With the repeal of PUHCA, (see Congress Enacts Energy Bill and FERC Pares Back Accounting & Record Keeping, but Retains Strict Transfer Pricing for Public Utility Holding Companies under PUHCA 2005) many in the industry expected to see an explosion of merger activity. The bloom may be wearing off that rose a bit, at least in the state of Maryland. With the prospect of significant retail rate increases looming, Maryland's legislature has sought to strike back by holding up the proposed merger between Constellation Energy Group and FPL Group, Inc. Last week, Maryland lawmakers passed two separate bills that would halt the merger unless Constellation softens the impact of an expected 72% retail rate increase to customers of its local subsidiary, Baltimore Gas & Electric, scheduled to take effect this summer. While the rate increase is apparently unrelated to the merger, and comes as a result of increased fuel costs and the expiration of retail price caps that have been in place since electric deregulation in Maryland, the legislature has seized on the Constellation-FPL merger as a potential means to avoid the politically unpopular rate jump.
One bill, HB 1713, would give the legislature the right to veto the merger. Another bill, SB 1099, would undo major sections of electricity deregulation in the state, and would prohibit the merger unless Constellation returns to its customers $528 million in stranded cost recovery it received under deregulation. Another recently passed bill, SB 1102, would remove from office the current members of the Maryland Public Service Commission, each of whom was appointed by the governor. Proponents of removing the current commissioners contend that they are too closely aligned with the electric industry and have failed to adequately protect consumers. All three bills are now being considered by Governor Robert Ehrlich (R). While it appears Gov. Ehrlich may veto the bills, the Democratic-controlled Maryland General Assembly may have the votes necessary to override a veto. The General Assembly adjourns April 10.
Constellation executives have been meeting with the governor and legislative leaders in an attempt to design a rate plan that lessens the retail rate impact. Under the current proposal, BG&E would borrow $750 million and phase in the rate increase over the next year, instead of implementing it all at once. Whether it can come up with a plan that can satisfy public officials in time to save the merger remains to be seen.