Two pivotal regulatory agencies blessed the pending merger of Baltimore Gas and Electric Co. and Potomac Electric Power Co. yesterday, paving the way for the $2.9 billion corporate union proceed.
The approvals by the Federal Energy Regulatory Commission (FERC) and the Maryland Public Service Commission represent two of the biggest hurdles to officially forming Constellation Energy Corp., the company that BGE and Pepco intend to create to become the nation's ninth-largest utility and the region's dominant energy provider.
In its approval of the merger, however, the state imposed several conditions that could have a negative impact on Constellation. Most notably, the commission ruled that the new company must reduce rates to Maryland customers by $56 million.
It also ordered Constellation to freeze base rates for three years once the merger takes effect, split profits with customers if its return on equity exceeds 11.4 percent, and adopt standards to split regulated and unregulated operations.
"I'm glad they reduced rates because the evidence required it, and I'm glad they reduced them by a substantial amount," said Michael J. Travieso, head of the state's Office of People's Counsel, a citizens advocacy agency that had argued against the merger.
BGE, which intends to comment on the pending rate decrease later today, contended that a three-year rate freeze represented significant customer savings. The OPC, by contrast, sought a rate decrease of more than $60 million. BGE and Pepco have the right to appeal the PSC order.
Conversely, the five-member FERC panel unanimously agreed to the merger and refused to require any conditions. In so doing, the FERC overrode a commission staff recommendation that the union be rejected because Constellation would hamper competition and therefore not be in the public's best interest, the FERC yardstick for approving deals.
"We need to ensure that [mergers] will not be anti-competitive," said FERC Chair Elizabeth A. Moler. "At the same time, it is equally important that we not impose a crushing regulatory burden on mergers."
The FERC staff, taking a cue from a commission policy statement in December, argued that BGE and Pepco should divest certain power generating plants and expand its transmission lines as a condition for approving the merger. Constellation will control all of the so-called "firm" energy market in this area, FERC noted.
"This merger raises vexing issues that we face all the time at the commission," said Commissioner William L. Massey. "But I'm comfortable with the decision we reached."
"We are pleased that after careful review the FERC has recognized that the merger is in the public interest and unanimously approved it without conditions," Christian H. Poindexter, BGE chairman and chief executive, and Edward F. Mitchell, the top Pepco executive, said in a joint statement.
BGE and Pepco announced plans to merge in September 1995, through a stock swap that would pay Pepco shareholders a 20 percent premium on their holdings. As part of the deal, BGE will control roughly 55 percent of Constellation.
BGE and Pepco still await a green light from District of Columbia's PSC, an approval considered less than certain following a series of contentious hearings that concluded late last month.
Neither BGE nor Pepco representatives would speculate on when the merger would be completed. The two sides had said previously they hoped to begin operating as Constellation on April 1.
jTC In fact, any D.C. PSC vote is less than assured. That's because on Tuesday, the International Brotherhood of Electrical Workers filed a motion with the commission to dismiss the BGE/Pepco merger application altogether.
The IBEW, which represents Pepco employees but lost an election to bring BGE workers into the union last year, contends that the commission doesn't have the jurisdiction to judge the matter. Instead, it believes that Congress must decide because of an obscure 1913 law prohibiting mergers involving Washington's utilities.
Still, the FERC vote yesterday appears to dampen the chances that the D.C. PSC will prevent the merger from proceeding, unless congressional intervention occurs.
"This was the hurdle they didn't know if they'd get over," IBEW Local 1900 President James Hunter, said of the FERC decision. "If I had to put money on it going through now, I'd say it's a done deal."
Pub Date: 4/17/97