Constellation Energy Group said yesterday that it will sue the state to recover $386 million in credits it was forced to give utility customers, potentially adding about $3 a month to the average homeowner's bill.
The credits, which the company says are unconstitutional, were part of legislation passed in 2006 to ease a 72 percent rate increase for customers of Constellation's utility subsidiary, Baltimore Gas & Electric.
Company officials said the lawsuit was prompted by an intensifying feud with state utility regulators over disputed terms of a 1999 settlement with BGE to move Maryland toward deregulation.
The Baltimore-based energy conglomerate accused the Public Service Commission of politicizing the issue and jeopardizing the company's commitment to investing billions of dollars in energy infrastructure in Maryland. The remarks came a day after Constellation indicated that it might build its first new nuclear reactor in New York instead of Maryland because of regulators' hostile tone.
Gov. Martin O'Malley and other lawmakers vowed yesterday to work with Constellation, but they called the company's threats unproductive. And while the state's top regulator defended the PSC's analysis of the 1999 settlement, he scheduled a hearing next week so BGE could rebut the panel's claims.
The disputed credits are the only significant financial concession that lawmakers extracted from the company after a lengthy political debate over utility costs in the aftermath of the BGE rate increase. The money is earmarked to pay for future costs to decommission two nuclear reactors at Calvert Cliffs in Lusby.
The decommissioning fees factor into a recent PSC report to lawmakers that concludes that the 1999 deregulation deal was lopsided in favor of Constellation, and was not in the "public interest." It suggests that lawmakers might want to revisit aspects of the agreement with an eye toward winning rebates and other protections for ratepayers. Lawmakers have not taken up the issue.
Constellation's chief executive said the harsh tone of the report is proof that the PSC is no longer a fair arbiter. The company released a detailed rebuttal of the report's conclusions yesterday as part of its quarterly earnings release and presentation to industry analysts.
"The indication from the most recent [PSC] reports, which were very prejudicial, very unfair, very unfounded in its content and, for those of you who have looked at it, it's hard not to conclude that this is prosecutor, judge and jury - all in one - in its tone," said Mayo A. Shattuck III, Constellation's chairman and chief executive.
The PSC set a hearing for Wednesday to air the dispute.
"Although we are confident in our analysis of the transaction, we initiate this proceeding now so that BGE can identify any errors it believes the commission has made so that there is no dispute about the basis for the commission's recommendations to the General Assembly," Steven B. Larsen, the PSC chairman, said in a statement.
O'Malley stood by his PSC chairman, whom he appointed shortly after taking office with a mandate from voters to act on utility rates. The Democratic governor noted that Constellation had announced its lawsuit on the same day it reported adjusted quarterly earnings that were up 37 percent from a year earlier.
The company had fourth-quarter profits of $258.1 million.
"I think it's outrageous that on the same day they announce huge profits, they then turn around and try to shift $386 million in costs back onto ratepayers," O'Malley said.
O'Malley and some lawmakers said they hope the company will continue to invest in the state.
Sen. E.J. Pipkin, an Eastern Shore Republican and frequent critic of deregulation, said some lawmakers are worried that the company's concerns about the regulatory environment will drive it to build a new nuclear plant in New York instead of Maryland. But he also said he believes that Larsen could do even more to help ratepayers.
"It's the same old story with Constellation," Pipkin said. "These kinds of threats are not constructive. Lose the threats, and let's keep talking about policy."
BGE is Maryland's largest utility with 1.1 million customers.
The PSC cheered longtime critics of the 1999 deregulation law when it issued a Jan. 17 report concluding that BGE customers took on $1.5 billion in costs in exchange for rate cuts amounting to one-fifth that amount.
Among other things, it also argued that the cost of decommissioning the state's existing nuclear plants - which it says could reach $5 billion - should not have been placed entirely on the backs of ratepayers. The report said a fund set up to pay those costs was grossly underfunded - a claim the company says is false.
By contrast, the company said the 1999 deal provided more than $2 billion in benefits to consumers through rate cuts and other concessions that the PSC failed to properly calculate.
Terms of the 1999 settlement were twice upheld in state court cases. The latest dispute over decommissioning costs heads to federal court, which will probably be asked to review the matter in the context of the entire settlement.
The $386 million in decommissioning credits are a holdover from Constellation's 2006 dispute with lawmakers over its proposed $12 billion merger with Juno Beach, Fla.-based FPL Group Inc. Lawmakers sought to link approval of the merger with concessions for BGE ratepayers. At one point, Constellation offered $600 million in concessions - including the decommissioning credits - as an enticement to get the deal done. The company planned to pay for the concessions with merger- related cost savings.
But lawmakers later made the credits part of legislation separate from the deal. When the merger fell apart later that year amid regulatory hangups, Constellation cried foul.
Absent the merger, the company said, the credits amount to an unconstitutional taking of property.
However, Constellation struck a deal with the attorney general not to sue until it had an opportunity to negotiate that and other issues with a new PSC headed by O'Malley appointees. The "standstill" agreement, which allows either party to back out with 30 days' notice, was extended in April last year.
Raquel M. Guillory, a spokeswoman for the attorney general, confirmed that the company has signaled its intent to sue.
If the company prevails, BGE customers would again pay the decommissioning fee as part of their rates. Legal experts say the company has a strong case, given that lawmakers knew the credits were originally linked to approval of the FPL merger.