Constellation, state agree to settle lawsuits

Gov. Martin O'Malley plans to announce today a settlement with Constellation Energy Group, ending a bitter battle between the state and BGE's parent company and securing $187 million in one-time rebates for more than 1 million residential customers, according to state officials who have been briefed on the agreement.

The rebates would amount to $170 per customer and be applied to bills by the end of the year.

The settlement emerged out of dueling lawsuits filed by the state and Constellation Energy last month over credits to consumers that the General Assembly ordered in 2006. Animosity between state officials and the company has been brewing in recent years as many lawmakers have come to believe that the state's 1999 deregulation settlement was a raw deal for consumers.

The governor briefed Senate President Thomas V. Mike Miller, House Speaker Michael E. Busch and other top lawmakers last night on details of the settlement. The deal is contingent on legislative approval and would mean that both sides would drop their lawsuits. Rick Abbruzzese, O'Malley's spokesman, declined to comment on the settlement but confirmed that the governor is expected to make an announcement today.

"I believe it's a good settlement for BGE ratepayers," said Del. Dereck E. Davis, a Prince George's County Democrat and chairman of the House Economic Matters Committee. "Hopefully, with this agreement we're able to move forward in our quest to provide reliable and affordable electricity."

Busch spokeswoman Alexandra Hughes said the speaker is "pleased we've come to a point where we can help the ratepayers of Maryland without a protracted fight with Constellation."

Constellation spokesman Robert L. Gould would not confirm or discuss details of the agreement. "We continue to hold discussions with the state in an effort to resolve the issues related to our respective pending litigation," he said.

The settlement could give Constellation some assurances that the regulatory environment in Maryland will improve for the company. Under the settlement, the company also gets expanded flexibility in drawing investors who would be allowed to own up to 20 percent of the stock. There are currently restrictions on investments in the company under state law.

Constellation's clashes with state officials have taken on added significance as consumers have seen double-digit electric rate increases in the last few years. O'Malley, a Democrat, campaigned on promises to tackle soaring electric bills, but his efforts through the Public Service Commission have been stymied by the complexities of energy markets and state laws.

Compounding the problem, rate caps that were brokered as part of the 1999 settlement expired at a time when energy prices were rising nationally. That left many to question the wisdom of deregulation, which was supposed to lower prices, boost energy production and open the door for competitors.

"Deregulation was a billion- dollar boondoggle for the utility company, and it's nice to see some significant funds going to ratepayers," said Johanna Neumann, state director of the Maryland Public Interest Research Group.

In addition to the one-time refund, the agreement curbs the liability of Constellation customers to pay for decommissioning Calvert Cliffs' two existing nuclear reactors while reaffirming the company's intent to seek federal permission to build a new third reactor at Lusby in Calvert County.

Constellation had applied to the federal Nuclear Regulatory Commission for a license to build a new reactor at Calvert Cliffs, but it has not formally committed to building there. Earlier this year, company officials indicated they might build the plant in New York, which would deprive Marylanders of additional power- generating capacity at a time when the state is facing potential brownouts within the next several years.

Under the 1999 deregulation pact, the state had agreed to let Constellation collect $5.2 billion from ratepayers toward the costs of closing the radioactive plants in 2036.

That financial burden was at the heart of the dispute between the state and the energy company. The Public Service Commission asserted in a report in January that Constellation had informed the Nuclear Regulatory Commission that the decommis- sioning cost was likely to be $3.7 billion.

The settlement to be announced today would eliminate ratepayers' obligation to pay the higher amount - essentially saving Marylanders' $1.5 billion in future costs.

The agreement settles the lawsuits filed by the state and Constellation over $386 million in credits the legislature ordered the company to pay in 2006. The settlement keeps 90 percent of the credits, trimming them by $40 million.

Ratepayers also would be assured of limits on future increases in their bills for distribution of electricity over BGE's wires. The company has agreed to phase-in increases it had asked the Public Service Commission to authorize.

The amount of the distribution charge increase was not expected to be large, but it comes on top of the 72 percent increase in rates it sought from ratepayers for higher fuel costs.

Besides the rate relief, the agreement clarifies the public service commission's authority to examine the books and records of all utilities, including those of Constellation and its various affiliated companies. Lawmakers had been threatening to pass a bill granting the PSC subpoena power if the company did not reach an agreement with the state.

BGE also has agreed to add two independent directors to its board, a move state officials characterized as enhancing the corporation's governance.

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