Energy East/Iberdrola merger far from certain

Électricité de France SA, one of Europe's largest utilities, is in talks about forming a bidding duo with Actividades de Construcción y Servicios SA, a Spanish construction company. The team would make simultaneous bids for two of Spain's largest utilities -- Iberdrola SA, the country's largest by market value, and Unión Fenosa, the third-largest, according to reports in this morning's Wall Street Journal.

Another factor in the proposed deals is the fate of Iberdrola's $4.5 billion planned acquisition of New York utility Energy East. It has been approved by federal and some state regulators but faces an uncertain future in New York. The deal's failure would make it easier for the Spanish utility to be sold because neither EdF nor ACS is interested in owning a U.S. utility, and regulators in the U.S. might not accept them anyway, the Journal said.

Staff of the New York Public Service Commission have expressed unhappiness with terms of the deal, feeling it provides too little benefit and somewhat greater risk to customers, the Journal said.

Commission staff also worried that the U.S. utilities could become pawns in some larger contest involving Iberdrola and have looked at "ring fencing" as a mechanism to quarantine the regulated utilities from any future financial difficulties of a parent company, said commission spokesman James Denn. A similar structure was created last year when Britain's National Grid PLC acquired KeySpan, another New York utility, he added, the Journal said.