Constellation coal plants face an uncertain future

November 26, 2011|Jay Hancock

They feel forgotten in the expensive and lengthy proceeding to sell Constellation Energy, Baltimore's last Fortune 500 company, to Chicago-based Exelon.

If the merger goes through, 425 employees at several Maryland power generation plants owned by Constellation would find themselves working not for Exelon but for some unknown third party. For all the uncertainty associated with the deal, everybody else at Constellation knows their future employer's identity and can try to draw conclusions.

Workers at the Brandon Shores, H.A. Wagner and C.P. Crane plants, on the other hand, have no idea who their bosses might be a year from now. The three coal-fired plants must be sold off as part of the buyout. Add to that the iffiness of generating energy with what many argue is yesterday's fuel, and it's no wonder workers worry about what might come next.

Despite recent restrictions placed on the sale, as well as concerns about coal's pollution and carbon emissions, independent authorities say the plants should fetch a decent price and enjoy continued demand for their electricity.

"My take is, they are all marketable," said Bert Wilson, a principal at Baltimore-based Castlebridge Energy who, in the early 1990s, worked on Baltimore Gas and Electric Co.'s regulatory case to be reimbursed by ratepayers for its investment in Brandon Shores.

"Coal is still king, making about 70 percent of all power" on the Mid-Atlantic grid, he said. "It will take a long time to replace that."

Constellation and Exelon promised to sell the plants the day they announced their marriage. The combined company would control so much Mid-Atlantic electricity generation that the bosses didn't even try to bluff the antitrust cops. They pledged to sell the three coal generators, which should fetch more than $1 billion, to try to relieve regulators' concerns about concentration of ownership.

So while several other variables are up for negotiation as the Maryland Public Service Commission considers the deal — green energy at the combined company, rate rebates, employment levels, charitable giving — workers at the three coal plants feel like the lost tribe.

"They were the ones that were probably the most shaken by the news" of the proposed Exelon merger, said Constellation President and CEO Mayo A. Shattuck III, who talked to Baltimore Sun writers a few weeks ago. "They don't know who their new owners are going to be, and we're completely understanding of that sensitivity. But they will end up with a good owner."

Appalachian coal has powered the East Coast for decades, but it causes smog and disease, and emits more carbon dioxide than other fuels.

The Environmental Protection Agency is tightening emissions standards for ozone, greenhouse gases and other pollutants. Industry groups have called the process a "train wreck" that will cost jobs and put grid reliability at risk by making many coal plants money-losing propositions.

PJM Interconnection, the nonprofit organization that runs the regional grid, calculates that the EPA rules will eventually lead to the retirement of nearly one-fifth of the coal-generation capacity in its 13-state territory. That's enough to power 14 million households.

In presentations to investors, Exelon and Constellation have been boasting about how little coal-fired generation capacity the combined company would own.

Brandon Shores, H.A. Wagner and C.P. Crane were built by BGE and transferred to Constellation, BGE's parent, as a result of deregulation. Of the three, Brandon Shores, in Pasadena, should fare best under tighter regulation. It's newer than the other plants, and Constellation spent close to $1 billion to install scrubbers and other pollution controls that will keep it on the right side of anything the EPA can dish out.

Wagner is much older — it opened in 1956 — but by virtue of its location next to Brandon Shores, it shares that plant's credit for pollution reduction, Constellation officials say.

Crane, in Bowleys Quarters in Baltimore County, is perhaps most at risk. Opened in 1961, it can produce 399 megawatts of electricity, less than a third the capacity of Brandon Shores.

The coal plants most likely to shut down are "more than 40 years old and less than 400 megawatts," said a PJM study this year. Scrubber-less coal plants that opened before 1969 "are the prime candidates for retirement," according to a study by the nonpartisan Congressional Research Service.

On the other hand, Crane has reduced emissions by using lower-sulfur coal, Shattuck said, and has experimented with other fuels as well.

"All three plants are viable even with the new EPA regs coming down the path," he said. "So we believe that they all will be operating. And a lot of people are interested in them," he said, despite the fact that the PJM market monitor recently forbade selling the plants to anybody who already owns substantial generation capacity in the region.

Julien Dumoulin-Smith, who follows Constellation and Exelon stock for UBS Securities, believes likely buyers include NRG Energy and Direct Energy. A Direct Energy spokeswoman declined to comment. NRG did not respond to a phone message.

Exelon and Constellation are trying to reassure employees by requiring any buyer to maintain employment, pay and benefits at the facilities for at least two years. But the way the energy business is moving, two years is a blink.

Md. plants for sale

Facility Opened Fuel Capacity

Brandon Shores 1984 coal 1,273 megawatts

H.A. Wagner 1956 coal/oil/gas 976 megawatts

C.P. Crane 1961 coal/oil 399 megawatts

Source: Maryland Energy Administration; Constellation Energy

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