« Welcome to the Web, Maryland business-law blog | Main | BGE 'smart grid' grant is excellent news »

October 26, 2009

O'Malley's deal has big pricetag for Constellation

The conditions outlined by Gov. O'Malley for regulators to approve the Constellation Energy Group -- EDF Group deal are similar to conditions he put directly to Constellation earlier this year. He wants 1) A one-time, 10 percent credit to BGE residential customers; 2) A capital infusion from parent Constellation into Baltimore Gas & Electric; 3) A contribution to a fund for lower-income utility users; 4) A moat and walls around BGE to prevent Constellation or any future owner from raiding it for resources.

Added up, all this will easily exceed $600 million at a time when both Constellation and EDF are tight on capital. The 10 percent credit for BGE gas and electric customers would exceed $200 million. Add another $50 to $100 million for the Universal Service Fund for lower-income households. Add at least another $400 million infusion for BGE to get its common-equity ratio up to levels that will make O'Malley and the Public Service Commission happy.

All this money would have to be placed on the counter when the deal closes next year, if not earlier. (However I could see everybody agreeing to have Constellation increase BGE's equity over time instead of all at once.) I wonder how Constellation's bond-rating agencies, which are already putting pressure on the company, would react if the company agrees to these conditions.

Posted by Jay Hancock at 9:58 AM | | Comments (19)
Categories: BGE/electricity


Does MOM really back the deal or is his attempt at "blackmail" just a way to kill it? My humble opinion is the latter, and who in the end will suffer, why the citizens of the State of Maryland. MOM will be able to boast in his next election that he was looking out for the citizens but that is just a smoke screen.

I thought Extortion was illegal. Delaware get ready for a new corporate headquarters to move in.

Isn't this the opposite of support? I plan to SUPPORT O'Malley next election--meaning I will vote for his opponent.

I am generally surprised by the negative comments toward O'Malley regarding his demands for CEG. O'Malley in my opinion is simply using the power of government to "influence" economically advantageous deal for the taxpayers of MD. Calling this extortion suggestion that O'Malley financially profits from his tactics, which I do not believe to be the case. Politically profit? perhaps, but what Republican would argue against that: a communist disguised as a Republican?

Let's also keep in mind that lower rates or rebates for all electric customers translates into more spending dollars for the consumer-side of MD's economy: in essence, Reagan's trickle down effect. Should O'Malley sacrifice his economic advantage and give away this deal to CEG for free? To me that sounds like socialism.

These conditions are not the big gulp that Mr Hancock suggests. The costs are small potatoes to Constellation and political life preservers to the Governor so that, with the help of Mr Hancock and others, he can advertise that he beat up Constellation. What I suspect happened here is a back room political deal about which both Constellation and the Governor are ecstatic. The only losers are the people of Maryland who deserve a competently run utility and regulators to keep it in line. It seems to me that we have neither.

How much money does OweMalley get in campaign contributions from Constellation and its employees? Tens of Thousands of dollars...yet he tries to be objective. Give me a break.

"O'MALLEY BACKS CONSTELLATION DEAL" headline is bogus and The Sun knows it. There is nothing new here. What is the difference between O'Malley NOT supporting the deal unless specific big-buck CEG giveaways are included or O'Malley supporting the deal ONLY IF the same big-buck giveaways are included???
Nothing. It's political doubletalk. The Sun should not be playing political kissy-face by publishing a misleading headline that makes the governor appear to have "seen the light". Why don't you guys get a room?

Maryland has been the loser ever since OMalley pummeled Ehrlich over BGE rates in 2006 resulting in him becoming governor in 2006.
And here are his accomplishments:
largest tax increase ever
and Maryland dropped to 45th in a business climate driving away more business and employment opportunities. Thanks Marty.

Is BGE the only power provider in Maryland? What happened the providers in the DC area, the Eastern Shore, and Western Maryland? The Governor has chosen to ignore them and only attacks BGE/Constellation and has lost every battle at that. Aren't the regulators supposed to judge this on its merits and facts i nstead of the Governor's demands?

Hey Jay,

Randy brings up an interesting point but I'm wonder how much CEG and BGE pay to advertise in your paper? Seems like every day I open the paper -- that is, when you guys actually are able to print more than two pages of text -- and see another ad for the utility. I wonder who is really being bought and sold here.

According to Forbes, over the last 5 years CEO Mayo Shattuck made $83.45 million.

The administration hired an independent expert in the industry to evaluate the deal. Their findings were that the merger would bring several benefits including lower rates.

Why did O'Malley do everything he could to have the report stricken from the record??

As a small business owner I have to say 'watch your pockets!' Every time one of our elected officials tries to get "political street cred" from bashing CEG we all pay. CEG rates are noncompetitive in the commercial market. They have though found away to charge an exorbitant amount for the sheer delivery of gas and electricity. I would like to see MOM get a grip on the delivery charges or start courting outside power generation prospects. CEG is in the retail business, not the generation business.

Jay - could the Sun do an in-depth series devoted to how the energy market is constructed in Maryland? As I read through comments on your blog, on Sun articles and in the talk forums, many folks lack even a basic understanding of Maryland's energy and utility structure. It's natural that a newspaper serving the Baltimore region would focus on BGE but folks should know about the other utilities in the state and how they factor into all of this. They would understand that BGE is not unlike Pepco, Allegheny, SMECO, Delmarva and others in terms of the services they provide for the rates they charge. At some point BGE has to stop being the whipping boy.

Allen, the delivery charge is still regulated as part of BGE so the rate you and I pay for delivery was approved by the Maryland Public Service Commission. Food for thought...

BP was setting up to make solar shingles in their Frederick, MD, factory. Now, it's gone. I wonder why.

The delivery rate for electricy has not gone up in years; that is still regulated by the PSC. The delivery charge is where BGE makes a profit, not from the selling of electricty. BGE charges you what they bought it for from the lowest bidder.

Delaware sounds so good ,they got the slots right also.

My payment to BALTIMORE Gas & Electric goes to:
P.O. Box 13070
Sic em, