The Public Service Commission conditionally approved Exelon Corp.’s $7.9 billion purchase of Constellation Energy Group on Friday.
Baltimore’s last remaining Fortune 500 company’s days appeared to be numbered after state regulators signed off on the all-stock deal, under which the companies will merge, with Exelon as the surviving entity.
The commission said it could not have approved the merger as it was originally presented. But after months of review and testimony and a list of 40 conditions, the PSC said yes.
“As originally filed, this Merger raised serious concerns. After a comprehensive review, we can say that we could not have approved it in its original form,” the commission wrote in its order. “Most notably, the serious, unchecked potential for the merged companies to exercise market power would have created risks of harm to consumers inconsistent with the statutory standard, and the Applicants’ initial proposal would not have mitigated the very real potential harm to consumers.”
PSC action was seen as the largest hurdle facing the deal. This approval leaves only a review by the Federal Energy Regulatory Commission before the transaction can be consummated. The Nuclear Regulatory Commission approved the deal Thursday.
The all-stock deal was first announced last April and had been expected to close in January. Now the transaction is expected to close this spring.
The PSC’s conditions hew closely to an agreement hammered out in December between the companies and Gov. Martin O’Malley.
“I appreciate the Public Service Commission’s thoughtful consideration of the Constellation/Exelon merger,” O’Malley said in a statement. “The approved settlement will bring a multitude of benefits to our State, including up to 300 MW of new generation and over 6,000 new jobs to Maryland. Additionally, this represents a significant commitment by Exelon to harness Maryland’s renewable energy resources.”
One of the conditions includes a $100 rate credit to all Baltimore Gas & Electric customers that is to be paid within 90 days.
Another is that Exelon must invest $113.5 million over three years into a fund to provide energy efficiency and low-income energy assistance to BGE customers. Exelon also will need to develop between 285 and 300 megawatts of new generation within the state.
‘Significant number of benefits for BGE customers’
Of the total amount, 120 megwatts will come from a primarily natural gas-fired plant, which needs to be online by December 2015. Exelon will also need to develop 125 megawatts using alternative renewable resources, like wind or solar power. The deadline for completion is January 2022. Exelon will also have until December 2015 to add 30 additional megawatts of solar generation in Baltimore and other jurisdictions.
The new generation condition is meant to help protect Maryland consumers from higher rates since Exelon will now have a greater market share in the regional power grid.
Other conditions include keeping staffing levels the same at BGE and at two power plants the companies must sell off, for a two-year period. The PSC could also require divestiture of BGE if Exelon files for bankruptcy or allows its credit rating to drop six levels below investment grade.
Paula Carmody, state People’s Counsel, said her office still had some concerns about market share with the combined companies, but she agreed with the PSC that the conditions went further to protect BGE customers.
“When you look at the original application from the companies — through advocacy, we have been able to obtain a number of significant benefits for BGE customers,” Carmody said.
The Exelon deal marks the third time in six years that Constellation has tried to sell itself. In 2006, a merger with the Florida Power & Light Co. fell through after significant pushback by elected officials.
In 2008, Constellation was beset with credit concerns as its stock and market value plummeted and the threat of bankruptcy was even a potential outcome. A deal quickly came together that would have sold the company to Warren Buffet’s MidAmerican Energy for $4.7 billion.
But it was called off after Constellation agreed to what it considered a better offer from Electricite de France, which bought 49 percent of Constellation’s nuclear business for $4.5 billion.
This time, one of the biggest hurdles to the Exelon deal was removed in December when O’Malley, who had opposed the move, signed off on it after the companies bolstered the benefits to the state. O’Malley said at the time that the settlement agreed to by the companies and his administration helped the deal reach the “high bar” he had set for his approval of the sale of Constellation.
The Constellation name will live on as the companies’ competitive power division, which will be headquartered in a new $120 million at Harbor Point in Baltimore. The building will replace Constellation’s current headquarters on Pratt Street at the Inner Harbor. The competitive retail power business will be housed in Harbor Point.
The building is slated for completion in 2014, and is being planned to achieve Platinum LEED status. The tower will have up to 400,000 square feet of office space and a 70,000-square-foot trading floor, 3,000 parking spaces, 600 residential units and 150,000 square feet of retail space. An 11-acre park including a tournament-grade lacrosse field as part of a new U.S. Lacrosse complex is also expected to be built at the site.