PennFuture's E-cubed is a commentary biweekly email publication  concerning 
the current themes and trends in the energy market.  

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November 17, 2000
Vol. 2, No. 23
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No Pardon for this Turkey
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In 1999, Pennsylvania had the fourth dirtiest air in the nation. For years  
Governor Ridge and Secretary Seif of the Department of Environmental 
Protection  (DEP) have blamed power plants in Ohio for the Commonwealth,s 
dirty air, which  damages our environment, our economy, and most importantly 
the public health of  Pennsylvanians. But now the Governor, DEP, and most 
directly the Pennsylvania  Public Utility Commission (PUC) have the chance to 
apply Pennsylvania law to a  major polluter of Pennsylvania,s environment * 
FirstEnergy of Ohio.
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Having for years spewed soot and smog-causing pollution across the  
Ohio-Pennsylvania border, particularly victimizing Pittsburgh and western  
Pennsylvania, FirstEnergy has come before the PUC in search of an official 
stamp  of approval for its proposed merger with GPU. Our officials should 
make it clear  this merger won,t just be rubber-stamped. They must hold this 
out-of-state  polluter accountable by ensuring that the price of merger 
approval is real  benefits for consumers, competition, and the environment. 
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Since the August, 2000 announcement of the proposed merger, we have hoped  
that FirstEnergy would recognize the harm it has caused and have the grace 
to  propose real concessions that would protect the public interest. Silly 
us. Last  week,s merger Application filing by FirstEnergy proposes nothing 
that would  benefit consumers or undo its damage to Pennsylvania,s 
environment. 
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FirstEnergy apparently believes that it is still in Ohio where it is an  
800-pound political gorilla which gets all the bananas. Perhaps with the help 
of  GPU,s political influence, it thinks it has the same command here.  
Pennsylvanians will soon see on whose side are our state officials. 
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The stakes are high and involve life and death.
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According to a recent study, air pollution from power plants *  specifically, 
fine particles resulting from emissions of nitrogen oxides and  sulfur 
dioxide * kills more than 30,000 Americans each year, nearly twice as  many 
as die from drunken driving accidents or homicides. This study ranks Ohio  
second in the nation, with 1,920 annual deaths from health problems 
attributed  to power plants. Only Pennsylvania, with 2,250 deaths, had more. 
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In total, FirstEnergy,s plants are among the nation,s worst air polluters.  
In 1999, FirstEnergy power plants pumped into the air over 300,000 tons of  
SO2 and 100,000 tons of NOx 
(http://www.cleveland.com/news/index.ssf?/news/pd/w17power.html)  as well as 
40 million tons of CO2, a principal cause of  global warming. It alone is 
responsible for approximately 27%, 21% and 23%,  respectively, of Ohio 
utilities' SO2, CO2, and NOx emissions. FirstEnergy's sole fossil fuel plant 
in  Pennsylvania, Bruce Mansfield, contributes approximately 3%, 13% and 12% 
of all  of Pennsylvania power plant SO2, CO2,  and NOx emissions. 
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Not surprisingly, given that record, in November 1999, the United States  
Department of Justice and EPA brought suit against FirstEnergy subsidiaries 
Ohio  Edison and Pennsylvania Power, charging that modifications at the 
Sammis Plant  in Jefferson County, Ohio, violated the Clean Air Act. 
According to the United  States, the defendants made improvements at each of 
the seven units at Sammis  without applying required pollution control 
technology that would have sharply  reduced emissions of nitrogen oxides, 
sulfur dioxide, and particulate matter.  Reducing these emissions would 
significantly reduce public health threats and  environmental effects, 
including acid rain and smog. There should be no merger  approval, unless 
FirstEnergy agrees to clean up Sammis and settles this suit, as  Virginia 
Electric Power recently resolved a similar case.
