Date posted online: Friday, January 26, 2007
Consumers fear rate hike in NIPSCO sale
MERRILLVILLE: Duke made bid four years ago
BY KEITH BENMAN
kbenman@nwitimes.com
219.933.3326

  MERRILLVILLE | Consumer advocates say NIPSCO's residential electric customers may get a small break in prices now but might pay higher rates eventually if parent NiSource Inc. sells the electric utility.

One year after NiSource Chief Executive Officer Robert Skaggs Jr. announced a top-to-bottom review of all company operations, Bloomberg News reports the company is in talks to sell NIPSCO for as much as $4 billion.

"This does not bode well for consumers, because you will have fewer and fewer players in the marketplace," said Dave Menzer, a utility campaign organizer for the Citizens Action Coalition.

NIPSCO charges the highest residential electric rates of any of Indiana's five large investor-owned utilities. Those rates long have irked customers and, in 2002, NIPSCO agreed to refund customers $225 million over four years.

Most industry analysts pick Duke Energy Corp. as the most likely buyer, with Exelon Corp., owner of ComEd in Illinois, a close second. Bloomberg News said AES Corp. and American Electric Power Co. also may bid.

When asked about any possible sale or merger talks, NiSource spokeswoman Kris Falzone said the company does not comment on market rumors. Duke, Exelon and AEP representatives had the same response.

Looking at the company names that have surfaced so far, Duke probably would be the odds-on favorite, according to Philip Adams, a senior bond analyst with Gimme Credit, a provider of independent credit research.

"Because anyone else you look at probably has other issues or just plain not enough spit," Adams said. "Duke is in the catbird seat."

NiSource could use the proceeds from the sale in a number of ways, including paying down its more than $6 billion in debt or paying a dividend to shareholders, Adams said.

NiSource stock closed at $23.95 on Thursday, up 24 cents, or 1 percent, on volume of 2 million shares. The Dow Jones Industrial Average fell 119 points, or almost 1 percent, Thursday.

Duke Energy submitted a nonbinding bid of $1.6 billion to $1.9 billion for three of NIPSCO's three electric power plants and one NiSource plant four years ago. NiSource never commented on the bid and no deal resulted.

Analysts think a NIPSCO sale most likely means the sale of the electric business, with the natural gas business remaining a part of NiSource.

Officials with the United Steelworkers, representing 1,800 NIPSCO employees, think splitting up the electric and natural gas business would be a bad deal for workers and most consumers.

"We're the cash cow for NiSource, that's the thing that I'm curious about," said Jim Blythe, president of USW Local 12775. "If they sell off the electric, I don't know where the growth will come from."

When Duke bought Cinergy in a $9 billion deal last year, it used some of the savings produced by the merger to give Cinergy customers in Indiana a $40 million bill credit collectively.

NIPSCO agreed in 2005 to begin bargaining with regulators on new electric rates in 2008.

It is not known how much say the Indiana Utility Regulatory Commission would have in the sale of NIPSCO's electric business, which has 445,000 customers in northern Indiana. NIPSCO also has 712,000 natural gas customers.

If the sale occurs at the holding company level, the IURC may have little say in the matter.

However, in past mergers, such as that of Duke and Cinergy last year, the IURC has invoked previous utility agreements to gain a say in matters, IURC spokeswoman Mary Beth Fisher said.

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