FERC member troubled by state merger regulation

By Michael Erman

NEW YORK (Reuters) - U.S. Federal Energy Regulatory Commissioner Nora Brownell on Wednesday said that difficulties utility mergers have encountered at the state level will cause them to think twice about further consolidation.

Brownell, speaking at the Reuters Global Energy Summit in New York, said she was troubled by the regulatory problems companies like Exelon Corp (EXC.N: Quote, Profile, Research, Stock Buzz) and Constellation Energy Group Inc. (CEG.N: Quote, Profile, Research, Stock Buzz) have had as they try to get approval for mergers from state regulators.

"We have a very fragmented utility industry in the country and I think that's inefficient," she said.

State regulators "really have to step back and say 'What do I need? I need well capitalized companies who can invest in assets and bring value to the customers.' The state perspective is very different on that. It is 'What is in it for my state, for me?' which in the end may not bring the best value to the customer."

Exelon agreed to buy competitor Public Service Enterprise Group (PEG.N: Quote, Profile, Research, Stock Buzz) in December 2004, but prolonged regulatory proceedings in New Jersey have delayed the deal. New Jersey legislators introduced a bill earlier this week recommending regulators reject the deal.

In Maryland, Constellation Energy's acquisition by FPL Group Inc. (FPL.N: Quote, Profile, Research, Stock Buzz) has become ensnared in a dispute related to a steep rate hike by Constellation's Baltimore Gas & Electric unit.

Still, Brownell said that ultimately Wall Street will drive the consolidation in the industry, despite the challenges to getting deals approved, "because you certainly can't sustain inefficiencies over time."