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Proposed Constellation-Exelon deal under review

Constellation CEO Mayo Shattuck and Exelon President and Chief Operating Officer Christopher Crane took the stand Monday before Maryland regulators deciding whether to approve a $7.9 billion buyout.

Crane and Shattuck took the stand together before the Maryland Public Service Commission with questioning of Crane occupying most of the morning.

If approved, the combined company would be the nation’s second-largest residential electricity and gas distribution company with 6.6 million customers in Maryland, Illinois and Pennsylvania. However, regulators and the companies have sparred since the deal was announced in April. Exelon has also filed testimony saying that some conditions the state was trying to impose are unrealistic.

Gov. Martin O’Malley’s administration has asked regulators to reject the deal.

Attorney Scott Strauss, representing the Maryland Energy Administration, questioned Crane about how much influence Constellation executives would have after the purchase and Exelon’s commitment to its customers. Crane also was questioned extensively on minutes of meetings in which executives discussed priorities Exelon executives placed on paying dividends and funding the operations and maintenance budget.

Strauss asked Crane about a document from an Exelon executive committee meeting in which Exelon CEO and Chairman John Rowe said the company’s real objective is shareholder value. The minutes said that when given the choice between cutting dividends and cutting operations and maintenance spending, the company would choose cutting operations and maintenance.

“This is a summary of a very high-level discussion,” Crane said, adding later that the discussion was only about short-term scenarios and that safety and reliability are the company’s top priority. Crane said not all cuts to operating and maintenance budgets are directly related to reliability, adding budgets have line items for essential and non-essential expenditures.

“No more baseball tickets, cutting down on travel,” Crane replied when asked for examples. “We would review corporate staff not directly tied to reliability.”

Constellation had cut its dividends at one point but operations and maintenance budgets also were cut, Shattuck said. He dismissed what he said was the expectation that such moves jeopardize performance.

“I think there are plenty of other opportunities in these companies to reduce O&M in times of budgetary stress,” Shattuck said.

Regulators are expected to hear from dozens of witnesses over 11 days on the proposed purchase by Exelon.

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