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Constellation earns $73.7M in 3rd quarter, but misses estimates

Almost five years to the day from when Constellation Energy Group Inc. and Florida Power and Light Group Inc. officially called it quits on their plans to merge, Constellation is gearing up to face the state regulatory agency that was instrumental in nixing the deal.

On Monday, the Maryland Public Service Commission is set to kick off hearings into Chicago-based Exelon Corp.’s proposed acquisition of Constellation in a $7.9 billion, all-stock deal. The commission’s final decision is due by Jan. 5, and the companies are optimistic the deal will close in early 2012.

Constellation CEO Mayo A. Shattuck III expressed optimism about the merger being approved during a call with analysts on Friday. The Baltimore-based company said it had earned $73.7 million, or 36 cents per share, for the third quarter of 2011, compared to a $1.4 billion loss during the third quarter of 2010.

But Shattuck spent a lot of time on the call fielding questions about how state regulators would rule on the deal. The PSC’s approval has been acknowledged by the companies as the biggest hurdle to the deal.

Since the paperwork was filed with the PSC was filed in May, witnesses and experts on both sides have submitted hundreds of pages of testimony on every aspect of the proposed deal.

On the call, Shattuck said, heading into the hearings, that he saw the primary areas of debate to be the size of the rate credit to customers of Baltimore Gas & Electric Co., the size of renewable energy projects built in the state and the number of jobs kept in Maryland. Shattuck acknowledged it would not be easy to secure approval, but said he felt that in the end regulators would sign off on the deal.

“In general, I think we’ve been very pleased by the response and the level of support that’s been sent to the PSC in advance of the hearings,” Shattuck said. “I know it will feel like a noisy debate for a few weeks, but I think it will be a healthy one and we’re very optimistic about how the hearings will go.”

Constellation and Exelon have said the deal would mean a direct investment in Maryland of more than $250 million. The companies also said the acquisition would create nearly 900 jobs in the state related to projects associated with the deal, such as the development of a new or renovated headquarters building for the new company’s energy marketing and renewable development businesses, as well as the development of a new 25 megawatt renewable energy project. Under the companies’ proposal, residential customers of BGE would each receive a $100 credit.

There is no shortage of critics of the deal. State agencies, environmental and energy activists, labor unions and even Constellation’s largest shareholder have said they are opposed to the deal as proposed.

“This is a very important issue for Maryland. BGE is our largest utility and a merger like this will have a major impact,” said Paula Carmody, head of the Office of the People’s Counsel, which represents the interests of consumers in utility cases before the PSC. “And, looking at the transaction as it is today, we have a number of outstanding issues with it.”

The companies are no doubt looking to avoid the rancor and political infighting that doomed the planned $11 billion merger with Florida Power and Light. That deal was officially called off on Oct. 25, 2006, after months of often-bitter arguments from legislators and the PSC.

Constellation and Exelon have said publicly they modeled the merger proposal on the one between FirstEnergy and Allegheny Power that was approved by the PSC this year. The companies have said in submitted testimony that their deal is similar, but scaled up for the larger sizes of the companies.

“Given the aggregate value of this package, it is substantial, it’s clearly way in advance of what was agreed to in the FirstEnergy and Allegheny mergers, which we could at least use as a proxy to help develop some of our strategies on this front,” Shattuck said.

Carmody, though, said that, as it stands now, the deal does not pass the required test that it provide real benefits to ratepayers of BGE while also causing no harm. She said the hearings will give critics a chance they won’t get later on to tailor a deal that is in the best interest of BGE’s customers.

“Once the deal is done, you can’t unravel it,” Carmody said. “This is a process, and we don’t think they’ve met the standards yet.”