US congressman raises questions about National Grid-Keyspan deal

Washington (Platts)--27Feb2006

US Rep Edward Markey Monday said he is concerned National Grid's purchase
of power and gas company KeySpan might not get the kind of scrutiny it needs,
given that the Public Utility Holding Company Act of 1935 was repealed last
year.

     Markey, a Democrat of Massachusetts and a senior member of the energy
committee, noted that PUHCA repeal, which he opposed, means the Securities and
Exchange Commission will not study the debt financing of the transaction. "In
the past," he said in a statement, "PUHCA placed some limits on the ability of
utility holding companies to take on excessive levels of debt in order to
finance mergers."

     National Grid, which operates in Markey's state, earlier Monday said it
was buying KeySpan for $7.3-bil cash and the assumption of $4.5-bil of debt.

     "Early press reports indicate that the bond rating agency Moody's is now
considering a downgrade of [National Grid's] bond rating as a result of all
the debt the company is playing. What will be the full impact of the
additional debt that Grid is taking on in this deal? What happens if this
transaction is followed by other utility acquisitions--as is rumored. Will
money be siphoned away from transmission upgrades, maintenance of local
distribution lines...?"

     Markey said he is not confident the US Federal Energy Regulatory
Commission will give the merger the scrutiny it needs. FERC has new merger
review authority since PUHCA was repealed. "I've been telling state regulators
... since PUHCA's repeal that they really need to beef up their state laws" to
deal with issues the SEC used to be responsible for.

     The lawmaker also called on the state of Massachusetts to review the deal
and said National Grid has told him it will not need a review in that state.
"It is my understanding, however, that the Massachusetts attorney general's
office may have a different view," he said.

     Of National Grid itself, Markey said he wonders what its direction is.
"In recent years," he said, "the company has positioned itself to be an energy
distributor, arguing that they preferred to own and operate the...grid
rather than getting into the generation business." But the KeySpan deal would
involve 4,200 MW of generation. "What impact will this have on the companies'
overall financial performance and what plans does Grid have for them?"

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