By Chris O’Malley

Wisconsin Energy Corp.’s proposed $9.1 billion acquisition of Integrys Energy Group has generated some notable opposition — including Michigan Gov. Rick Snyder.

On Oct. 17, Snyder and Michigan Attorney General Bill Schuette asked the Federal Energy Regulatory Commission to reject the merger, which would create one of the Midwest’s largest electric and natural gas utilities (EC14-126).

Wisconsin Energy and its subsidiaries already control most of the generation in Michigan’s Upper Peninsula. Michigan officials say the merger would give Wisconsin Energy a 60% ownership interest in the area’s only transmission system operator, American Transmission Co. (ATC).

“The level of concentration in both generation and transmission in the Upper Peninsula by one company as a result of this merger is a major concern for Michigan. This concentration will provide the [utilities] market power in the region that could negatively affect competition and rates,” Snyder and Schuette wrote.

Milwaukee-based Wisconsin Energy, parent of We Energies, and Chicago-based Integrys, whose holdings include Wisconsin Public Service and Michigan Gas Utilities, announced the merger June 23.

If the merger is approved, the combined companies will serve more than 4.3 million gas and electric customers in Wisconsin, Illinois, Michigan and Minnesota.

Most of the merging utilities’ generation is in the so-called Wisconsin and Upper Michigan region, or WUMS.

In their request to intervene, the Michigan officials said Wisconsin Energy and Integrys failed to analyze the relevant geographic market in determining market power, significantly understating “both the horizontal and vertical market power that the merged utility will have,” including the adverse impact such market power could have on rates and competition in Michigan’s Upper Peninsula.

Wrong Market Studied

The officials assert that the relevant geographic market is not the entire MISO footprint but WUMS, which includes the Upper Peninsula.

“Michigan contends that it is completely inappropriate to use MISO’s footprint, which includes parts of 16 states and one Canadian province, as the geographic market for assessing market concentration,” the state wrote.

Michigan pointed to findings by MISO’s Independent Market Monitor, as of the start of energy markets in April 2005, as identifying WUMS and North WUMS as narrow constraint areas (NCAs). “In designating submarkets as NCAs, the commission has effectively recognized these areas as separate and distinct geographical markets,” Michigan said.

Michigan says the merger could shift 93% of the cost of retiring the Presque Isle generating plant — $90.2 million — from Wisconsin ratepayers to a “much smaller set” of ratepayers in Michigan’s Upper Peninsula.

Great Lakes Utilities Protest

The proposed merger is also problematic for some utilities, including Wisconsin-based Great Lakes Utilities.

GLU’s members include municipal electric utilities in 12 Wisconsin and Michigan cities that are neighboring utilities to Wisconsin Energy and Integrys. GLU is a wholesale power customer of both.

GLU’s protest complains that the merger is likely to result in “substantial” increases to the cost of wholesale power. GLU also asserts that the merger will “strengthen Wisconsin Energy’s hand in transmission planning and cost allocation issues at the expense of other entities.”

In particular, GLU said the acquisition of Integrys will consolidate the ownership of ATC. Wisconsin Energy controls 26% of the voting shares in ATC while Integrys controls 34%.

“Without diversity of opinion and perspective, ATC’s function as an independent entity will be less certain,” GLU said.

A spokeswoman for Wisconsin Energy, Cathy Schulze, said the utility will respond to the protests soon.