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The Turkey is Served
The FirstEnergy-GPU merger  Application acknowledges that the PA PUC may 
approve the merger &only if the  commission shall find or determine that the 
granting of such certificate is  necessary or proper for the service, 
accommodation, convenience, or safety of  the public.8 Yet, the proposal does 
not attempt to show that the merger would  provide any specific public 
benefits. Rather, it attempts to put a spin on the  requirement, arguing that 
the merger won,t cause any harm because it won,t  change things very much. 
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The merger proposal itself places the companies between a rock and a hard  
place in gaining PUC approval. The transaction represents the acquisition of 
the  GPU holding company by the FirstEnergy holding company. The individual 
public  utilities that are holding-company subsidiaries * Met Ed, Penelec, 
and PennPower  in Pennsylvania * will continue to operate as they have, 
without corporate or  operational changes. But the Public Utility Code does 
not allow PUC approval  based on the well-being of the holding companies 
involved or their unregulated  businesses. Neither does the Code allow PUC 
approval based on the absence of  significant harm to public service. 
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The proposal does, however, claim that the merger would provide substantial  
strategic company benefits and is expected to enhance FirstEnergy's  cash 
flow and earnings per share. But for consumers, the best the companies can  
muster is a vague claim that the larger company will be financially stronger 
and  more profitable and that the several regionally operated utilities will 
be able  to share &best practices.8 
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It may be obvious to FirstEnergy that a bigger, more profitable company is  
good for the company and its shareholders, and therefore what,s good for the  
shareholders is good for public service. But these are not truths that we  
hold self-evident. Before the PUC approves the merger, it must be given  
affirmative reasons concerning the public benefit to do so. 
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Recently, the PUC approved the PECO-Unicom merger settlement, which  provided 
a long list of additional public benefits. As modified from PECO,s  initial 
proposal, the PECO-Unicom merger puts substantial muscle and dollars  into 
rate cuts, service improvements, cleaner air, affordable service for low  
income customers, improving the competitiveness of the electricity market 
and  many other identifiable, tangible public benefits (See E-cubed of April 
7, 2000,  Vol. 2, No. 7).
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Slicing the Turkey 
There are ways in which the merger  could provide public benefits. Let,s look 
at the key &benefits8 outlined in the  merger proposal and briefly consider 
whether they provide a basis for public  benefits and, if not, how they 
could. 
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1.?FirstEnergy Becomes Big. The merger would create the  nation's sixth 
largest investor-owned electric system based on number of  customers.
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Bigger is not inherently better for consumers. In fact, it could make  things 
worse for consumers.
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2.?Access to the Wholesale Electric Market. The companies point  out that 
FirstEnergy would have the largest customer base in the PJM Power Pool  and 
its customer base in the 13-state region that FirstEnergy has targeted for  
growth would double.
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How will that benefit consumers in Pennsylvania? There are ways, discussed  
below, but FirstEnergy doesn,t seem to have identified them, let alone made 
any  commitment. 
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3.?Transmission System Integration. The companies identify that  joining 
their contiguous transmission and distribution systems provides the  basis 
for wholesale market opportunities and that the companies &intend8 to keep  
GPU in PJM. 
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GPU is currently part of PJM, the most effective ISO in the nation.  
FirstEnergy is not a part of any functioning ISO. In fact, the Application  
affirms that FirstEnergy continues to hold onto hopes that the Alliance RTO 
will  become operational, although there is no basis at this time to expect 
that it  will become a fully functioning ISO which would serve the market and 
consumers  as required. The merged companies would not be able to integrate 
their  transmission systems, serving the public interest and obtaining the 
companies,  anticipated wholesale market benefits, unless FirstEnergy joins 
PJM. 
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FirstEnergy has no viable near-term alternative to joining PJM. And the  
recent announcement that APS will join and create PJM-West precludes any 
attempt  to argue to the contrary.
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Neither wholesale nor retail competition  can work without a fully 
functioning ISO to ensure that the wholesale electric  market is workably 
competitive, the power supply is reliable, and consumers are  protected from 
anti-competitive market manipulation. If FirstEnergy were to join  PJM, it 
would expand the size of the market in which electricity could be freely  
traded, benefiting FirstEnergy, its customers, and all consumers within the 
PJM  market from New Jersey to the Indiana state line. 
