Reaction to deal failure crosses party lines

Ehrlich blames Democrats for collapse of merger

not everyone laments loss

Political fallout

Merger Unplugged

October 26, 2006|By Andrew A. Green | Andrew A. Green,Sun reporter

Gov. Robert L. Ehrlich Jr. seized on the failed merger of BGE's parent company and a Florida utility as clear evidence, two weeks before the election, that Democratic leaders are arrogant, over-reaching and anti-business.

Ehrlich had long warned that the legislature's attempts to replace regulators and slow the merger would kill the deal. But the potency of his "I-told-you-so" moment is unclear.

Nearly every issue at this stage of the election cycle has elicited a response that falls clearly on party lines - but not this one.

Ehrlich has long backed the merger, but many other political leaders in the state - including some members of the governor's party - say they were never convinced the deal would have been good for Maryland consumers.

Executives at Constellation Energy Group and FPL Group Inc. blamed the collapse of the $12.4 billion deal on an uncertain regulatory climate created directly and indirectly by the legislature's attempts to mitigate BGE rate increases and to scrutinize the merger. Ehrlich said that climate is the fault of the General Assembly for ignoring his warnings that its attempts to fire the Public Service Commission would be bad for Maryland's economy.

"It's been a long time coming, and I'm not surprised," Ehrlich said. "When you're creating an unstable regulatory environment like the General Assembly did, it makes a lot of people leery of doing business in the state."

No regrets

But for some, the end of the merger is an occasion for celebration.

"I think that my concerns and the General Assembly's concerns benefited the consumer and in the long run will be considered an asset and good public policy," said Del. Patrick L. McDonough, a Baltimore County Republican who said he worried that Marylanders could have been stuck with bailing out FPL every time a hurricane hit Florida.

Ehrlich and his Democratic opponent, Baltimore Mayor Martin O'Malley, have sparred over utility issues for months, but there are signs that the failed merger won't become the new hot topic in the governor's race.

The governor shied away from blaming the mayor for the failure of the merger, saying he might have made matters worse but it was the legislature that was primarily responsible.

O'Malley used Constellation's announcement as an occasion to criticize Ehrlich, but the potential for conflict over the failed merger is muddied because the mayor did not take a position on the merger itself. Aides said he couldn't say whether the merger would have been good or bad for the state without the benefit of hearings on the issue.

But the mayor did use the occasion to reiterate his accusation that Ehrlich and the regulators he appointed to the PSC were too cozy with corporate interests and not sufficiently attuned to the needs of the consumers. He said the reason the merger failed was ultimately not the General Assembly's attempt to fire the PSC - which he encouraged - but Ehrlich's failure to appoint competent, unbiased regulators.

"You would hope with a professional in that PSC, that they would have hearings, that they would lay out pros and cons of proposed mergers and set parameters for the approval: like keeping the headquarters here in the state, like guaranteeing that Maryland ratepayers aren't paying increased rates in order to subsidize hurricane cleanup in Florida," O'Malley said. "They should have looked at all this."

There was no clear pattern to the reactions of lawmakers who have been involved with the merger and rates issues, either.

Del. Warren E. Miller, a Howard County Republican and one of the strongest business advocates in the General Assembly, said he believes the failure of the merger will ultimately hurt Maryland because it will leave Constellation without the financial resources necessary to invest in increased generation capacity in the state.

No harm to customers

But Del. Jeannie Haddaway, an Eastern Shore Republican who, like Miller, sits on the committee that handles utility issues, said that although the failure doesn't speak well of Maryland's business climate, the direct impact might not be so dire.

"Constellation does appear to have a plan moving forward on their own that will not do any harm to their consumers," she said.

Sen. Thomas M. Middleton, the Southern Maryland Democrat who chairs the Finance Committee, said he thinks there is reason for concern about how Constellation will fare in the current uncertain regulatory environment.

And Del. Dereck E. Davis, the Prince George's County Democrat who heads the House Economic Matters Committee, said Constellation and BGE are solid companies as they are, and there's no way to know whether the merger would have helped or hurt.

"The jury was out on it," Davis said. "I thought we made the right decision to slow things down a bit and to let the Public Service Commission - maybe a restructured Public Service Commission - look at it and bring in some experts to take a look at this and determine where it was or was not in the best interests of Marylanders."

What would have a more direct political impact would be a move by Constellation to challenge legislation the General Assembly passed last summer to defer electric rate increases.

Legislators attempted to craft an aid package for consumers that did not rely entirely on the approval of the merger, and Constellation chief executive Mayo A. Shattuck III sent ambiguous signals yesterday about whether the company will challenge the $380 million in give-backs the law requires the company to make.

But Senate President Thomas V. Mike Miller said he is confident the rate plan won't be affected.

"I spoke with Mayo Shattuck this morning, and the benefits that were going to flow from the merger are going to continue," he said. "There won't be litigation."

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