- The Washington Times - Wednesday, March 22, 2006

ANNAPOLIS — Constellation Energy Group officials yesterday sought to assure Maryland lawmakers that Baltimore-area customers would not end up paying for Florida hurricane damage if the company’s pending acquisition by a Florida utility company is approved.

“That just won’t happen,” Baltimore Gas and Electric Co. President Kenneth W. DeFontes Jr. told Senate Finance Committee members yesterday. “We’re not going to pay the costs to serve customers in Florida any more than they should pay the costs to serve us.”

The acquisition of BGE parent Constellation Energy, which the companies announced Dec. 19, has caused some lawmakers and consumer groups to worry that Maryland customers could be asked to subsidize FPL Group Inc.’s operations in Florida, which sustained millions of dollars in damage from hurricanes in 2004 and 2005.

“You don’t want the pricey electricity to cost more because the suppliers are taking the money and putting it into a subsidiary,” said Committee Chairman Thomas M. Middleton, Charles County Democrat.

BGE’s electricity rates are projected to jump 72 percent starting this summer, although the company began negotiating with lawmakers after the news prompted outrage statewide.

Constellation’s acquisition by FPL would create the country’s largest retail energy supplier and second-largest utility with a market capitalization of nearly $28 billion.

For the acquisition to proceed, it must be cleared by the Federal Energy Regulatory Commission (FERC), the Department of Justice, the Nuclear Regulatory Commission, the Maryland Public Service Commission, the Florida Public Service Commission and shareholders. The companies expect to receive the necessary approvals by the end of the year.

In a briefing, Cynthia A. Marlette, FERC principal deputy general counsel, cited “inappropriate cross-subsidization” between subsidiaries as one of the agency’s key issues when reviewing electric company mergers and acquisitions, although she would not speak about the BGE deal specifically.

Constellation Energy spokesman Robert Gould said state officials would never allow BGE to raise its rates to subsidize another state’s utility.

“Number one, we’re committed to that. Number two, no public service commission would stand for any BGE ratepayer dollars going to pay for any storm-related cost in FPL territory, and the fact is we’re prohibited from doing so.”

Theresa Czarski, an attorney for the Office of the People’s Counsel, a state utility watchdog group, said her office wants assurance from the Public Service Commission (PSC) “that BGE ratepayers never, ever get saddled with any storm-related costs.”

“The company claims that’s not going to happen,” Ms. Czarski said, but “it’s one of these things we want that additional degree of comfort.”

While the PSC has rules relating to affiliate companies, agency spokeswoman Christine Nizer said, “Obviously, the particulars of this merger weren’t considered.” The commission will examine the issue at hearings beginning April 25.

Several bills have been introduced about the acquisition. One with 35 sponsors would require the state attorney general to participate in the PSC hearing. Another sponsored by Sen. Leo E. Green, Prince George’s County Democrat, would make the acquisition contingent on approval by the General Assembly.

Under the deal, FPL Group shareholders would own roughly 60 percent of the new company, which would stretch from Florida to Maine. Constellation Energy shareholders would own the remaining 40 percent.

The two companies said their utilities in Maryland and Florida would continue to operate autonomously. The acquisition is expected to save an estimated $200 million to $250 million annually before the end of the third year.

“Baltimore and Maryland will be home to the growth engine of the business, and that’s where we’ve created 1,000 brand new jobs since 2001,” said Mr. Gould, referring to Constellation Energy’s deregulated supply business. The companies have agreed to maintain dual corporate headquarters in Baltimore and Juno Beach, Fla., for five years.

Brad Heavner, state director of the Maryland Public Interest Research Group, said the deal would result in less competition to supply electricity to residents in BGE service areas.

“We think that the merger should go forward only if companies can demonstrate that it’s in the best interest of Maryland rate payers,” Mr. Heavner said.

The Public Service Commission should not approve the transaction unless the millions in cost savings are passed along to customers, he added.

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