What does end of deal mean for all parties?

Merger Unplugged

October 26, 2006|By Hanah Cho

Now that the merger between Constellation Energy and a Florida utility is off, what does this mean for the Baltimore-based company, its customers, the state and others?

What happens to Constellation?

The deal's end means that Constellation will remain headquartered in Baltimore as the city's only remaining Fortune 200 company. It will continue to operate as a stand-alone company as the country's biggest seller of wholesale power - at least for the time being.

Constellation must pay its former buyer, Florida-based FPL Group, $425 million if it sells itself to another party before July 1 and $210 million if it does so between July 1 and Sept. 30, according to a filing with the Securities and Exchange Commission.

Some analysts say once the political and regulatory dust settles, Constellation might look to acquire power plants.

And while Constellation's chief executive, Mayo A. Shattuck III, said the company will pursue a stand-alone strategy, he didn't rule out future deals. How will this affect consumer energy bills?

Gone is the $214 million in savings tied to the merger's success. Constellation had promised to pass on the rate concessions to BGE's 1.1 million residential customers over 10 years, which averages about $1.62 in savings per month.

But $386 million in other credits guaranteed by law are now in question. In a regulatory filing, Constellation challenged the legality of those credits on constitutional grounds.

Here's the good news in the short term: Any loss in savings could be offset by reduced energy prices, which are expected next year. What happens to the legal challenges and regulatory hearings related to the merger?

Constellation and FPL said they will formally withdraw merger approval applications pending before the Maryland Public Service Commission, the Federal Energy Regulatory Commission and other relevant agencies as well as legal requests filed with the state.

FPL had filed suit in Baltimore City Circuit Court this month in hopes of getting out of regulatory limbo. What does this mean for Maryland and its business environment?

The legislature's involvement in the merger and BGE's proposed electricity rate increase led credit agencies to downgrade the company's debt rating and economists to deem Maryland as having a bad-for-business reputation. But inside the state, a recent survey said 74 percent of businesses see Maryland as commercial-friendly, though some have attributed that perception to the Republican governor and not the Democratic legislature. What about jobs?

Under the now-discontinued merger agreement, executives had said job losses in redundant operations in Maryland and Florida were likely but mostly through retirement and attrition.

At the same time, the companies had hoped to see growth in Constellation's unregulated business of buying, selling and supplying power to customers nationwide. That business has its headquarters in Baltimore.

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