates low.

NYSEG and RG&E currently serve over 1.5 million ratepayers, spanning communities across Western NY and the Finger Lakes Region, the Southern Tier and Hudson Valley, and the Capital Region and North Country.

Iberdrola is currently in negotiated settlement proceedings with the Department of Public Service (DPS) staff. If a settlement is reached, the terms will be voted on by the PSC, which has the authority to alter the proposal. As all parties work towards a decision, Schumer argued today that the newly created utility company should set aside a Trust Fund, more commonly known as a regulatory deferral account, to offset rate increases in the coming years so current NYSEG and RG&E customers aren't subjected to higher monthly utility bills.

Schumer also proposed a plan to protect 1.5 million ratepayers from shoddy and sporadic service, a problem experienced by former Niagara Mohawk customers after National Grid purchased the New York-based utility. The Senator asked the utility to agree to a Performance Assurance Plan (PAP) that would issue penalties if Iberdrola's service quality deteriorates after the merger. Schumer pointed to telecommunication deals in other states where similar plans were implemented. It would be up to the PSC to design a system of benchmarks and penalties. If revenue was raised from the PAP, it could be reinvested back into the Trust Fund that benefits ratepayers.

Schumer also noted that Iberdrola's entrance in the U.S. utility market presents an ideal opportunity to utilize their expertise in developing wind power, which could expand the state's re-new able energy portfolio, while reducing consumer rates and pollution across the state. In addition, the Senator called on the PSC to ensure that the acquisition did not jeopardize Energy East's commitment to repower Rochester's Russell Station from a coal-fired plant to a natural gas plant.

"The National Grid takeover of Niagara-Mohawk gave Upstate New Yorkers a text book example of what they don't want in a utility merger: soaring bills and shoddy service," said Senator Schumer. "We can't let millions of New Yorkers get burned again, which is why these utility companies should put their money where their mouth is and create a trust fund that will protect New York ratepayers and off-set any unexpected spikes in monthly utility bills. Stockholders and executives will reap a windfall from this deal and ordinary ratepayers must not be left holding the bag. We need real insurances that this merger won't stick New Yorkers with back-breaking utility bills and unpredictable service."

Schumer also emphasized that there were several potential benefits that could result from the merger, including Iberdrola's expertise in developing alternative energy, particularly wind power. Iberdrola also has access to global capital markets which could help spur economic development across upstate New York. Furthermore, as the sale is not based on achieving synergies between overlapping workforces, layoffs are not expected at either NYSEG or RGE.

In New York, Energy East is the parent company of NYSEG and RGE which together have a service area ranging from Buffalo in the west, to Westchester in the east and from the Southern Tier all the way to the North Country. NYSEG delivers electricity to 838,000 customers and natural gas to 250,000 across more than 40% of upstate New York. Rochester Gas & Electric (RG&E) provides electricity and natural gas energy and related services to approximately 650,000 residents and businesses in a nine-county region centered the city of Rochester.

According to Public Service Commission (PSC), NYSEG has 43 energy-producing facilities in New York State and RG&E owns 17 facilities in New York State. Energy East, with just under 6,000 employees, has 2,921,000 customers across the Northeast and owns companies that provide energy to parts of Maine, western Massachusetts, Connecticut, and across western and northern New York.

In order to gain assurances from Iberdrola that it will maintain reasonable rates and reliable service for current RGE and NYSEG customers, Schumer today sent a letter to the PSC stating, "Ensuring that customers have access to affordable, reliable and clean energy should be the principal framework through which the PSC assesses this proposed merger. RGE and NYSEG customers need guarantees that they won't experience skyrocketing rates, unreliable transmission lines or noxious, polluting generating facilities."

Schumer specifically requested that the PSC meet the following demands:

* TRUST FUND TO ENSURE AFFORDABLE CUSTOMER RATES: Setting aside a trust fund to protect ratepayers from any unexpected spikes in monthly utility bills. According to estimates from the Department of Public Service (DPS) the $4.4 billion sale of Energy East is $2.9 billion above the book value for the asset. The above book value charges are divided between the $1.4 billion purchase premium for Energy East that will benefit shareholders, utility executives and other interests as well as $1.5 billion of so-called "goodwill" from a previous Energy East acquisition.

Paying above book value for the utility puts a strain on the company to make a return on their investment. This return should not come at the expense of ratepayers. Therefore, Iberdrola should set up a trust fund that will benefit RGE and NYSEG customers in both the short and long term. This fund could be used to defer rate increases the next time the utility proposes an increase to the PSC.

* PERFORMANCE ASSURANCE PLAN TO ENSURE RELIABLE SERVICE: Setting up a plan that will hold Iberdrola accountable for deterioration in the utility services of current NYSEG and RG&E customers. The plan will include the ability to issue penalties if Iberdrola fails to uphold customer's current quality of service.

* DEVELOPING NEW CLEAN POWER: Iberdrola's entrance into the U.S. utility market presents a golden opportunity to draw on their experience and expertise in developing wind power that could significantly add to the state's renewable energy portfolio. Expanding wind power and other renewable power sources will help realize the dual goal of lowering consumer rates and cleaning up the air we breathe.

Wind power in the state is presently underutilized with only around 1% of state's 30 GW peak load, 411 MW, coming from wind energy, and only 5 wind projects have been implemented despite the existence of more than 67 potential wind power projects. Despite Iberdrola's ability to fill a much needed void in NYS' renewable energy portfolio, the DPS staff has asserted that the company must sell-off of all existing wind assets and refrain from building any new assets as a precondition of the merger's approval because it would prevent other wind developers from moving forward with their projects. However, there is no evidence to support this claim, only the staff's assertion that "Joining the companies' ownership of generation facilities that operate in competitive markets with Energy East's regulated distribution and transmission operations would create an incentive for the combined company…to the disadvantage of utility customers and other generators."

Prohibiting Iberdrola from participating in building new renewable energy will present New York State with a challenge of meeting their renewable portfolio goals and prevent customers from realizing the benefit of cheap, reliable and clean power. The staff insistence on complete and total divestiture should be reconsidered.

* REPOWERING RUSSELL STATION: The merger must ensure that RG&E's plans for the repowering of Russell Station as a natural gas facility are maintained. This 257 MW facility is critical for keeping Rochester rates low and reducing local pollution.

On the shores of Lake Ontario, Russell Station provides 25% of Rochester's residential power. Recently, Schumer worked to secure a commitment from Rochester Gas and Electric (RG+E) to repower Russell Station using natural gas and not coal. In an effort to achieve deregulation in the energy markets, the DPS staff has insisted that Energy East divest of all generating assets as a precondition of the merger, including Russell Station. However, it is unclear whether an independent merchant power producer would be interested in this facility and what type of fuel they would use to power the plant. Divestiture without a plan doesn't make sense.

Rochester residents have some of the lowest electric rates in the region, in part because the utility has been allowed to maintain some generating capacity and is not forced to buy all their power on the open spot-market. Given RGE's commitment to repower Russell Station cleanly with natural gas, the PSC should be open to allowing the utility to retain this asset if they can demonstrate that it will help them keep rates low. Forcing a sale of Russell Station without a firm plan on the future of that plant is plain wrong.

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