Constellation, EdF deal does not please all 

Posted: 7:11 pm Mon, November 2, 2009
By Danielle Ulman
Daily Record Business Writer

Constellation Energy Group Inc. and its French partner accepted state regulators’ conditions needed to close their nuclear joint venture Monday, but some opponents said the deal does not represent the best interests of consumers.

The Public Service Commission approved the $4.5 billion deal to sell half of Constellation’s nuclear business to Electricite de France after months of extensive review, but added some requirements to the transaction in an effort to protect Baltimore Gas & Electric Co. and benefit its customers.

In order to ensure that consumers would win direct benefits, the PSC is requiring Constellation to pay one-time benefits to BGE customers worth $110.5 million, at about $100 per customer. Constellation must also invest $250 million in BGE to maintain its stability and implement “ring-fencing” measures that would financially separate Constellation from BGE to protect the regulated utility from bankruptcy.

Johanna Neumann, legislative advocate for the Maryland Public Interest Research Group, said her group is disappointed that the PSC approved the deal, even with the added requirements.

“We don’t think that the deal is in the public interest,” she said. “Hopefully the conditions that the PSC has developed are robust enough to protect BGE customers.”

Neumann expressed concern that the ring-fencing measures might fall short.

“The ring-fencing requirements are largely left to the discretion of the company to develop,” she said. “There needs to be continued watch dogging of the ring-fencing provisions.”

Over the weekend, former Gov. Robert L. Ehrlich Jr. criticized the way the Gov. Martin O’Malley and his administration handled the Constellation-EDF deal. O’Malley tried unsuccessfully to get Constellation to agree to a settlement that would have paid $200 apiece for the deal’s approval, cut the pay of Constellation’s CEO and put independent directors on the company’s board.

Ehrlich said on his weekly radio show Saturday that the O’Malley administration’s interference in the deal made Maryland seem like a bad place to do business.

On Monday, O’Malley called the proceedings “adversarial” and said he was happy with what government intervention got for consumers.

“It’s more than [ratepayers] would have gotten if we didn’t have a state government willing to step in and stand up for consumers,” he said.

Ratings agencies were mixed on the deal Monday.

Standard & Poor’s Ratings Services downgraded Constellation, based on the condition that separated Constellation from BGE financially and legally. S&P lowered Constellation’s ratings to BBB- from BBB, one step above junk bond status. The ratings agency upgraded Baltimore Gas & Electric to BBB+ from BBB.

“The MPSC order is supportive of BGE, while not unduly onerous on Constellation,” S&P said in a news release. “Some of the measures required as part of the ring-fencing are among the stronger regulatory provisions we have seen across jurisdictions. To recall, we consider the regulatory environment in Maryland in the least credit supportive category.”

Constellation was removed from S&P’s “CreditWatch negative” status, which is a warning that the company’s credit rating could be downgraded during the next review.

Ratings downgrades nearly pushed Constellation into bankruptcy last year, but the company agreed to merge with MidAmerican Energy Holdings Co. Constellation later ended that agreement in favor of the EDF deal.

Fitch Ratings said Monday that it does not expect Constellation’s ratings to be affected by the sale of half of its nuclear business to EDF or from the PSC’s order. Fitch said the PSC’s conditions could have a positive impact on BGE’s rating. Fitch rates Constellation BBB- and BGE is rated BBB.

Both Constellation and EDF won the necessary approval from their boards of directors, allowing the deal to move forward with the PSC’s conditions. The PSC’s authorization was the last in a series of regulatory approvals that the companies needed to win to finalize the deal.

“We are now moving to close the transaction as quickly as possible so that we can begin to deliver the many benefits of this investment to all stakeholders across the state,” Constellation said.

Shares of Constellation’s stock gained 89 cents, or 2.88 percent, Monday to close at $31.81.