BGE-Pepco deal OK'd, with limits D.C. board approves merger but orders rate freeze, rebates; Alliance now in doubt; Power companies also wait for ruling on workers' appeal; Utilities

The District of Columbia's Public Service Commission approved the Baltimore Gas and Electric Co.'s planned merger with a Washington utility yesterday, but not without a number of potentially devastating conditions that further threaten the $3 billion corporate marriage.

District regulators ordered BGE and the Potomac Electric Power Co. (Pepco) to freeze electric rates for Washington residents for four years and rebate more than $100 million to customers.


Perhaps more onerous, the D.C. commission's 200-page ruling also ordered that BGE and Pepco could not pass costs associated with the Calvert Cliffs nuclear power plant to D.C. customers. BGE had been hoping to spread nuclear plant expenses to customers in Pepco's territory after forming Constellation Energy Corp.

"The present record convinces us that Constellation should be required to insulate Pepco customers from current and future costs of the BGE Calvert Cliffs nuclear facility," the commission's ruling said. "There are a number of financial risks involved with Calvert Cliffs that cannot be assessed with any degree of precision."


BGE and Pepco also failed yesterday to get a ruling from the Baltimore County Circuit Court judge who will decide the outcome of a union appeal of a Maryland PSC order related to the merger.

Judge James T. Smith Jr. is expected to rule in a matter on weeks on the International Brotherhood of Electrical Workers' claim that the merger should be stopped because it is not in the public's interest.

"Fundamentally, the legal and constitutional problem with this case is that the commission treated this merger as a rate case, and not a public interest case," said IBEW counsel Brian J. H. Lederer. "So their approach is skewed."

Lederer said the merger could cause "irrevocable harm to the public" if it reaches fruition. The IBEW contends that the utilities will be unable to save $1.3 billion over 10 years, as they project, without adversely affecting customer service.

Arthur J. Slusark, a BGE spokesman, said the utilities are confident they will win the case based on their arguments that the merger will benefit the public.

Regardless of the outcome, Smith's decision is likely to be appealed to the Maryland Court of Special Appeals, a move that would further delay the proposed pairing.

While declining to comment on the tenets of the D.C. regulators' order directly, BGE and Pepco issued a statement that expressed apparent dismay with the ruling and cast doubt on whether the merger process would continue.

"There is a significant difference between the D.C. commission's decision and what the companies proposed," the BGE/Pepco statement said. "This will require detailed analysis. The companies also will need to study the results of today's decision in combination with the result of the Maryland proceedings in order to determine whether the merger will still be beneficial to customers and shareholders."


BGE and Pepco declined to elaborate.

In making its ruling, the D.C. commission -- one of the last major regulatory hurdles to the two utilities' plan to form the nation's ninth-largest power concern -- appeared to create a number of additional hurdles that could impede, or even kill, the merger.

For instance, the commission said that BGE and Pepco should give customers 75 percent of any merger savings.

That figure is similar to the Maryland PSC split that BGE and Pepco say is unacceptable for stockholders. BGE and Pepco proposed a 50-50 split.

The D.C. commission also ordered the utilities to establish a $5 million economic development fund.

"I don't think it's a good decision for the companies. They got the worst scenario they could get," said James L. Hunter, president of the IBEW's Local 1900, which is opposing the merger. "The deal breaker may be the ruling on the nuclear plant. If they aren't able to spread their costs out, I think they'll just as soon pull the plug on the deal."


Moreover, the D.C. commission objected to Constellation's decision to relocate its headquarters to Annapolis, saying the move "has the potential of limiting our access and thus impairing the commission's ability to carry out its statutory mandate." The commission also commented on what it feared would be "absentee management" and a bias toward Maryland over Washington.

"With no disrespect intended, the commission finds that [BGE's and Pepco's] apparent corporate bias towards the state of Maryland is not consistent with the interest of the District of Columbia," the commission wrote.

Pub Date: 10/21/97