Press Release

    Harrisburg, Pa. July 23 ¾ The state Public Utility Commission (PUC) today granted, in part, a reconsideration request by DQE, Inc. and Allegheny Power System (APS) that allows the two utilities to pursue their merger while the Independent System Operator (ISO) they have committed to join becomes fully operational.

    On April 30, 1998, the PUC conditionally approved the merger provided that the utilities join a fully functional ISO approved by the Federal Energy Regulatory Commission. Reiterating its strong position set forth in the April 30, 1998, order, the PUC noted the stronger commitment of the utilities to comply with this essential market mitigation measure. The companies have committed to join the Midwest ISO, although that ISO will not be fully functional until the year 2000. The PUC, by its order today, will undertake an investigation in January 2000 to assure that the companies are in compliance with the commitment to join a functional ISO, and if that ISO is not in place, that other market mitigation efforts are taken under the Commission’s direction and control. Specifically, the companies would be required to divest 2,500 megawatts of generation assets.

    Under today’s ruling, the companies may pursue their merger only if they accept the following additional measures to alleviate market power while that ISO becomes operational:

• By January 1, 1999, the companies will sell by competitive bid under the PUC’s direction and control the energy output of the 570 megawatt Cheswick generation plant, for a minimum of two years and then for successive one-year periods until the PUC determines that market power issues are fully resolved.
• If, as determined by the PUC’s investigation, the Midwest ISO is not operational by June 30, 2000, DQE and APS will sell generation assets totaling 2,500 megawatts.

    In both instances, the PUC must grant final approval for these sales. In addition, the companies must agree to continue their membership and participation in the ISO for at least 10 years after merging. Any change in ISO affiliation must be approved by the PUC.

    "Today’s decision balances the interests of Pennsylvania consumers with those of the shareholders and employees of DQE and Allegheny Power," said PUC Chairman John Quain. "We approve the companies’ stronger commitment to join a fully functional ISO to alleviate market power concerns and to provide protection to consumers and to all market participants. That commitment will allow to enjoy the benefits of the merger on a timely basis."

    The PUC adopted the ISO requirement to alleviate market power concerns attendant to the proposed $2.6 billion merger. The ISO will pool the energy resources of its members and schedule transactions on the transmission grid on a reliability basis. ISOs help to eliminate market power concerns by assuring that all customers have comparable access to the transmission grid.

    Under the proposed merger, DQE would become a wholly-owned subsidiary of APS. The utilities will retain their separate service territories and distribution rates, which remain under PUC jurisdiction. The new combined company will also continue to operate as an integrated utility holding company subject to the jurisdiction of the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935.

    This is the first merger approved by the PUC since the passage of Pennsylvania’s Electricity Generation Customer Choice and Competition Act in 1996.

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