- The Washington Times - Thursday, March 30, 2006

Constellation Energy Group Inc., the parent company of Baltimore Gas and Electric Co., is not expected to see a large drop in its stock price even if Florida Power & Light Co.’s planned acquisition of the company is killed.

The Maryland Senate yesterday passed a bill barring the Baltimore company from merging with the Juno Beach, Fla., business without its approval. The House approved the measure last Friday. Gov. Robert L. Ehrlich, a Republican, has not said whether he will veto the bill.

“I don’t see a whole lot happening if it doesn’t go through,” said Ray Moore, vice president at Shields & Co., a New York financial firm. “If it doesn’t go through, we’ll obviously see the stock drop somewhat, but not that much.”

Shares of Constellation fell 60 cents yesterday to close at $54.63 on Nasdaq. The stock price has dropped about a dollar since March 7, when a 72 percent rate increase was announced.

“Every merger at least has to be approved with the state; this just adds a wrinkle to it,” said Arthur Simonson, managing director at Standard & Poor’s in New York, which placed Constellation and its subsidiaries on credit watch “with positive implications” when the acquisition was announced Dec. 19. The company said the fight that has developed over the rate increases is not expected to affect Constellation’s finances.

If its credit rating were to fall, it would be more difficult for Constellation to obtain loans at low rates.

“We think that a merger with Florida Power and Light could strengthen Constellation’s credit profile right now,” Mr. Simonson said.

Mr. Moore has Constellation Energy listed as a “market perform” stock. He says growth in the competitive utility arena, in which Constellation sells energy in other markets with multiple suppliers, is slowing and the double-digit earnings growth is going to have to rely on higher prices. BGE, on the other hand, is “pretty safe,” he said. “It’s the stable part of the business.”

Neither Mr. Moore nor Shields own Constellation Energy stock.

A major concern for investors is if Florida Power & Light backs out of the deal and renegotiates the terms if it finds too many obstacles with the Maryland legislature. That uncertainty “would put pressure on the share price of Constellation,” said Paul Fremont, an electric utility analyst with Jefferies & Co. in New York, which does not have a business relationship with either company. Mr. Fremont does not own shares of either company.

“The issue here is what, if any, earnings or cash flow impact comes about as a result of a negative settlement or the impact of a bill that’s passed,” he said.

One credit agency is beginning to grow concerned about the pending acquisition and BGE’s rates once six-year-old price caps are removed in the summer. The details of how quickly the rate increases will hit consumers has been a hot-button issue with consumers and legislators.

Fitch Ratings this week lowered BGE’s credit outlook to negative from stable. Constellation is still ranked at stable. Last week, Moody’s Investors Service placed the company under review for a potential downgrade.

“BGE’s negative rating outlook reflects the growing possibility of a new state law that may limit BGE’s ability to recover its power supply costs,” Fitch said in a report.

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