ANNAPOLIS – Wary of pushing further into the political, legislative and regulatory thicket of Maryland, Constellation Energy Group Inc. and a Florida utility Wednesday called off their proposed $12.4 billion merger.
Constellation said it decided to terminate the deal because of “continued uncertainty over regulatory and judicial matters in Maryland.” FPL board members later agreed, ending months of confusion about whether the merger would win regulatory approval in the state.
The merger would have created a company with $28 billion in estimated annual revenue.
“As we considered the situation in Maryland, we determined the risks and uncertainties were too significant to overcome,” said Mayo A. Shattuck III, Constellation’s chief executive officer, in a statement.
Reaction from state politicians and officials was generally low-key, as they sought to determine how the collapse of the merger would affect their constituents and their own political futures. Indeed, the coming rate hike and the issue of utility regulation remain a contentious issue in the gubernatorial campaign.
Henry Fawell, a spokesman for Gov. Robert L. Ehrlich, said the Democrat-controlled General Assembly had created an environment that endangered the merger.
“The company was put in a very uncertain legislative and regulatory situation by the legislature,” Fawell said.
Ehrlich has previously criticized the legislature for giving consumers a bad deal on rate relief.
He told reporters at a campaign event at a Northwest Baltimore school Wednesday that he’s not letting his opponent, Baltimore Mayor Martin O’Malley, “off the hook” for backing legislation that contributed to the end of the merger.
“His [O’Malley’s] involvement made it more expensive for the rate payer,” the governor said. “That’s what frustrated me from day one.”
Hari Sevugan, a spokesman for O’Malley, said the merger’s end “shows the need for an independent PSC that can evaluate whether the merger would have been beneficial for ratepayers.”
But Aris Melissaratos, secretary of business and economic development, was unequivocal in his opinion that General Assembly’s interference with the free market had doomed the merger. He said, however, it’s possible the merger could be restructured.
“It could be restructured, anything is possible,” he said. “These companies got to know each other very well. They know each other’s strengths and weaknesses.”
But representatives from the companies said they have no plans to revive the deal.
“We have said all along that we believed very much in this merger, but at the end of the day, Constellation initiated the request to end the merger,” said Steve Stengel, an FPL spokesman, adding that both companies were optimistic about their individual prospects. “Obviously we’re disappointed… mergers are difficult things, and we had hoped for a different result.”
Both companies had hinted in recent weeks that the merger might be in jeopardy because of delays and confusion caused by political controversy over a 72 percent utility rate hike.
The rate increase came after a five-year cap on utility rates was removed. The legislature then voted to fire members of the Public Service Commission, which is responsible for regulating utilities in the state. Democratic politicians have accused the PSC of being too cozy with utilities.
Then in September, the Court of Appeals ruled lawmakers could not fire PSC members, but left intact a provision in the law preventing the PSC from ruling on the merger.
In response, FPL filed a lawsuit in a Baltimore Circuit Court this month, attempting to force a quick PSC ruling on the merger. But a favorable court decision wouldn’t guarantee the legislature still let the deal go through.
O’Malley, for instance, has promised to fire PSC members himself if he is elected.
The companies said the deal would not affect utility prices. But consumers now stand to lose a $600 million package of rate reductions that BGE promised consumers. At least part of the package hinged on the merger’s completion.
According to state law, the company owes $386 million to consumers regardless of the merger, but the company has said there is “substantially uncertainty” about the legality of that provision.
Robert Gould, a spokesman for Constellation, declined to say whether the company has plans to bring a battle over the $386 million in rate reductions to court.
“We still question the legal efficacy of the $386 million, but we fully expect to engage in dialogue with stakeholders in search of a mutually beneficial solution for BGE customers,” he said.
Still, critics of the merger say they are glad BGE jobs will not leave Maryland. Theresa Czarski, deputy people’s counsel, said she had misgivings about the quality of FPL’s service and whether it would affect BGE’s service. “It’s impossible to say in the end whether this is good or bad for consumers,” she said. “This is a huge, regulated utility distribution company with a huge, unregulated generation company. There are certainly no other examples of that in this state to look to.”