CEG debt rating gets a lift

Debt measure upgraded despite threat to planned merger with Florida utility

September 16, 2006|By Tricia Bishop | Tricia Bishop,Sun reporter

Constellation Energy Group's debt rating was upgraded yesterday by Standard & Poor's despite Thursday's confusing court decision that left the Baltimore company's $10.8 billion merger with a Florida utility in limbo and Maryland legislative leaders scratching their heads over what to do next.

Standard and Poor's bumped up Constellation's debt rating, which measures the likelihood it will repay its obligations, to BBB+ from BBB after a standard annual review that had nothing to do with recent legal or merger activity. That is a good rating but still seven spots below the top rating of AAA.

The analysts also raised Constellation's CreditWatch implications, which suggest the direction future credit rating changes may go, to "positive" - as in up - from the neutral "developing" that was given in December after the company announced its planned merger with FPL Group Inc.

A strong debt rating is critical to Constellation because it depends on borrowing money to finance its power trading activities, which account for a far larger portion of its business than its utility operations.

In April, the two other top ratings houses - Fitch Ratings and Moody's - downgraded the company and its subsidiary, Baltimore Gas and Electric, after the Maryland General Assembly intervened to stop an average 72 percent electricity rate rise and the regulatory environment grew uncertain.

This summer, the legislature passed a law that fired members of the Maryland Public Service Commission who approved the rate increase, phased in the full rate increase and required that a new commission look at restructuring the state's utility regulatory system.

S&P analyst Aneesh Prabhu said the rating rise wasn't related to the proposed merger, though another increase was likely if it went through because FPL has an A rating, which would pull up Constellation's rating. But he, like others, questioned yesterday whether the partnership will stand.

On Thursday, the Maryland Court of Appeals ruled that the legislature did not have the authority to fire the commissioners, but it also let stand a provision in the law that prevents the current members from taking final action on the merger.

The decision has bewildered the two companies involved and the sitting public service commission, which had planned to hold hearings on the merger in November and rule on it early next year. The commission is unsure whether it should or can proceed.

"Our lawyers are still looking at the decision, that's still under review," said PSC spokeswoman Bethany M. Gill.

Similar statements were offered by FPL and Constellation spokespeople.

"Confusion abounds," said Senate President Thomas V. "Mike" Miller Jr., a Prince George's County Democrat. "Affected adversely are Constellation, their shareholders and the rate payers."

Constellation had promised up to $600 million in rate savings for BGE customers over 10 years if the merger were approved.

House Speaker Michael E. Busch said the status of the FPL-Constellation deal is the biggest concern to arise from the decision. "I think while the court's made a decision, it just puts more doubt in the merger and the role of the commission and the role of the individual commissioners in this instance," Busch said. "They're probably in limbo not knowing whether they can go forward or not."

Busch said there was nothing the legislature could do at this point and was awaiting advice from the attorney general's office. Also, neither company could say whether it planned to take legal action and resume its merger process or call it quits.

On Thursday, the day of the Maryland court ruling, Chicago-based Exelon Corp. announced it had terminated plans to acquire a New Jersey utility after failing to reach a deal with lawmakers and regulators in that state. Exelon had offered New Jersey regulators concessions similar to those Constellation has offered Maryland regulators.

Wall Street didn't appear to be worried either way. Shares of Constellation closed down 40 cents to $59.55 on the Nasdaq, while FPL shares were up 27 cents to $44.27.


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