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Under the microscope

The Baltimore Sun

Maryland's top energy regulator vowed a thorough review of the sale of Constellation Energy Group as state lawmakers grilled the company's executives about its management and the terms of a deal it struck to avoid a possible bankruptcy.

Douglas Nazarian, chairman of the Public Service Commission, outlined issues that his agency plans to address when reviewing the proposed $4.7 billion purchase of Baltimore's last Fortune 500 company by MidAmerican Energy Holdings Co. The PSC must approve the deal and can impose conditions to ensure that it is in the public interest. Constellation owns Baltimore Gas and Electric Co., the state's largest utility.

"We're going to put the microscope to this transaction," Nazarian told the Senate Finance Committee in Annapolis. He said the PSC plans to spend $2.5 million on consultants to aid in the review.

While Nazarian emphasized that he did not want to signal the outcome of the regulatory review, he told lawmakers that he would consider the deal's impact on consumer rates, customer service, infrastructure investments, employment and community contributions.

MidAmerican, based in Des Moines, Iowa, and part of billionaire investor Warren Buffett's empire, has outlined potential benefits of the deal. William J. Fehrman, senior vice president, told lawmakers that the company does not plan layoffs at BGE, will make charitable contributions of at least $2.9 million annually through 2013 and will support "significant" capital investments by the Baltimore-based company.

Constellation agreed last month to sell itself for $26.50 a share as it faced a credit crisis amid turmoil in financial markets. Lawmakers questioned aspects of the deal, including the price and a hefty breakup fee owed by Constellation if the deal collapses.

Lawmakers said that MidAmerican got a bargain price because Constellation's power plants alone could be worth billions, while the company also has a trading operation and other assets. They noted that management rejected a higher, $35-a-share offer from its largest shareholder, Electricite de France. EDF has filed to be a party in the PSC case, which could give it a voice in the proceedings.

Some lawmakers expressed dismay that Constellation Chief Executive Mayo A. Shattuck III did not attend the hearing.

Sen. James C. Rosapepe, a Democrat representing Prince George's and Anne Arundel counties, asked Fehrman why he chose to buy the company and plans to let it continue under current management when those executives got the company into "this predicament."

"I can't answer that," Fehrman said, adding that he didn't understand the intent of the question.

Rosapepe said he was "genuinely curious" and then dropped the line of questioning.

Sen. E.J. Pipkin, an Eastern Shore Republican, asked about discussions that Constellation executives had with state officials before the deal was signed and whether those officials gave "tacit approval," referring to public documents in which Shattuck reported "a generally positive reaction" to the deal. "It makes a mockery of the time and effort that a lot of people are going to put into this process" to review the acquisition, Pipkin said.

Paul J. Allen, a senior vice president at Constellation, said state officials did not assure regulatory approval. "We didn't hear anyone say, 'This is out of the question,' " he said.

Pipkin, who has long sought to reregulate Maryland's energy markets after deregulation in 1999 failed to deliver competition and savings, did elicit a concession from MidAmerican. He asked Fehrman if he would accept reregulation of utilities. Fehrman said he was willing to discuss it. Constellation executives have resisted the idea for years.

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