Two state senators recommend spinoff of BGE

A top Exelon Corp. executive said Thursday that separating Baltimore Gas and Electric Co. from parent Constellation Energy Group would be a "deal breaker" for the proposed $7.9 billion merger between the two energy giants.

Exelon Chief Operating Officer Christopher M. Crane's remark came after two Maryland senators called on state energy regulators to order the spinoff of BGE into an independent, publicly traded company as a condition of merger approval.

In a letter sent Thursday to the Maryland Public Service Commission — which has the power to veto the deal — Sens. E.J. Pipkin and Jim Rosapepe said their proposal would keep BGE locally based and controlled and would also lower rates.

The move is the latest effort by the senators to re-regulate to some degree the state's electricity market — or, as the lawmakers put it, to bring back "your father's BGE."

In recent years, Pipkin and Rosapepe have tried — unsuccessfully — to push legislation that would require the regulation of new power generation in Maryland.

Pipkin said the merger provided the "most opportune time" to reverse course on deregulation, which the senators argue has failed to create a competitive market or reduce rates for consumers.

Besides seeking BGE's legal and financial separation from Constellation, the two lawmakers are also pushing for BGE to enter into a long-term contract to buy power from Constellation's Calvert Cliffs nuclear plants in Southern Maryland at regulated rates.

In addition, Pipkin and Rosapepe want a newly independent BGE to commit to building its own natural gas plants under regulated rates.

Crane called the idea of spinning off BGE a "non-starter" for Exelon.

In a meeting with The Baltimore Sun's editorial board, Crane said Thursday that the merger provided a balance between the regulated utility business and the more risky competitive business of selling power. Exelon owns two utilities, in Chicago and Philadelphia.

"We really think BGE is a good investment," he said. "We would only want to merge the companies in their entirety."

Exelon also rejected a similar recommendation by a consultant hired by the state and the Maryland Energy Administration. That plan would have the Public Service Commission retain jurisdiction to order the spinoff of BGE if conditions placed on the merger failed to protect the best interests of the utility and ratepayers.

Asked whether he thought the state senators' proposal was far-fetched, Rosapepe said, "No, I don't."

"The Public Service Commission has the authority to do this," he said. "The PSC cannot approve the merger legally if it's not in the public interest, so the legal standard for the Public Service Commission is not what's good for Exelon or what's good for Constellation."

The commission is expected to wrap up the first week of extensive testimony from Constellation, Exelon and BGE executives on Friday.

The state, consumer advocates and commissioners grilled Crane and Constellation Chief Executive Officer and Chairman Mayo A. Shattuck III for three days on a number of issues, including their prospective roles with the combined company, the management of BGE and job cuts. Crane would become chief executive officer of the new company, while Shattuck would be appointed executive chairman.

Crane revealed Thursday that Exelon had identified more than 600 corporate positions that would be eliminated under the merger, though he did not detail the breakdown between Constellation and Exelon.

Meanwhile, three shareholder advisory firms recommended that Exelon and Constellation stockholders vote in favor of the deal. Shareholders from both companies are expected to vote on the merger on Nov. 17.

While acknowledging regulatory risk, especially in Maryland — where state officials and consumer advocates are asking for more concessions — influential shareholder group Institutional Shareholder Services said in a report published Wednesday that the "strategic and financial benefits of a combination appears reasonable."

"Given these benefits, as well as the premium offered to Constellation shareholders, support for this merger is warranted," the firm wrote.

Glass, Lewis & Co. and Egan-Jones also agreed.