PSC plans broad look at pending sale of CEG

Panel will weigh issues of reregulation, other buyer

November 15, 2008|By Hanah Cho | Hanah Cho,hanah.cho@baltsun.com

The state utility regulator examining the pending sale of Constellation Energy Group said yesterday that it will consider arguments on whether ratepayers would be better served by an alternative buyer for the Baltimore company or by reregulating the utilities, among numerous issues.

Under an order issued yesterday, the Maryland Public Service Commission said it has the discretion to consider an array of issues, as it decides whether to approve the $4.7 billion deal. Constellation owns Baltimore Gas & Electric Co., which is Maryland's largest power utility with 1.1 million customers.

Baltimore-based Constellation agreed to sell itself to Warren E. Buffett's MidAmerican Energy Holdings Co. in mid-September as it faced a liquidity crisis amid the financial turmoil. The Des Moines, Iowa-based MidAmerican agreed to pay $26.50 a share, about one-fourth of Constellation's market value at the beginning of the year.

The deal also needs shareholder and federal approval.

The panel told parties involved in the case that they must tie all arguments for and against the proposed deal to how it would benefit Maryland ratepayers.

Regulators said they will consider whether approval of the transaction should be contingent on returning "the former BGE generating plants to BGE" and regulatory price control. The generation plants are now owned by an unregulated Constellation affiliate under a deal to deregulate the industry in 1999.

Some lawmakers have been seeking to reregulate Maryland's energy markets after deregulation failed to deliver competition and savings. BGE's residential customers are paying 85 percent more for electricity than they were before deregulation passed.

Constellation executives have resisted the idea of reregulation for years, saying a competitive market will serve customers best.

William Fehrman, senior vice president at MidAmerican, told the Senate Finance Committee last month that he was willing to discuss regulation of new generation and transmission assets when the deal is completed.

Moreover, the PSC said yesterday that it also will weigh arguments about whether a "concrete and viable" buyer would be better for ratepayers. Some shareholders are angry that Constellation rejected a higher, $35-a-share offer from its largest shareholder, Electricite de France. EDF, which decided last month not to submit a new offer, has a voice in the PSC case as an intervening party.

Several shareholder lawsuits have been filed against Constellation and its management for accepting too low a bid for the company. Regulators said they would not get into shareholder disputes.

PSC Chairman Douglas Nazarian declined to comment through a spokeswoman, saying the order speaks for itself.

Constellation spokesman Rob Gould said, "We believe today's order by the PSC is thoughtful and balanced and takes into consideration the interests of all stakeholders."

MidAmerican spokeswoman Ann Thelen said the company believes the transaction is in the public interest.

The PSC's timetable for review calls for testimony to begin in early January and a decision by April 15.

Separately, Constellation announced yesterday that it closed on a $1.23 billion credit line with UBS Loan Finance and RBS Securities. The credit line, initially pegged at $2 billion, helps the company shore up its liquidity. Constellation also closed on additional liquidity of up to $350 million from MidAmerican, which already invested $1 billion in the company as part of the proposed deal.

Shares of Constellation fell 21 cents to close at $24.53 yesterday.

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