This time, Constellation takeover will go through

Sometime around May 2012, you will open your BGE statement and react with mild pleasure, perhaps, on seeing that your bill is reduced by $200 or so.

True, this might be considered a long shot. History has held out such rebates before and then yanked them away. But there are reasons to believe that this time households will pocket a payoff tied to the sale of Baltimore Gas & Electric Co. and parent Constellation Energy.

Which is to say that Exelon Corp.'s proposed $7.9 billion buyout of Constellation, announced last week, will go through.

Gov. Martin O'Malley, whose support is indirectly critical to the deal, seems to be getting along better with Constellation boss Mayo A. Shattuck III. Shattuck is working really hard to keep it that way. Lower electricity prices mean regulators and legislators who could also throw up obstacles aren't getting angry phone calls about BGE bills.

Rules installed under O'Malley regulators a couple of years ago mean BGE customers are better protected from possible financial disasters involving an out-of-town owner. So the Maryland Public Service Commission might be more comfortable now with a buyout, although it still must make triply sure that Exelon can't loot or otherwise degrade BGE.

Federal regulators, who apparently never met a corporate merger they didn't love, are highly unlikely to be a problem.

For BGE and Constellation, their fourth attempt in two decades to sell themselves off will probably be successful. But you wouldn't be blamed for noting precedents that suggest otherwise.

The failure looming largest is Constellation's deal with Florida-based FPL Group, announced in 2005 right after Hurricane Katrina disrupted natural gas supplies and drove electricity prices to the clouds. Combined with the end of a multiyear rate freeze that would have led to higher costs anyway, the Katrina aftermath drove prices for BGE households up by 72 percent.

It was an election year. The legislature went nuts. Candidate O'Malley became Governor O'Malley largely by blasting Constellation. The FPL merger died despite the companies' pledge to give BGE households $214 million in savings over a decade. Legislators, besieged by unhappy electricity customers, wanted a bigger giveback.

Inadequate customer rebates were also a deal killer in BGE's attempted merger in the 1990s with Potomac Electric Power Co. Constellation's shotgun engagement two years ago to Warren Buffett's MidAmerican Energy didn't lead to marriage, either, but that was because Constellation opted instead for a bailout by the French EDF Group. The EDF investment didn't involve outright sale of the company.

Shattuck and Exelon CEO John W. Rowe seem determined to make this attempt work.

How determined? A week before the announcement, they made a pilgrimage to Annapolis to try to sell O'Malley on the deal personally, according to reporting by my colleague, Hanah Cho.

Their opening offer to policymakers and BGE customers is more generous than in previous deals — $250 million in charity, electricity rebates and investments. And it's right up O'Malley's alley, with millions promised for renewable energy projects.

Even if O'Malley never gets to build his expensive wind farm off Maryland's shore, he will have assembled an impressive environmental portfolio if it includes the $50 million in solar- or wind-driven generators pledged by Constellation and Exelon.

Exelon and Constellation's opening offer for BGE customers is $100 per household — at a total cost of $110 million. Surely the PSC can raise that substantially. In 2008, to settle allegations that deregulation cheated electricity customers, BGE and Constellation rebated $170 to each BGE residence.

This time, even $200 per BGE customer, at a cost of $220 million, is less than the merger will save Exelon and Constellation in operating costs every year.

But scoring a one-time bonus for electricity users is not the commission's main job. As always, it is to insulate BGE and other utilities from the frequently volatile wholesale electricity market.

Bankruptcy occurs with some frequency among unregulated power companies. It happened to Enron, which owned a utility in Oregon. It almost happened to Constellation in 2008. By the sheer fact that Exelon is the biggest operator of nuclear reactors in the country, it might be most at risk for a Fukushima or Three Mile Island-type disaster.

The PSC needs to make sure that the "ring-fencing" safeguards it installed around BGE two years ago —bankruptcy restrictions; limits on cash flowing from BGE to affiliates; and red tape insulating the utility from the parent — stay in place with any purchase by Exelon.

If it's satisfied that's the case, the sale is likely to go through. Losing a Fortune 200 corporate headquarters is not in Baltimore's best interests. But it's the PSC's job to make sure that hidden downsides to the deal don't come along with the obvious ones.


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