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Few tears shed in state as Entergy, FPL merger dies

$8-billion marriage just doesn’t work out for utilities

It was to be perhaps the biggest union of its kind in the nation: FPL Group, serving seven million people primarily on the East Coast, and Entergy, with 2.5 million customers primarily in the Deep South. The proposed merger would have made the combined companies the largest electricity producer in the U.S.

But when the two utility giants pulled the plug on the $8-billion merger after eight months, no tears were shed.

At least not in Mississippi.

“I’m very pleased,” said Mississippi Public Service Commissioner (Northern District) Bo Robinson. “I never could visualize (the merger) being an asset to Mississippians. Just the distance makes a difference. I feared a lack of service.”

Even though initially billed as equals, the merger would have put Entergy in the passenger’s seat of the new company, with its shareholders owning 43% of the stock. Entergy head J. Wayne Leonard was to remain CEO, and FPL chairman James Broadhead was to remain chairman. Both companies would have retained separate headquarters.

But when the engagement was over, FPL insisted that Entergy’s financial forecasts had discrepancies and claimed it had lost faith in Entergy’s management team. And Entergy, which had made a decision in 1998 to revert to a decentralized form of customer service, said FPL simply wanted to change the rules midstream.

“Entergy’s bargaining position seemed to be vastly improved from the time they started this transaction,” said Mississippi Southern District PSC Michael Callahan. “When this started, Entergy’s stock prices were pretty low and they had money in the bank. There might have been concerns that Entergy was a target for a takeover. Since then, their stock has done well. So has the unregulated part of their business. When they sat down at the table again and FPL came up with some demands, Entergy probably said ‘we don’t need this anymore, we’re out of here.’ And I’m glad.”

Even if the two companies hadn’t called off the deal, chances were slim that regulators would have approved it, Callahan said.

“FPL wanted a centralized management team and it probably wasn’t going to be approved by regulators in various Entergy states,” Callahan said. “I’d talked to commissioners in Arkansas and Louisiana and everyone was somewhat leery, especially commissioners Bo Robinson and Nielsen

Cochran, who go back to the Gulf States merger and Entergy. There were a lot of reassurances on the front end that this was not the same type merger, that if anyone was cut, it would be upper management and not the folks on the ground, but regulators in all affected states were apprehensive about this, and I don’t think anyone shed any tears when it was announced that it was falling apart.”

Robinson said he couldn’t have supported FPL’s proposal for centralized management.

“It would have been a tough vote to cast for that type of merger, especially with centrally located service areas,” he said.

Gary Downey, plant manager at Birmingham Steel, Entergy Mississippi’s largest customer, said he’s pleased the merger didn’t go through.

“(Entergy Mississippi CEO) Carolyn Shanks has worked very closely with us and has done a very good job of helping us through some tough times,” he said. “Any time you have a merger like that, some of the savings are often in eliminating managers, and it’s better to have local management.”

It’s back to business as usual, said Entergy spokesperson Checky Herrington.

“As we come out of this merger negotiation, we’re a much stronger company,” he said. “We’re obviously financially stronger, as the stock price reflects. We’ve implemented a number of service-related initiatives for our customers that have definitely improved service because customer complaints have gone down, while customer satisfaction has gone up. All indications are that we’re doing the right things. Employee morale is higher today than it has ever been.”

Entergy is a major global energy company with power production, distribution operations and related diversified services, in which it owns, manages or invests in power plants generating nearly 30,000 megawatts of electricity domestically and internationally. New Orleans, La.-based Entergy delivers electricity to more than 2.5 million customers in portions of Arkansas, Louisiana, Mississippi and Texas and is a leading provider of wholesale energy marketing and trading services.

Entergy Nuclear, a non-regulated subsidiary of New Orleans-based Entergy with nearly 4,000 employees, operates eight reactors in Arkansas, Louisiana, Massachusetts, Mississippi and New York.

“Our strategy is to remain focused on three areas that we do best — customer service, conventional generation and nuclear generation,” Herrington said. “This year, we made a commitment in Mississippi for capital expenditures of $146 million, focused on customer service. We’re moving full speed ahead on that. And our nuclear power plants are rated some of the best in the world.”

The impact of the failed merger on Mississippians should be minimal, Robinson said.

“Entergy has assured us that they feel confident they have enough generation capacity for this summer to keep from any brownouts or rollout power,” he said. “We have a lot of peaking plants going on line in Mississippi and that’s going to help. By next summer, there should be significant new generation in the state.”

According to the termination agreement, both parties must wait nine months before negotiating new deals.

“The merger with FPL was a fit for our strategy because they were also focused on strong customer service,” Herrington said. “That’s what attracted us to them in the first place, but we’re really not looking for anyone else. If another company comes along, and we meet with them and it seems our strategies fit, then it might be an obvious fit.”

Contact MBJ contributing writer Lynne Wilbanks Jeter at lwjeter@yahoo.com or (601) 853-3967.

About Lynne W. Jeter

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