Constellation-Exelon merger creates a few concerns

Last week, the boards of Exelon Corp. and Constellation Energy trumpeted their potential merger. Technically, since Exelon gets to keep their name and their headquarters and be the big boy, it’s a bit more like Constellation’s being swallowed up or virtually erased---although both companies claim they will retain the Constellation brand and keep it in Baltimore. (But, with the Exelon crowd getting the lion’s share of the stake in the combined company, it’s really Exelon’s game.)

The new company will control more than 34 GW of big, bad power with a generation mix of about 55 percent nuclear, 24 percent natural gas and about 8 percent renewable. Constellation currently controls about 12,000 MW of generation capacity, and the company delivers electricity through the Baltimore Gas and Electric Co., its regulated utility in Central Maryland.

Before this merger can reach the proposed 2012 finish line, a lot of companies, regulators and people in general will need to be placated. First, the blending must be approved by the stockholders of both Exelon and Constellation, and will the Constellation people be happy with a final stake around 30%? (Analysts have noted, however, that they consider this a better deal for Constellation’s shareholders than Exelon’s. So, perhaps they are thrilled with their 30%.)

Then, the merger has to get a stamp of approval from a bevy of government regulators, including the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission (NRC), the Maryland Public Service Commission, the New York Public Service Commission, the Public Utility Commission of Texas, and a handful of other players.

Both groups have tried to head off potential issues at the pass. First, they’re dumping some coal-fired plants in Maryland to ward off possible calls of old-school monopoly (mostly because Exelon has some generation stuff in the PJM area, too). And, the companies have said that the individual utilities will feel little adverse effects with the merger.

BGE, ComEd and PECO will remain headquartered in Baltimore, Chicago and Philadelphia, respectively. And the companies claim that the merger will “benefit customers as all three utilities work together to share best practices to continually improve performance.”

But, no matter how hard they worked to mitigate the response, not everyone is a happy camper. According to the local Baltimore press, there’s a union-backed coalition already protesting the potential deal. While it has been widely reported that this combination would effectively eliminate the last Fortune 500 company in the city, what the coalition seems most concerned with isn’t the large overarching umbrella of Constellation and its Fortune status, but the local utility BGE.

In a press release, the coalition noted that BGE customers would get a single $100 credit with the merger but would not get protections against “already high bills” that they fear could be raised after the deal is finalized.

The mayor of Baltimore has said she’s all for the deal, believing it will bring in more jobs. But, the governor isn’t so sure.

While the state of Maryland isn’t actively protesting the merger like the union coalition in Baltimore, Governor Martin O’Malley made it pretty clear that he’d be keeping an eye on the proceedings, watching how it would impact his state’s ratepayers.

Given the concerns over outcome, the sheer number of regulators to please and the bad track record Constellation has for trying to market itself, things could get very messy. After all, it has tried this before, unsuccessfully with both Florida Power and Light and MidAmerican Energy and partially successfully (on the nuclear side) with EDF.

Will this merger idea with Exelon be the charm?