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Following energy issues in the state of Connecticut and beyond.

Wednesday, May 26, 2010

Will UI Play Let's Make a Deal?

Still hearing lots of chatter about UIL Holdings' $1.3 billion acquisition of Southern Connecticut Gas (SCG), Connecticut Natural Gas (CNG) and Berkshire Gas in Massachusetts.

It is a bold move in light of the current economy, especially considering the outcome of an attempt that UIL's United Illuminating Co. made about two decades ago to size up the natural gas market.

UI struck a deal with PanEnergy Corp. that gave the Texas-based natural gas marketer access to the New Haven-based company's customers, according to Al Carbone, a UI spokesman. Carbone said the deal didn't work out as UI officials had expected, although he wasn't able to explain how and when the arrangement between the two companies ended.

PanEnergy merged with North Carolina-based Duke Energy in 1997. UI and Duke Energy went into business together a year later, with the Connecticut company buying a 33-percent interest in the Bridgeport Energy power plant, a 520-megawatt generating plant.

UI sold its stake in Bridgeport Energy back to Duke Energy for $71 million in the first half of 2006.

There's no reason to believe that just because things didn't work out between UI and PanEnergy that the same thing will happen in this latest deal. But UI officials need to do a really good job selling this deal to Connecticut utility regulators.

To the average ratepayer, this deal is a story is about a comparatively small local utility getting a whole lot bigger. And bigger isn't always viewed as better by Connecticut folks; hardly a day goes by that I don't hear people wistfully talking about when SNET - Southern New England Telephone - was an independent company.

UI officials can counter with the argument that this deal take SCG and CNG out of the hands of Spanish energy giant Iberdrola and returns them to local ownership. And while there is a fair amount of political capital in that argument, UI needs to do more.

The company needs to go before the Connecticut Department of Public Utility Control and offer an arrangement in which it offers to declare some kind of moratorium period on rate hikes. Make an offer that the moratorium will not just be for the natural gas utilities, but for UI's core business of distributing electricity as well.

Such an offer might seem crazy. But don't dismiss it too quickly, because there is a precedent for such a move.

The DPUC mandated a rate freeze of at least five years for water customers in Ansonia, Derby and Seymour when the South Central Connecticut Regional Water Authority completed its acquisition of Birmingham Utilities in 2008. Would it make a similar request of UI?

That remains to be seen, but UI could get a lot of good will from customers, regulators and state lawmakers if it doesn't wait for the DPUC to make the first move. And while good will doesn't show up on a balance sheet, it never hurts to stockpile a little of it for when times get tough.
Just ask British Petroleum.










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