CEG merger hearing canceled

PSC tells Constellation, FPL to give new testimony on public benefit


Maryland utility commissioners canceled today's scheduled public hearings on Constellation Energy Group's proposed merger with a Florida utility owner yesterday and ordered the companies to submit new testimony proving that the $10.8 billion deal will benefit consumers.

The Public Service Commission's order reflected legislation passed last month that raised the standard it must use in deciding whether to approve the merger. Previously, the companies had to prove only that a merger would not harm consumers; now they must prove a "net benefit."

The new standards are part of the law that sought to soften the impact of Constellation subsidiary Baltimore Gas and Electric Co.'s 72 percent rate increase on residential customers and to fire the PSC's five members.

Yesterday's decision handed Baltimore-based Constellation and Juno Beach, Fla.-based FPL Group Inc. another delay in their proposed merger, which has been caught up in the debate over rising electric rates in Maryland.

Lawmakers at various times threatened to halt the deal in order to force Constellation to reduce the BGE rate increase.

The PSC is in the midst of a legal battle over its own future. The Maryland Court of Appeals last week temporarily blocked the parts of the law that would fire the PSC's four remaining commissioners. One commissioner recently resigned.

The commission and lawmakers are waiting for a final ruling on PSC Chairman Kenneth D. Schisler's lawsuit to save his job. The appeals court's decision will determine whether Constellation's merger will be decided by the current panel or a new one composed of nominees chosen by the General Assembly. Meanwhile, Constellation and FPL must start over in their application for approval to become the nation's third-largest power company.

In its order yesterday, the commission said the companies must resubmit their petition because previous filings were made under the old standard.

Reasoning that it would be too cumbersome for Constellation and merger opponents to amend testimony they've already provided, the commission opted to wipe the slate clean - which leaves open the question of when new hearings will be held.

Constellation and FPL said they will comply.

"Today's order by the PSC allows us to put together a case which addresses [the legislation's] requirements in an orderly fashion, complete with a new petition and new testimony," said Rob Gould, a spokesman for Constellation.

"It also allows the commission to be in a position of having a clean record and documentation to support its decision," Gould said.

An FPL spokeswoman said the companies will press their case that the merger will benefit consumers by eliminating redundant back-office functions and allowing the two utilities to swap best management practices, among other things.

In regulatory filings, the companies have said the merger will provide up to $250 million in cost savings, which could go toward consumers.

"The sooner the merger can be approved, the sooner Maryland customers can get the benefits of the combined companies," said Mary Lou Kromer, the FPL spokeswoman.

It's uncertain how long the PSC's order will delay merger proceedings.

If Constellation's petition contains new information, opponents could demand that the company provide more evidence to back its claims. That legal process - known as "discovery" - could drag on for weeks or months.

"We might already have certain evidence that we would use, but if there is some new twist in there, we would have to explore whatever new assertion [Constellation] might make," said Theresa Czarski of the Maryland Office of the People's Counsel, the state agency that advocates on behalf of utility customers. The People's Counsel opposes the merger.

The rate legislation also replaces the head of the People's Counsel, who is an appointee of Gov. Robert L. Ehrlich Jr.

Utility experts said the higher standard for merger approval demanded by lawmakers is consistent with those adopted in a few other states, including Oregon. Often, states will hold up merger approvals until companies pledge to pass on savings to consumers or maintain certain employment levels, among other things.

Proving that a merger will benefit consumers might be as simple as demonstrating potential administrative cost savings, said Robert Burns, a senior research specialist at the National Regulatory Research Institute at Ohio State University.

But it can get complicated if opponents argue that potential cost savings will be wiped out by negative side effects of the merger, such as diminished competition among power suppliers or the loss of jobs to another state, he said.


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