Concessions seal deal for O'Malley
Originally Published in the Daily Record
After winning concessions valued at more than $1 billion — nearly twice what was originally offered — Gov. Martin O'Malley gave his blessing Thursday to the proposed sale of Baltimore-based Constellation Energy Group Inc. to Exelon Corp.
O'Malley, previously a staunch opponent of the $7.9 billion deal, said the settlement agreed to by the companies and his administration helped it reach the "high bar" he had set for his approval.
"The settlement represents a unique opportunity for the State of Maryland to benefit from this transaction, creating over 6,000 new jobs, providing $60 million for our low-to-moderate income neighbors, nearly doubling our solar installations, potentially doubling our land-based wind generation, creating the first animal-waste to energy facility in the State, and creating an offshore wind development fund," O'Malley said in a statement.
But Electricite de France SA, Constellation Energy's partner in its nuclear business, criticized the settlement, saying that the deal lacked provisions calling for more investment in nuclear business.
"At this time of economic uncertainty, EDF is surprised that Governor O'Malley is supporting a transaction that still poses significant risks to Maryland jobs and to the State's nuclear industry," a company spokesman said in a release. "EDF continues to believe that the transaction threatens hundreds of high-value, high-quality Constellation Energy Nuclear Group jobs, causes uncertainty around CENG's future in Maryland and is not in the best interests of the State."
Chicago-based Exelon had previously offered concessions of $515 million. In the new deal, Exelon agreed to develop or to help develop as much as 270 megawatts of new power-plant capacity in Maryland, 54 percent more than a Dec. 5 offer.
The settlement agreement more than doubles the amount the companies would pay into EmPower Maryland, which requires the state to reduce its energy consumption 15 percent by 2015. It also includes $30 million for offshore wind development and $2 million to public universities in the state to fund wind energy research. Exelon will also help develop solar power in Baltimore and other cities.
The deal also would give the Maryland Public Service Commission jurisdiction to spin off Baltimore Gas & Electric Co., Constellation's regulated utility, under certain circumstances such as a nuclear accident or if Exelon were to go bankrupt.
The state also could require divestiture of the utility if Exelon's credit rating drops six levels below investment grade. The rating now is BBB at Standard & Poor's, the second-lowest investment grade, and Baal at Moody's Investor's Service, the third-lowest investment grade.
A $100 credit to all BGE ratepayers was included in the deal. The staff of the PSC had recommended last month that the credit be doubled.
"The settlement makes it likely that the Maryland Public Service Commission will approve the merger on or before its Jan. 6 deadline," Philip Adams, a Chicago-based analyst for Gimme Credit LLC, said in an interview. "I like the idea that the concession is in the form of investment, which with smart managers will earn a return for shareholders as well as create jobs."
Thomas A. Firey, a Maryland Public Policy Institute senior fellow, said the focus on alternative energy seemed political and counter-intuitive to market forces.
"If a wind farm or other alternative energy project makes sense, it will happen anyway," Firey said. "And, if they don't make sense, then it's really just well-dressed corporate welfare."
Firey said it seems like the deal was more focused on securing funding for politically popular items like wind farms and poultry litter plants than getting further rate relief or rebates for BGE ratepayers. He also cautioned that there could be fallout from the deal that makes Maryland look unfriendly for businesses.
"It's a shakedown for which the public really doesn't get much," Firey said. "And, it's yet another red flag for any businesses down the road thinking of doing business in the state not to come here. It's Annapolis machinations at its best."
Abigail Hopper, energy advisor with O'Malley's Office of Legal Counsel, said the new deal would boost alternative energy spending in the state while also drastically increasing the amount of money going to protect low-income ratepayers.
"Our testimony has been constant that we never advocated doubling the rate credit," Hopper said. "The governor felt very strongly that we need to target citizens really in need, which this deal does."
On Thursday, Baltimore Mayor Stephanie Rawlings-Blake also threw her support behind the revised deal.
"From the beginning, our team worked directly with Exelon and the O'Malley administration to ensure that BGE ratepayers are protected, and now the combined company has offered substantial benefits for the people of Baltimore and Maryland," Rawlings-Blake said in a statement.
The deal still needs approval of the PSC, which needs to determine if the deal is in the best interest of BGE customers. The commission held a series of hearings on the deal, including public comment sessions and has said it will hand down its decision by Jan. 5.
The PSC scheduled a status conference for Friday morning to adjust the procedural schedule in light of the agreement.
EDF said Thursday it planned to call on the PSC to reject the deal.
"EDF will continue to look to the PSC, which has sole responsibility for determining whether the merger is in the best interests of Maryland, to make a judgment on the transaction and protect Maryland's interests," the company said in the statement.
Outside of Maryland, the New York Public Service Commission approved the sale on Thursday. Constellation owns half of the state's Nine Mile Point and Ginna nuclear-power plants.
The Federal Energy Regulatory Commission is also set to weigh in on the deal since it involves nuclear power plants. In November, FERC said that a separate settlement agreement over issues with market share in the regional grid would delay its decision until as last as April. The commission has yet to rule on a request from Constellation and Exelon to make a ruling prior to Jan. 5.