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Constellation/Exelon deal: Reliability should be the main concern

Mergers, Acquisitions and TakeoversElectionsExecutive BranchRestructuring and RecapitalizationConsumers

The last couple of times Constellation Energy tried to sell all or part of itself to an out-of-state company, Gov. Martin O'Malley's focus was almost entirely on the pocketbooks of two groups: Baltimore Gas and Electric Co. customers, and Constellation CEO Mayo A. Shattuck III and his fellow executives.

In 2006, Mr. O'Malley, then a candidate for governor, successfully sued to force the Public Service Commission to reconsider a 72 percent rate hike and to take into account the potential benefits of Constellation's planned merger with Florida Power & Light. He also tried to make executive compensation part of the PSC's deliberations, but a judge rejected the idea. In 2009, when Constellation was trying to sell half of its nuclear business to Electricité de France, Governor O'Malley demanded an average of $200 in rate credits for every consumer, bigger company contributions to a fund that helps low-income customers pay their bills and for the company to cancel a "golden parachute" for Mr. Shattuck.

Now Constellation is trying to sell itself to Exelon of Chicago, and Mr. O'Malley's administration is again opposing the deal — but for different reasons than before. A consultant for the Maryland Energy Administration did mention that the $100 rate credit Constellation and Exelon have offered might not be as large as it could be, but that's lower on the list of concerns than the reliability of service and the development of green energy infrastructure in the state. The Maryland Office of People's Counsel, while suggesting a three-year rate freeze to make sure any merger-related savings are passed on to consumers, is also focusing on questions of reliability.

Under the circumstances, that's appropriate and even encouraging. Concern about electric rates became fused to Maryland's political DNA during the 2006 gubernatorial election, and there is no doubt they are important to consumers, particularly at a time when the economy remains weak. But recent events have suggested that Maryland electric ratepayers have bigger concerns than the size of the rebate they get out of this deal.

Reliability is no doubt much on the minds of Maryland electric consumers these days. Pepco, which serves the Washington region, was under fire for its slow response to storm-related damage earlier this year, and then BGE became the focus of customer anger after hundreds of thousands of people were without power for days following Hurricane Irene. The question of whether our electric supply is sufficient also arose this summer when BGE activated its PeakRewards program — and shut off some participants' air conditioners for several hours on a sweltering day. The company says that had it not done so, the region might have faced brownouts and blackouts.

Another concern raised by the Maryland Energy Administration seems a bit less academic than it once did: the new company's exposure to risk from the nuclear power industry. A combined Constellation/Exelon would be the nation's biggest player in nuclear energy, and although the risks of a catastrophe are low, the aftermath of the Japanese earthquake and tsunami is a reminder that they do exist.

Finally, the O'Malley administration's insistence that Constellation and Exelon commit to producing 10 times more renewable energy in Maryland than they had initially proposed may sound like an effort to burnish the governor's environmental credentials should he seek some higher office, but it would also have some benefits for the sufficiency and reliability of the state's power supply.

The 25 megawatts of renewable energy the companies offered to build is more a token than a real contribution to Maryland's overall power supply portfolio, and even 250 megawatts wouldn't make a tremendous difference in a state that has more than 13,000 megawatts of electric generation capacity. But the Maryland Energy Administration's proposal needs to be considered in context of the state law requiring power companies to get 20 percent of their electricity from renewable sources by 2022. What the O'Malley administration is seeking is simply a guarantee that a larger portion of that power come from facilities Exelon builds in Maryland, rather than from sources in other states. Given that another nuclear reactor at Calvert Cliffs appears unlikely and that new transmission lines to bring power from other states are uncertain, building more clean energy generation in Maryland — as opposed to getting it elsewhere — contributes to the adequacy of our electric supply.

If this merger goes through, BGE will be owned by an out-of-state corporation and will be a much smaller part of a much bigger conglomerate. It's right for the state to worry about insulating the utility from the parent company's finances and ensuring that it receives adequate investments to maintain reliable service. It would be nice for BGE customers to get $150, $200 or more in credits on their bills, but a one-time benefit like that pales next to the costs they could face if BGE service becomes less reliable. Anybody who spent a week without power — hunting for dry ice and batteries, eating out every night and throwing away freezers-full of food — can tell you that.

Copyright © 2014, The Baltimore Sun
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