Even as executives of Baltimore's Constellation Energy Group and Chicago-based Exelon Corp. announced Thursday the marriage of the two power companies, they acted quickly to sell the $7.9 billion deal to Maryland ratepayers, politicians and especially regulators, who must sign off on the agreement.
Constellation and Exelon emphasized a $250 million incentive package that is part of the merger agreement, which includes a $100 credit for each BGE household. Baltimore Gas & Electric, Constellation's regulated utility, has 1.1 million customers. And while the sale of Constellation would usher out Baltimore's last Fortune 500 company, Constellation Chairman and CEO Mayo A. Shattuck III said the deal was "really great news for Maryland."
While the combined company, to be called Exelon, will be based in Chicago, Shattuck said it would still have a large presence in Baltimore. Constellation is the largest publicly traded company in the Baltimore region, employing 7,500 workers locally and contributing significantly to the city's tax base. It also gives millions of dollars a year to city and state charities.
"We put together a package that has net benefits to our ratepayers and that's in the best interest of Maryland," Shattuck said.
But some consumer advocates reserved judgment on whether ratepayers would be getting a good deal. And local and state lawmakers said they would carefully monitor the deal's regulatory review before the Maryland Public Service Commission.
"Is that a drop in the bucket or is it a reasonable way to go, or are there other alternatives even better than that?" Hank Greenberg, director of advocacy for AARP Maryland, which monitors utility issues, said of the one-time, $100 rebate.
The two companies "have a strong interest in merger activities," said Paula M. Carmody, the Maryland People's Counsel, whose office represents ratepayers. "From their point of view and shareholders, it may be a very good deal. The commission's job and our job is to make sure it's a good deal for residential ratepayers."
Baltimore Mayor Stephanie Rawlings-Blake said in a statement Thursday that Constellation had assured her that the deal would result in a "net positive job gain" for Baltimore.
Gov. Martin O'Malley, who was briefed on the deal before it was announced and has had a sometimes contentious relationship with Constellation, said in a statement that his administration would participate in the regulatory proceedings to "ensure that the transaction is in the best interest of Maryland ratepayers."
Greasing the skids
The move by the two companies to outline financial incentives so early underscores a concerted effort to ease the regulatory process in Maryland. Regulators' opposition thwarted an earlier takeover attempt of Constellation; regulators have also often clashed with the Baltimore company over rates. Rancor over increasing electricity costs after price caps were lifted in 2006 became fodder during statewide elections.
"Electric power in Maryland is a highly politicized situation," said Paul Patterson, an analyst at Glenrock Associates in New York.
For Constellation, the deal to sell itself to Exelon comes less than three years after the Baltimore company narrowly averted bankruptcy amid the financial crisis and represents the company's third sale attempt since 2006.
Shattuck, who has been Constellation's chairman and CEO since 2001, will become executive chairman of the combined company. He will not get a severance or "change in control" payout related to the deal. But he is still eligible for $20.6 million in previously owed incentive payments upon the merger's completion, according to a proxy statement filed this month.
Meanwhile, Exelon's CEO, John W. Rowe, will retire at the deal's closing. Christopher M. Crane, now Exelon's chief operating officer, will become president and chief executive of the combined company.
In an interview Thursday morning at Constellation's Pratt Street headquarters, Shattuck, Rowe and Crane played up what they called the deal's benefits not only for the two companies but also for Maryland's BGE customers.
Besides the one-time credit to residents, which is due within 90 days of the deal's closing, the combined company will provide $5 million for a Maryland program that aids low-income electric customers.
Moreover, Constellation and Exelon agreed to invest $4 million for Maryland's EmPower energy efficiency efforts; $10 million for the state's electric vehicle infrastructure; and more than $50 million to develop 25 megawatts of green energy in the state.
The two companies also agreed to maintain Constellation's annual charitable giving of about $10 million for at least 10 years.
While an undetermined number of corporate layoffs are expected because of consolidation and job redundancies under the deal, no BGE workers will be laid off for at least two years after the merger is complete, the companies said. BGE employs 3,500.