The first day of a regulatory hearing over Exelon Corp.’s acquisition of Constellation Energy Group Inc. began Monday on a markedly civil note as the leaders from both companies fielded questions about management policy, corporate structure and how the firms felt about future nuclear projects.
The Maryland Public Service Commission opened the first of what could be as many as 11 days of hearings into Chicago-based Exelon’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 have said they expect the deal to close in early 2012.
Scott Strauss, an attorney with Spiegel & McDiarmid LLP in Washington, D.C., handled the first day of questions for Constellation CEO Mayo A. Shattuck III and Exelon President Christopher Crane on behalf of the Maryland Energy Administration.
State agencies including the Maryland Energy Administration as well as environmental activists, labor unions and Electricite de France, Constellation’s largest shareholder, oppose the deal.
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.
Critics say the deal would put Baltimore Gas & Electric Co., Constellation’s only regulated utility, in a place of lesser importance than the two bigger utilities that Exelon already owns in Philadelphia and Chicago. Other concerns focus on specifics of the companies’ proposal to build a new renewable energy project like a wind farm, as well as the rate credit to be paid to BGE customers.
Strauss did spend time questioning Shattuck and Crane about nuclear power, which makes up about 90 percent of Exelon’s electric output. Exelon has said it does not plan to build any new nuclear plants not already in the works due to the depressed cost of natural gas that has made those kinds of capital heavy projects unattractive.
“It is just not financially feasible to build a new unit today — not in competitive markets, not for the foreseeable future,” Crane said.
Shattuck agreed and said that it was one of the reasons that Constellation backed out of a partnership with Electricite de France to build a third reactor at its Calvert Cliffs plant in Lusby. He said the drop in natural gas prices and the addition of untapped gas trapped in shale beds meant the previously volatile price of gas would likely remain low for a long time.
“It’s hard to characterize how hard the paradigm changed,” Shattuck said.
Strauss questioned Shattuck about whether it was the cost of gas, or the potential of a merger with Exelon that was really behind the decision to pull out of the EDF joint partnership. Shattuck said the initial conversation with Exelon came after Constellation’s breakup with EDF.
“I think there may have been a week or two overlap from when I received a call from Mr. Crane,” Shattuck said.
Crane said that the company’s investment bankers had been pushing a merger with Constellation. But he said Exelon did not want to get into a new nuclear project and having the partnership breakup was a factor in them approaching Constellation.
“We didn’t want to become a negotiating pawn in the middle of it,” Crane said.
Hearings will start up again on Tuesday and run into next week. The PSC has also set aside days later in November if they are needed.