BGE debt move is speeded

Equity ratio to rise to `not less than 35%' by the end of 2003

September 13, 2001|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

In a move to allay regulators' concerns about a plan to split into two independent companies by the end of the year, Constellation Energy Group Inc. said yesterday that senior executives will reduce Baltimore Gas and Electric Co.'s high debt level by Dec. 31, 2003 - three years earlier than originally planned.

The pledge was made by Constellation in a brief filed with the Maryland Public Service Commission. The company also argued that conditions that other parties have recommended be imposed are inappropriate.

Constellation announced in October that it planned to split into two publicly traded companies, a fast-growth national power producer and marketer that would keep the Constellation name, and BGE Corp., a slow-growth, regional delivery company that will include BGE. The PSC held hearings on the plan earlier in the summer and is expected to issue an order next month.

In its filing yesterday, Constellation did not provide details on how it planned to accelerate the restoration of BGE's equity ratio to "not less than 35 percent." Instead, company officials stated that "these commitments are expressly predicated upon BGE management maintaining the flexibility to exercise any combination of the array of options ... available."

"This business separation will result in the creation of two premier energy companies, each headquartered in Maryland and generating economic benefits for residents and taxpayers," Constellation Vice Chairman Edward A. Crooke said in a statement. He is slated to become chairman and chief executive of BGE Corp. after the split. "BGE is financially strong and has a solid business plan," Crooke said. In addition, the company, which has cooperated with the PSC review, reiterated its position that the state has no authority over the separation.

During the hearings, state regulators indicated concern that a post-split BGE could falter under its $2 billion debt - a level that made its capital structure about 70 percent debt and 30 percent equity. Under its deregulation settlement, which took effect before the split was announced, the rates BGE can charge its customers were reduced and frozen until mid-2006.

Other parties in the separation case - including a trade group of power suppliers, the Office of the People's Counsel and the Maryland Energy Administration - suggested that state approval be contingent on various conditions such as mandating a capital structure for BGE after the split, restricting BGE Corp.'s use of proceeds from any sale of its Latin American power plants, requiring a BGE Corp. guarantee regarding bankruptcy and banning the utility from paying dividends to BGE Corp.

Company officials said in the filing that they have already addressed most of the concerns by entering into long-term power contracts to lock in electricity prices through July 1, 2006. The company said it also provided a number of specific assurances or commitments, such as:

Transaction or transition costs associated with separation will not be included in future utility rates.

BGE will file a petition in 2006 to examine decommissioning trust fund issues for Calvert Cliffs Nuclear Power Plant, which will be owned by new Constellation.

New Constellation will cooperate with BGE to provide information to the PSC so that it may evaluate the decommissioning trust fund's performance.

BGE will also file with the PSC all quarterly and annual reports that it's required to file with the Securities and Exchange Commission.

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