The decision by Constellation Energy and FPL Group to go their own ways removes the best hope consumers had that Constellation would contribute anything to relieve last summer's painful 72 percent electric rate increase by its Baltimore Gas and Electric unit.
The companies had promised $600 million for ratepayers if regulators approved their merger.
But this may be the best ransom Maryland never collected.
Regulators can now concentrate on preventing a recurrence of the 72 percent debacle. The General Assembly can erect strict barriers against out-of-state meddling in its energy utilities without feeling the pressure of a merger deadline. And Maryland can regain some control of its energy future.
It's usually not a good idea for politicians to torpedo a business combination. The Constellation-FPL deal is the rare exception.
The merger's collapse isn't bad for Maryland business. Just the opposite. Electricity and natural gas and the means to distribute them are the oxygen of any business climate. Electric and gas utilities are also God's idea of the perfect monopoly. Monopolies must be controlled and occasionally slapped down, as even free-market economists will tell you.
By scrutinizing the merger and ultimately preventing it, policymakers reduced the chances that an essential economic asset will be drained or bankrupted by out-of-state owners. Sounds like something the chamber of commerce could get behind.
Good for consumers
The merger's demise is also good for consumers.
The $600 million wasn't going to finance anybody's down payment on an SUV, or even their monthly rent. Its present value was far less than $600 million because it would have been dribbled out over a decade. And even without discounting the future payments, the credit would have equaled less than $5 a month for most households. Consumers will also benefit from at least a temporary pause in absentee landlords bidding on Maryland's energy utilities.
The Constellation-FPL deal would have been one of the first electric-utility combinations in states not bordering each other. Such transactions, banned by Washington until last year, raise the risk that ratepayers will subsidize completely unrelated businesses in faraway places, as has happened with other utilities. A merger truce gives Maryland policymakers a chance to build a good "ring-fence" around utilities to compensate for the federal lapse.
There is little damage to ratepayers beyond losing the $600 million. (Even that's not certain. Nearly $400 million in credits are required by law even if the merger doesn't happen, although Constellation will probably win in court if it challenges the measure.)
Advocates said the merger would breed administrative efficiencies that could be passed to customers, but this is propaganda. High petroleum prices and a shortage of Mid-Atlantic generation and transmission capacity are causing our pricey electric rates, not white-collar overhead.
Even Maryland energy companies may look back on the merger's failure as a good thing.
The knots and turns in Annapolis merger deliberations were mainly caused by election-year politics, but the agony was aggravated by the novelty of the challenge. No state had faced what Maryland faced: huge rate increases plus the prospect of being a guinea pig in a federal deregulation experiment. Legislative and regulatory approaches were ad hoc.
Seized on properly, a respite should produce rules that will protect ratepayers but also give energy companies more certainty about the landscape ahead.
The only pity of the merger's demise is that it removes a tool to partly redress botched deregulation from six years ago.
The legislature allowed Constellation, BGE's holding company, to take possession of BGE's lucrative generation plants and required commercial and residential customers to pay it $528 million in "stranded cost" charges for its pains.
As a condition for merger approval, the Assembly could have required not only the $600 million in merger savings but an additional rebate for stranded costs, which were granted on the bogus notion that the plants would plunge in value after Constellation took possession.
The big picture
But what's more important is the big picture. In that category, the General Assembly, the people's counsel and the Public Service Commission have huge work to do.
They need to protect Maryland utilities from financial jeopardy. They need to help alleviate a generation and especially a transmission shortage that is choking Central Maryland's electricity supply. They need to make it easier for residential alliances to band together to buy kilowatts the way government and industry do. They need to revamp wholesale electricity auctions to reduce chances that utilities buy all their supply at the peak of the market, as BGE did.
In short, they must avoid a replay of 2006. A lack of merger drama will help accomplish that.