Nearly a year ago, Constellation Energy Group was fighting for its very existence as a credit crisis during the financial sector meltdown pushed the company to the verge of bankruptcy.
On Monday, the Baltimore company faced a different fight: trying to convince Maryland energy regulators that a proposed $4.5 billion deal to sell half of its nuclear power business to a French utility is in the public's best interest.
"We hope the commission will see the tremendous benefits, both short- and long-term, that will flow to the state of Maryland as a result of the joint venture," Constellation spokesman Rob Gould said. In partnering with Electricite de France, Constellation had rejected a deal with Warren Buffett forged during its crisis last fall.
The first day of a weeklong evidentiary hearing is the latest development of a regulatory hurdle that Constellation and its partner, EDF, had hoped to avoid. While participating in the review, Constellation is also seeking legal relief, appealing a court decision denying its right to challenge the PSC's authority to review the transaction. Constellation, the parent of regulated utility Baltimore Gas & Electric Co., contends that the PSC has no say in the matter.
Instead, an EDF official made it clear Monday that it would abandon the construction of a proposed third reactor at Calvert Cliffs in Southern Maryland if the deal is not approved or the PSC imposes excessive conditions on the transaction. EDF's stance reiterated Constellation's earlier comments that the two issues are "inseparable."
"We hope the commission approves the transaction," said John Morris, vice president of strategy at EDF Development. "In the event it's not approved or fails to proceed because of conditions, we would conclude that we are not welcomed as an investor" in Maryland.
Morris noted that a welcoming regulatory and business environment is one of several criteria EDF considers in making nuclear investments.
While neither Constellation nor EDF has "definitely" decided to build the third nuclear unit, Morris testified that EDF is enthusiastic about the project, so "we're keen to push ahead." So far, the proposed nuclear project has received approval by the PSC and been chosen by the U.S. Department of Energy for "final due diligence" for a federal loan guarantee considered key to financing the unit.
But Scott H. Strauss, an attorney representing the state and the Maryland Energy Administration, questioned Morris on whether EDF has seriously considered the consequences of giving up its investment in the Calvert Cliffs project, considering the amount of money and effort it has already spent on moving the development forward.
Strauss asked whether EDF would withdraw its involvement in Unistar - an existing venture between the French company and Constellation to develop and invest in new nuclear reactors - or its application for the federal loan guarantee. Moreover, Strauss questioned whether EDF has calculated the company's financial loss if it abandons plans for a third reactor.
Morris said EDF would have to consider and review all those issues.
Constellation has been extolling the deal's economic benefits, including new jobs and $130 million in tax revenue for the state, through television, radio and online ads and other social media tools.
Meanwhile, groups such as Maryland Public Interest Research Group and Public Citizen have objected to the deal, saying BGE consumers would pay higher rates.
In a separate news conference Monday, state Sens. E. J. Pipkin and Jim Rosapepe called on the PSC to adopt a proposal created by the Maryland Tax Education Foundation that would re-regulate and reduce BGE electricity rates as part of the deal's approval.
Constellation said the foundation's proposal would shift the risks of owning and operating power plants from Constellation shareholders to BGE consumers.
As part of its review, the PSC will consider the potential benefits and harms to BGE and its consumers associated with the EDF deal. The PSC is expected to issue a ruling by Oct. 16.
Experts hired by Constellation, the PSC staff, the state, the Maryland Office of the People's Counsel and others will testify throughout the week.
In written testimony, outside experts for the Maryland Energy Administration and the Maryland Office of the People's Counsel have concluded that the deal would not benefit BGE customers.
In contrast, an expert hired by the PSC staff concluded that there would be "significant benefits" to BGE customers ranging from $474 million to $985 million based on several factors, including the completion of the third Calvert Cliffs reactor.
But Julia Frayer, a managing director at London Economics International, who conducted the cost-benefits analysis, noted that the costs and risks associated with the deal - such as reduced service quality and reliability - could be larger than the benefits.
One expert hired by EDF found that the deal would result in $1.8 billion to $2.7 billion in financial benefits for Maryland energy consumers, mostly due to the added third nuclear unit at Calvert Cliffs that would increase energy supply and cut wholesale energy and capacity charges.