O'Malley administration: Commission should reject Constellation-Exelon deal

The O'Malley administration is asking state regulators to reject Constellation Energy Group's plan to sell itself to Chicago-based Exelon Corp. unless the companies provide greater assurance that the new owner can deliver reliable service to Maryland customers.

The Maryland Energy Administration also raised concerns about the merged company's exposure to the nuclear energy business, and said it should develop more than 10 times as much state-based renewable energy resources than Constellation and Exelon have promised.

The merger in its present form poses "significant risk of harm" to customers of Constellation's Baltimore Gas and Electric Co., energy administration Director Malcolm D. Woolf said in pre-hearing testimony filed with the Public Service Commission.

The commission, the state's energy regulator, is scheduled to begin hearings on the deal at the end of October.

To ensure that the $7.9 billion deal is in the public interest, the state is proposing that Constellation and Chicago-based Exelon make greater concessions — mainly, making a "substantially larger" commitment than the 25 megawatts of green energy they proposed to develop in Maryland.

"We oppose the deal in its present form," O'Malley spokeswoman Raquel Guillory said Monday. "With our proposed amendments, we believe those changes would provide better protection for ratepayers and serve the public's interest."

Previous deals proposed by Constellation have met resistance. An earlier takeover of Constellation was thwarted by regulators amid political uproar over rates. And O'Malley tried unsuccessfully to wrest concessions from Constellation as the company sought approval of a $4.5 billion deal to sell half of its nuclear power business to a French utility in 2009.

The Public Service Commission, which is tasked with ensuring that Constellation's deal to sell itself to Exelon does not harm consumers, is scheduled to hold evidentiary hearings beginning Oct. 31.

In making the state's case against the merger, Woolf said the ownership of BGE would be transferred to a non-Maryland company for the first time in the utility's nearly 200-year history and would become a much smaller part of a larger holding company.

Moreover, Woolf said, the combined company's large exposure to the nuclear business would put BGE at risk. The combined company would become the nation's largest operator of nuclear plants.

The deal also presents potential marketshare concerns, Woolf said.

"In order to meet the statutory standard, the Applicants must commit to additional measures that will protect BGE ratepayers from the risks of non-local management, greater competition for resources and potentially less focus on delivering reliable service," Woolf said in his testimony.

In announcing the merger in April, Exelon and Constellation executives offered a $250 million incentive package that included a $100 credit for each BGE customer as well as financial contributions to the state's green energy goals.

They included $4 million for Maryland's EmPower energy efficiency efforts; $10 million for the state's electric vehicle infrastructure; and more than $50 million to develop 25 megawatts of green energy in the state.

The two companies also agreed to maintain Constellation's annual charitable giving of about $10 million for at least 10 years.

But the state says those commitments are not enough.

"While the applicants assert that the commitments they have proposed provide benefits to BGE customers, these commitments, as currently proposed, do not negate the potential harms and do not ensure that the proposed merger transaction is consistent with the public interest, convenience and necessity," Woolf said in his testimony.

Instead, the state wants the combined company to build solar, wind or other state-based renewable energy plants that would account for one-fourth of its obligations to meet O'Malley's ambitious green energy goals over the next decade. Under one scenario, that would require Exelon to build almost 400 megawatts of biomass and wind farm generation, according to Woolf's testimony.

State law requires electricity suppliers to generate 20 percent of their power from renewable sources by 2022.

Moreover, the state is asking the two companies to make additional financial commitments to the EmPower energy efficiency program and other areas.

Exelon spokeswoman Judith Rader said in a statement Monday that the two companies "welcome input from stakeholders as we continue to work toward completing our planned merger — a combination we strongly believe will benefit the State of Maryland, the City of Baltimore and BGE customers."

Constellation spokesman Lawrence McDonnell said the company is studying the state's position and planning to submit its response Oct. 12.

But McDonnell said the companies' incentive package provides "significant benefits" for Baltimore and Maryland.

"We know many stakeholders have an interest in the merger and that's appropriate; we look forward to their input."