Energy merger might be leverage

House panel considers thwarting deal to force easing of rate increase

March 24, 2006|By KELLY BREWINGTON | KELLY BREWINGTON,SUN REPORTER

Creating leverage in the fight against a 72 percent electric rate increase, a House of Delegates committee voted yesterday to give the General Assembly power to thwart an $11.4 billion merger between Constellation Energy Group and Florida's FPL Group.

Legislative leaders said the plan is more than a negotiating ploy, calling it a meaningful tool to confront a sale that they said could hurt customers while making executives and shareholders wealthy.

"I think the citizens of Maryland better make sure that in this, the largest merger in the history of the state of Maryland, that they know they are getting a fair shake," said House Speaker Michael E. Busch.

On an 18-3 vote, the House Economic Matters Committee moved to create a special investigator who would examine the takeover and report to the Assembly whether combining the two energy companies would be good for Maryland customers. If not, lawmakers could quash the deal.

The investigation - which would delay the merger for about a year - would weigh benefits and risks to Marylanders, examining the impact on electricity rates, reliability and jobs.

The bill would not directly confront the rate jump that customers will see starting July 1, when six-year caps on rates are lifted. Still, lawmakers have said for weeks that intervening in the merger is their best chance to save customers money.

The plan next heads for a full House vote and, if successful, to the Senate. But Gov. Robert L. Ehrlich Jr., who has said he's working with BGE, Constellation and the legislature and that "72 percent won't stand," was skeptical of the House proposal.

"It's not a solution," said Henry Fawell, an Ehrlich spokesman. "It creates a new layer of bureaucracy by doing nothing to make electricity rates more affordable for working Marylanders."

Hinder relief

Robert L. Gould, a spokesman for Constellation, said that the legislature's action might hinder the company's ability to offer relief on rates.

"It's unfortunate that legislators are taking this action at this time," he said. " ... Anything that creates an obstacle to the proposed merger has the very real potential of jeopardizing our ability to help defer the costs of our customers' electric bills."

Electric rates charged by BGE are scheduled to rise an average of $743 per household when temporary rate caps expire July 1. The caps were imposed to protect consumers during a transition to a deregulated energy market. Lawmakers who passed a deregulation bill in 1999 expected prices to drop, but they have risen.

Under the plan passed in the committee last night, Constellation and FPL would pay the costs of the special counsel and its staff. Del. Brian K. McHale, a Democrat from Baltimore, said that would be the only way to create parity in the fight.

The utility companies "will spare no expense to make this merger go through," McHale said during the committee vote. "If we set a limited budget, we will get outgunned by the applicants."

Not all lawmakers supported the move, saying they feared it would hinder discussions with utility executives and hurt Marylanders if the company decided to relocate to Florida.

"I think this is a very strong reaction and there can be some major repercussions out there," said Del. Warren E. Miller, a Republican who represents Carroll and Howard counties and who voted against the bill.

The special counsel would be appointed by the attorney general by May and would have to complete its inquiry by January 2007. The General Assembly would issue its decision on the merger by the end of next year's legislative session.

Robert A. Zarnoch, an assistant attorney general and counsel to the General Assembly, said the legislature would be acting within its rights if it passed the law.

Zarnoch said the state Public Service Commission has already shifted its merger review deadline from June to September and that a wait of a few more months - until the end of the 2007 General Assembly session - would not create much harm.

Constellation "could argue that this somehow jeopardizes their contract rights or takes property or interferes with federal rights," he said. "You might hear those arguments, but right now it does not look like it is delaying it so much that it is a real problem."

The proposal also sidesteps the state's utility regulatory agency, which was set to review the merger this summer and fall.

The Public Service Commission would be required to work with the counsel.

Legislators have taken aim at the Public Service Commission in recent days, accusing it of having a pro-business agenda and not coming up with a manageable plan to mitigate rate increases.

The commission has also come under fire after e-mails made public last week revealed conversations between a key energy company lobbyist and PSC Chairman Kenneth D. Schisler discussing board appointments and strategy to avoid political criticism on deregulation.

A spokeswoman for the Public Service Commission could not be reached last night for comment on the proposal.

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