PSC ruling demands Constellation concessions

The state Public Service Commission wants Constellation Energy Group to issue $100 rebates to Baltimore Gas and Electric Co. customers and make other concessions as part of the company's deal to sell almost half its nuclear assets.

The PSC issued a ruling yesterday approving the $4.5 billion sale of about 50 percent of Constellation's nuclear business to Electricite de France only if there are greater benefits for ratepayers and BGE, the company's regulated utility arm.

"We have not ignored the broader value, and thus the public interest, in the good things that the transaction could accomplish for CEG and the State as a whole ..." the PSC wrote in its decision. "But the law requires something more, and the transaction as proposed does not deliver it."

The PSC has given Constellation and EDF until Nov. 6 to determine whether the sale will be closed.

The PSC's conditions mirror some of Gov. Martin O'Malley's wishes, although the proposed $100 rebates for BGE ratepayers by March 2010 - which would cost Constellation $110.5 million - are about half as much as he wanted.

Other requirements include infusing BGE with $250 million by June 30, 2010, restrictions on paying dividends, and "ring-fencing" rules to safeguard BGE, such as bankruptcy protection and credit-rating separation.

The "near-death experience" of Constellation in September 2008 demonstrated BGE's vulnerability to risky investments, the PSC stated, and the transaction will increase the competition for dollars within the company.

"These conditions not only will protect BGE against financial catastrophe at the hands of its parent, but will strengthen

BGE in ways that will yield more for ratepayers in the long term than any rebate," the decision states. "As with any prudent investment, the returns to ratepayers may not be flashy or immediate, but then again, '(s)omeone's sitting in the shade today because someone planted a tree a long time ago.' "

O'Malley told reporters yesterday the commission did a "fair and reasonable job."

"There are protections for the consumers, there are benefits for the consumers," he said. "This can be a victory all around."

The governor also said he was not worried about whether the new conditions could scuttle the deal entirely.

"This has been a complex case and I'm glad it is behind us," he said. "I think many of these conditions ... were conditions very much anticipated by Constellation."

Constellation officials declined to comment beyond acknowledging they have received and are reviewing the order.

In a prior filing with the PSC, however, the company had a jaundiced view on any conditions such as rate relief, speculating that such a move could negatively affect its credit rating.

"(Constellation) and BGE are on the proverbial 'ratings edge,' " the filing states. "Any unexpected or unreasonable order from this commission could well push the companies over that edge."

During hearings, Constellation said there were numerous benefits for ratepayers and Maryland in general, such as $129 million in immediate state-tax revenue and the increased likelihood of building a third nuclear reactor at Calvert Cliffs in Calvert County.

But the PSC was not convinced, and said tax contributions are too indirect and the development of Calvert Cliffs 3 is too uncertain.

" ... (W)e are mystified by the way in which this case has been cast as a referendum on a new nuclear power plant at Calvert Cliffs," the PSC wrote in its decision. "This is absurd on its face, of course, because this transaction and the documents executed to effectuate the transaction relate only to CEG's existing nuclear fleet, not to the proposed Calvert Cliffs 3."

The commission declined to address executive compensation, one of the sticking points for the O'Malley administration.

"We understand these concerns," the PSC said in its decision. "But even if we might, as individuals, question the wisdom of paying anyone millions of dollars per year given CEG's recent history, it is our role as commissioners to focus on BGE and its ratepayers."