The Maryland Public Service Commission begins three days of hearings today to examine whether Baltimore Gas and Electric Co. can remain financially healthy if it is allowed to split from Constellation Energy Group Inc. later this year.
Regulators specifically are concerned about the utility's ability to provide electricity to consumers at rates frozen until 2006 under last year's deregulation agreement.
Constellation announced plans in October to split into two publicly traded companies - Constellation Energy Group, a fast-growth national power producer and marketer, and BGE Corp., a slow-growth company that will include the regulated utility.
Prior testimony filed by the state people's counsel, who represents consumers before the PSC, pointed to concerns about the $2.4 billion in debt BGE will carry after the split.
A consultant to the people's counsel warned that such a high debt level could make it difficult for the utility, which will remain regulated, to handle unexpected problems such as severe ice storms, hurricanes or spikes in the price of electricity.
Constellation has submitted extensive confidential information to the PSC about the separation, but it is still unclear what could happen if the commission seeks to alter or block the plan.
Although Constellation has fully cooperated with the PSC, company officials maintain that the state has no authority over the transaction. Even so, the PSC review could be Constellation's only obstacle on its path to separation, since the company has already received most of the necessary regulatory approvals.
"Ever since we announced our plans last year to separate, we have been providing information to the PSC," said Robert S. Fleishman, vice president of corporate affairs and general counsel for Constellation. While the company understands that the commission has a need to satisfy its concerns, he added, "BGE will continue to fulfill its obligation to serve Central Maryland as a public utility.
"The separation will result in two energy companies headquartered in Maryland with benefits for customers, employees and investors," Fleishman said. "BGE will be part of a strong, vibrant $5.5 billion corporation. We see no reason that the PSC would attempt to hinder business separation. We are hopeful for a good outcome in a timely manner."
PSC officials say they have no desire to delay Constellation's plan to split by the end of the year, but that they have a mandate to examine the transaction.
"The law requires the commission ensure the financial integrity of its regulated entities; therefore, the hearings will determine the effects of the proposal on the finances of BGE," said Chrys Wilson, PSC spokeswoman .
Today's hearings will include testimony from Christian H. Poindexter, Constellation's chairman and chief executive officer, Vice Chairman Edward A. Crooke and BGE President and CEO Frank O. Heintz. They will be followed in the afternoon by the company's treasurer, controller and an outside consultant to testify on the financial details of the split.
Tomorrow, consultants hired by the people's counsel and the Maryland Energy Administration as well as commission staff members are scheduled to testify. The final hearing, set for Thursday, will focus on rebuttal testimony.
