Merger-veto bill's legality questioned

House action to bar CEG-FPL deal may violate Md., U.S. constitutions


Legislation that would give lawmakers veto power over Constellation Energy Group's merger with a Florida utility owner may run afoul of both the state and federal constitutions, several legal experts say - raising further questions about efforts in Annapolis to deal with a crisis over electric rate increases.

Constellation has threatened to sue the state if lawmakers block the merger, a move that comes amid wrangling over a 72 percent rate increase at its subsidiary, Baltimore Gas and Electric Co.

Legal analysts said the proposal to give lawmakers power over a utility merger has no precedent. And even if it passes constitutional muster, the move would have broader public policy implications that would alarm the corporate community in a state that has long sought undo its image as being unfriendly to business.

"At this point, to have the legislature sit as judge and jury on the merits of a transaction would make Maryland an extraordinarily unattractive place for any business to be," said Richard A. Booth, a University of Maryland law professor.

Legislation passed by the House of Delegates Monday would create a special counsel with broad subpoena powers to study the proposed merger and its potential impact on consumers in Maryland. The special counsel would be allowed to hire staff and bill the costs to Constellation Energy. At the end of the investigation, the special counsel would report back to lawmakers, who would then vote on whether to allow the transaction to proceed.

Lawmakers say they are confident the bill will survive legal challenges.

"We had, I think, some of the best legal minds involved in this, including folks who know this particular industry well, as well as advice from the Attorney General's Office as to what we could or could not do," said Del. Brian K. McHale, a Baltimore Democrat and proponent of the bill.

The state Public Service Commission is charged with overseeing utilities. But lawmakers say the agency's commissioners are too cozy with the industries they regulate and aren't doing enough to protect consumers.

Lawmakers have said they are worried that the merger could be bad for consumers, but the bill is motivated by legislative efforts to get BGE to provide relief on rate increases that are set to take effect in July.

Legal experts say the legislation may overreach in a way that could violate due process and interstate commerce provisions in the federal Constitution, among other things.

"They do have some constitutional arguments that they could make," said Kevin Fitzgerald, a managing partner in the Washington office of Troutman Sanders and an expert on utility regulations and mergers.

Legal analysts said one potential problem with the legislation is that it would give the special counsel seemingly unfettered investigative powers without establishing clear procedures to be followed, which could violate Constellation's right to due process under the Constitution. It also fails to establish an appeals process in the event lawmakers reject the merger - another potential violation of due process.

"If the legislature wants to act as both prosecutor, judge and jury, that raises a whole host of constitutional issues, and it sounds to me like that's what they're proposing," said William Scherman, a Washington attorney and former general counsel at the Federal Energy Regulatory Commission.

Constellation also could argue that the law violates the commerce clause of the Constitution, which gives Congress the ability to regulate commerce among states and limits the ability of states to erect barriers to trade. And since the legislation specifically names Constellation, the company could argue the legislation violates laws prohibiting lawmakers from singling out an individual or specific class for punishment, some legal experts argue.

Article III of the Maryland Constitution has a similar prohibition, commonly referred to as the "special law" provision. It basically says that lawmakers can't create a law that applies only to a specific individual or class - in this case a business that wants to merge with another company.

Finally, legal experts said, the proposed law also may violate the state Constitution's separation of powers provisions. It would, in effect, snatch regulatory authority away from the state Public Service Commission, an agency of the executive branch. The Maryland Constitution says, in essence, that one branch of government can't assume the powers or discharge the duties of another.

Legal experts said it's unclear whether Constellation would win under any of the above arguments. But the more issues that can be raised, the better the odds for success, they said.

Constellation has said that any attempt to kill the merger could damage negotiations between the company and lawmakers to mitigate the rate increases to consumers. The company also says its proposal to provide financial relief to utility customers struggling with rate increases is linked to approval of the merger.

"We continue to explore all of our options, including the legal route, but we're hopeful that the legislature will recognize the true value this merger will bring to Maryland," said Robert Gould, a Constellation spokesman.

At a glance

What the House bill does

Creates a special counsel to investigate the impact of Constellation Energy Group's proposed merger with FPL Group Inc. of Juno Beach, Fla.

Gives special counsel broad investigative powers

Orders special counsel to report back to General Assembly on merger's impact on consumers

Gives lawmakers authority to approve or disapprove the merger

What legal experts say

Constellation Energy could challenge the law, saying it violates:

Commerce Clause of U.S. Constitution

Laws guaranteeing due process

"Special law" provisions of Maryland Constitution

Separation of powers under Maryland Constitution

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