More than money

March 30, 2006

If nothing else, top executives of Constellation Energy Group and Baltimore Gas and Electric Co., in pitching their case to The Sun editorial board this week, made it perfectly clear that they very badly want the proposed merger of Constellation and a Florida power group to proceed as planned this year. And in private meetings with Gov. Robert L. Ehrlich Jr. and General Assembly leaders over the last week in Annapolis, the power company executives have also made it obvious that they're willing to ante up to make that happen.

Suddenly faced with threats of legislative oversight of the merger - including the possible sacking of the state's industry-friendly Public Service Commission - Constellation has quickly begun to respond. The company started with proposing to defer this summer's 72 percent electricity-bill increase but make consumers eventually pay up with interest. Then it moved to yesterday's improved proposal, which boils down to deferring more of the increase, eating the interest and throwing in $246 million over eight years for consumers.

So the game has been joined, and legislative leaders - from the start much more protective of public interests on this issue than Mr. Ehrlich - are absolutely right to demand that Constellation put more money on the table to further dent the coming price increases. In this negotiation, the bottom line has not been reached.

But in the end, that bottom line should not just involve money. It should also embrace the strongest possible guarantees of a stable future for BGE, this region's energy lifeline, while its parent, Constellation, uses the proposed merger as a platform from which to dive even deeper into the highly risky world of energy trading.

Since the merger was announced, Constellation has promised that BGE will only be strengthened in the process and, particularly, not be weakened by any misuse of BGE revenues to subsidize the holding company's other ventures. Any deal between the legislature and Constellation on electricity rates ought to strictly hold the merged entity to those promises.

This shouldn't be difficult, largely because the PSC already understands how to better insulate BGE from Constellation. In February 2005, the PSC staff issued a thorough report on such "ring-fencing" measures - higher capital requirements for the utility, an independent board of directors and limits on dividend payouts, nonutility investments and asset transfers to affiliates within the holding company. The report particularly outlined how such walls better shield utilities in the event of a lowering of the parent firm's credit rating or even of bankruptcy.

The following month, PSC Chairman Kenneth D. Schisler issued a press release boasting that the staff report "confirms that the [PSC] has been proactive in ensuring reliable and reasonably priced electric and gas service to the citizens of Maryland." But in fact, all the report recommended by way of follow-through was more such PSC staff reports annually, not the adoption of any of the safeguards. All of which suggests that as the legislature works toward a better financial deal for Maryland consumers from Constellation, it's also going to have to be the source of better built-in protections for BGE's future.

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