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BGE will seek distribution rate increase

Mergers, Acquisitions and TakeoversRestructuring and RecapitalizationUnemployment and LayoffsJob Layoffs

Baltimore Gas and Electric Co. plans to ask Maryland regulators later this year to allow it to raise rates for the distribution of electricity and natural gas, Chicago-based Exelon Corp., the utility's new owner, said Thursday.

Exelon executives told stock analysts during a meeting in New York that BGE had delayed filing the rate case while BGE's former parent company, Constellation Energy Group, finalized a merger with Exelon. The $7.9 billion deal, which created the largest nonutility energy provider in the United States, closed in March.

"Through the merger, we've held off on filing a rate case, and we will be filing our next rate case in the second half of 2012," said Denis O'Brien, a senior executive vice president of Exelon and CEO of Exelon Utilities, during the meeting. He did not elaborate.

If approved by the Maryland Public Service Commission, the state's public utility regulator, new rates would take effect no more than 210 days after the filing, the company said.

BGE's request will include "recovery of among other things, investments focused on electric and gas reliability, tree and vegetation management and other projects to continue to provide safe and reliable service to our customers," said Robert L. Gould, a BGE spokesman. "Parts of BGE's electric and gas system, much of which was built in the 1950s and 1960s, are approaching the end of their useful life and require new investments to ensure continued reliability."

Distribution charges, which cover delivery of power and gas to customers' homes, typically make up between a quarter and a third of a customer's bill.

"I'm not surprised they are going to come in for a rate case so soon after the merger, but I'm pretty disappointed," said Paula M. Carmody, the People's Counsel in the Office of People's Counsel, which represents rate payers. While the company presented the plans for a rate case as an indication of its commitment to a successful merger, "I don't think customers are going to consider an increase in their rate to be a sign of a successful merger."

The last BGE distribution rate hike took effect in December 2010, when residential customers were expected to pay, on average, an additional $16 on electric bills and $10 on gas bills a year. At the time, BGE said the increases would raise an estimated $30.9 million for electric distribution, as well as $9.75 million for gas delivery. The utility said those increases were needed to pay for system improvements at a time when power prices were falling.

The state's other two utilities, Pepco and Delmarva, are seeking increases in distribution rates. Both cases, filed in December, are pending before the Public Service Commission.

Exelon Utilities, which serves a combined 6.6 million electric customers and 1.1 million gas customers, is working to standardize equipment and systems and install "smart meters" in all service areas, O'Brien said. The company plans to invest about $690 million in BGE transmission projects through 2016.

Also Thursday, a company offical told the analysts that Exelon expects to have an agreement by August to sell three former Constellation coal plants that it agreed to relinquish under terms of the merger. They include the Brandon Shores and H.A. Wagner plants in Anne Arundel County and the C.P. Crane plant in Baltimore County.

The company started marketing the plants after the merger closed and is now reviewing bidders, said Bill Von Hoene, Exelon's chief strategy officer and a senior executive vice president. It expects the plants will be sold as a package, he said.

During the presentation, Exelon officials offered no new information on how the planned 600 job cuts would affect workers in Maryland as the company eliminates overlapping functions through next summer.

To win state regulators' approval of the merger, Exelon agreed that there would be no layoffs at BGE for at least two years after the merger closed. Still, that leaves hundreds of former Constellation employees vulnerable.

Over time, Exelon expects its employment to increase in Baltimore and in the state, said Exelon spokesman Paul Adams. Exelon is building a new headquarters tower in Harbor East that will house its commercial and renewable development businesses, seen as the growth engine for the new company. But Exelon's corporate headquarters remains in Chicago.

"We expect that positions could be eliminated across the entire corporation, but not all in any one location or company," Adams said.

lorraine.mirabella@baltsun.com

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