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The Application also states that the companies &intend8 that GPU will  remain 
in PJM, but includes no firm commitment. If GPU were pulled out of PJM,  the 
merger would be categorically contrary to the public interest, no matter  
what other benefits might be provided. 
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In order for the merger to provide public benefits, it cannot be approved  
without an iron-clad requirement that GPU will remain in PJM and that  
FirstEnergy will join. ? 
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4.?Solve GPU,s POLR Disaster. The proposal vaguely suggests  that the merger 
may help contribute to meeting GPU's "provider-of-last-resort"  requirements 
for electricity customers in its Pennsylvania and New Jersey  service areas.
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GPU made its POLR bed and should be made to lie in it. The rate cap is a  
promise that cannot be broken, and is a consumer right that exists with or  
without this merger * it is not a merger benefit. 
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Expanding customer opportunities to shop and demand-side response should be  
a major part of the plan to reduce company POLR exposure. FirstEnergy should  
commit to deploying real-time meters and appliance control technology which  
would empower customers to save money by changing their demand in response 
to  market prices.
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5.?Selling FirstEnergy Generation in the PJM Market. The  companies emphasize 
the important wholesale market opportunity to sell 12,100 MW  of generation 
capacity in the east. 
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FirstEnergy cannot improve on its present ability to sell into the PJM  
market without first joining PJM.
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Additionally, expanding the PJM  market can make it much more competitive and 
provide public benefits, but there  must be strong and specific commitments 
to improve competitive market  conditions, clean up FirstEnergy,s dirty power 
plants, and substantially expand  the availability of cleaner, renewable 
generation. 
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6.?Expand Unregulated Business Opportunities. The proposal  identifies 
increased market and growth opportunities for FirstEnergy's natural  gas 
resources, and both companies' mechanical contracting and construction,  
telecommunications, and e-procurement resources.
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That may well be a benefit of the merger to the companies and their  
shareholders, but it has nothing to do with public service or merger 
approval.  If anything, unregulated business growth and profits up the ante 
for providing  more regulated business savings and other benefits to 
consumers. 
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7.?Merger Savings. The proposal vaguely argues merger savings  but presents 
only a crude estimate of $150 million that are expected to come  from the 
elimination of duplicative activities, improved operating efficiencies,  more 
efficient use of generation assets and the combination of the companies'  
work forces. Only a portion of such savings would be from regulated service 
in  Pennsylvania. 
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If the merger won,t provide real opportunities for cost savings, the  
companies have a heavy burden to demonstrate why not and to provide other 
ways  in which the merger will provide alternative public benefits. For 
example,  FirstEnergy claims that its creation in 1997 upon the merger of 
Ohio Edison and  Centerior already has delivered $700 million of the promised 
$1 billion in  savings, with $350 million in annual recurring savings.
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And cost savings should mean rate cuts * the most basic consumer benefit  
from a utility merger * but the proposal promises nothing. Therefore, the 
merger  must not be approved, unless a substantial portion of economic 
benefits are  shared with consumers or provide other public benefits. 
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8.?Other key points. The proposal states that the companies  will maintain 
separate utility operations and seek to minimize the effects of  work-force 
reductions through hiring limits, attrition and separation programs  and 
honoring all labor agreements.
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Wow. What a commitment to their  workers and our communities! The only 
specific commitment made is to retain GPU  charitable giving levels for three 
years. Even that represents a lack of  immediate harm, not a public benefit. 
What would actually happen in Reading and  Johnstown? 
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We,re Still Hungry
The FirstEnergy-GPU merger as  proposed will not be in the public interest 
and should not be approved. The PUC  must make consumer savings, service 
improvements, more competitive choices,  cleaner energy and similar public 
service gains the requirements for merger  approval. And the PUC must ensure 
improved demand-side response opportunities  and a more competitive wholesale 
and retail market by compelling First Energy to  join PJM. 
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That is the very least that should be expected, and the very least that  
FirstEnergy owes the people and environment of Pennsylvania. 

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