National Grid and KeySpan today filed a response to the New York Public Service Commission Staff’s (“PSC”) testimony filed on February 20th. The PSC’s preliminary position highlighted a number of issues on policy grounds, and indicated they could support the merger under certain circumstances.

National Grid and KeySpan have identified substantial benefits for the customers and communities they serve from the combination of the two companies and are working hard to resolve any issues or concerns held by the PSC.

We firmly believe that the merger is in the best interest of customers.  If the proposed merger does not go ahead, KeySpan customers will lose out on the savings the deal brings. KeySpan’s standalone rates will be higher than those of the combined company and could rise up to 11% in September.  Under the rate plans proposed by National Grid, rates for Long Island and New York City gas customers would be moderated by 50% of the net synergies expected to be achieved in the transaction.  

Below are highlights of our filing:

• The proposed merger will provide an estimated $500 million in permanent savings for customers in New York, over 10 years, through improving operational efficiencies, coordinating management of energy supply and expanding programs to reduce energy use.
• National Grid and KeySpan propose a series of conditions that will assure the financial strength of KeySpan’s utility operations after the transaction. National Grid and KeySpan will be financially sound with solid investment grade credit ratings.
• National Grid and KeySpan are committed to ensuring the merger provides substantial benefits for both customers and shareholders.  National Grid and KeySpan are excellent companies.  Both bring scale and competence in their respective fields.  KeySpan’s gas distribution activities recently came top in an independent national survey of U.S. commercial and industrial customers. National Grid has recently embarked on an ambitious program to improve the reliability of its electric transmission and distribution system in New York State and plans to invest $1.4 billion in energy delivery infrastructure over a five year period. The merger will bring the best of National Grid and KeySpan together for the benefit of customers.
• National Grid and KeySpan are working through the details of rate plans with the PSC that will provide clear financial benefits for our customers because of that expertise. We look forward to updating you on the details of the rate plans once they have been finalized.
• National Grid and KeySpan do not believe there are any competition issues associated with the continued ownership of Ravenswood. The US Federal Energy Regulatory Commission agreed, ruling in October 2006 that, “The combination of the electric generation resources is not likely to harm competition in any relevant energy market.”  However, National Grid and KeySpan have proposed a number of additional measures to satisfy concerns that have been raised by the staff and will continue to work with the PSC to address remaining concerns.
• Although not part of the PSC process, we also continue to make progress in our discussions with the Long Island Power Authority (LIPA), who represent the interests of the electric ratepayer on Long Island.

As you know, we are in the early stages of a lengthy regulatory review process. National Grid and KeySpan are committed to working with the PSC’s staff to reach agreement on the issues that the Staff has raised and look forward to the PSC making its decision on the merger based on the merits of this case, informed by testimony from National Grid and KeySpan, the Staff, and other stakeholders.

A short filmed interview of Steve Holliday and Bob Catell discussing the transaction is available at http://www.nationalgridus.com.  They commented:

Steve Holliday, Chief Executive of National Grid said: “This deal makes a huge amount of sense... There's a real saving here for KeySpan and National Grid electric and gas customers”

Bob Catell, Chairman and CEO of KeySpan said: “Without this transaction, KeySpan's gas customers were looking at 11 percent increase in their gas rates... With this transaction those rates will be moderated for some period of time, and there will be a rate stability plan going out into the future.  The benefits to both the gas and electric customers will amount to $500m over the next ten years.”