BGE merger in danger, FPL warns

CEO says patience running thin, blames Md. legislature for delay

September 27, 2006|By Tricia Bishop | Tricia Bishop,SUN REPORTER

A proposed merger between Florida's FPL Group and Constellation Energy Group would provide potential rate relief of up to $600 million spread over 10 years for customers of Baltimore Gas and Electric Co. if the deal is approved. According to the General Assembly, a law passed in June requires the companies to provide the bulk of the amount - $386 million - in savings regardless of the deal's outcome. In a regulatory filing, however, Constellation questioned the legality of that requirement. An article in yesterday's Sun did not make that clear.

FPL Group Inc.'s chief executive told investors yesterday that his commitment to the merger with Constellation Energy Group Inc. will stretch only so far, raising new questions about the fate of the $11 billion utility deal and its promise of rate relief for some Maryland electricity customers.

Speaking at a conference in New York, Lewis Hay III said his patience is wearing thin with Maryland, particularly its legislature.

He accused the General Assembly of holding Florida-based FPL hostage while negotiating ways to stall an electricity rate increase for consumers this year.

If the merger were to fall through, so would $600 million in savings spread over 10 years for customers of Constellation's Baltimore Gas and Electric Co.

Those customers have just begun to feel the effects of a recent rise in electricity bills, the result of a cap on rates expiring this year. The higher rates and the merger became a political issue during this year's General Assembly session and emerged as a factor in the race for governor.

Hay's comments were the first from either company publicly addressing new uncertainties surrounding the merger. Those questions were raised earlier this month when a court ruling struck down legislation passed during a special session that intended to fire the Maryland Public Service Commission members.

Left in place, however, was a provision that says it's illegal for the current commissioners to take final action on the merger, causing confusion about how it will proceed.

"Frankly, there is a limit to how far I'm really willing to go with this, and I don't want to speak for [Constellation Chief Executive Officer] Mayo [Shattuck], but I sense that he has some limited patience on this as well," Hay said.

"It's not that we don't like the deal, but it's no good for either of our companies and not good for our shareholders for this thing to drag on indefinitely."

In a statement, Constellation spokesman Robert Gould said the merger makes sense from a business perspective, but the company cannot pursue it "indefinitely."

Constellation and FPL executives are pushing for the merger to create the nation's largest competitive energy supplier and the second-largest electric utility. But they need approval from state regulators to proceed.

Hay, who would lead the combined company, said he would likely wait until after the November election for Maryland's governor to decide on FPL's next step.

Republican Gov. Robert L. Ehrlich Jr. has expressed support for the current Public Service Commission, which many believe would approve the merger.

Spokesman Henry Fawell said he wouldn't comment on Ehrlich's proposed actions post-election, but he did blame the legislature for the current confusion.

The General Assembly, which tried to fire the commissioners through the legislation overturned by the court, had criticized the PSC as being too cozy with industry and heedless of consumer needs - a sentiment echoed by Baltimore Mayor Martin O'Malley.

O'Malley, the Democratic candidate for governor, has said he would fire the commissioners if he were elected and would appoint new ones.

"Essentially, the actions of the current PSC over the last year have clearly demonstrated that their interests are not for the ratepayers, and we believe ... the Public Service Commission should place [ratepayers] as their first priority," said O'Malley spokeswoman Raquel M. Guillory.

It's unclear whether O'Malley would have the authority to complete his pledge even if elected, however. Maryland law says commissioners may be removed by a governor before their five-year terms are up only for "incompetence or misconduct."

Terms of the current commissioners expire starting next year through 2010.

The legislature could choose to change that law, as well, though, said Kevin Enright, spokesman for Attorney General J. Joseph Curran Jr., who is O'Malley's father-in-law.

"If the General Assembly makes changes in the statute, [commissioners] could serve at the pleasure of the governor," Enright said.

Some analysts said the companies will only wait so long.

"There's more risk today than there was a few months ago," said Raymond Moore, an analyst with New York investment bank Shields & Co. "I was shocked the guy from FPL said we want to go through with it. ... I would have walked a long time ago."

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