Constellation falls a 2nd day

The Baltimore Sun

Shares of Constellation Energy Group Inc. fell about 8.5 percent in two days as investors reacted to news that Maryland utility regulators may seek to recover certain payments the company received in a deal to deregulate the state's power market in 1999.

The fall came as industry analysts released a series of mostly negative reports yesterday and Thursday about the company's near-term outlook in light of what many see as an increasingly difficult regulatory environment in the state.

"We are quite taken aback at the [Public Service Commission's] attempt to undo the 1999 settlement and with the harsh tone used against [Constellation] in the report," wrote Shalini Mahajan, a UBS analyst, in a research report. UBS maintains a "buy" rating on the stock.

The Maryland PSC released Thursday the second in a series of reports critiquing the state's energy market and the decisions made in the lead-up to deregulation. The report was especially critical of Constellation and raised questions about whether a settlement giving the company ownership of Baltimore Gas and Electric's power plants worked to the detriment of ratepayers, among other things.

The shares closed yesterday at $92.78 per share, down $8.61 from Thursday's opening price of $101.39. Shares fell almost 4 percent yesterday amid the overall decline in financial markets as investors fear a possible recession.

Constellation said the PSC report is based on flawed assumptions and misstatements, resulting in downward pressure on its stock.

"Constellation Energy continues to be damaged by attempts at revisionist history," said Rob Gould, a company spokesman. "This new level of instability comes at a particularly critical time when more, not less, investment in Maryland's future generation capability is needed."

Steven B. Larsen, PSC chairman, said the commission is mindful of how its actions might affect the businesses it regulates.

"At end of the day, I don't think the General Assembly would expect us to modify our conclusions in order to make sure Constellation's stock price stays up."

The PSC's report criticized the $975 million in so-called "stranded costs" Constellation received as compensation for taking title to BGE's power plants at book value. Regulators also questioned whether the company had violated some of the deal's terms and said it will study whether customers should be compensated.

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