New York State's Public Service Commission (PSC) struck a potentially devastating blow to the proposed National Grid takeover of KeySpan Energy in a report issued Thursday.

The PSC staff report states the merger is "not in the public interest" and should be rejected by the commission. The report claims upstate residents constantly complain of service deficiencies since London-based National Grid took over Niagara Mohawk Power. PSC staff members are also concerned about National Grid owning transmission and distribution upstate and generation on Long Island. They recommend KeySpan's Ravenswood generating plant in Queens should be sold before any deal is approved.

National Grid officials contend the merger would benefit the customers. They say the issues brought up in the PSC report can be resolved.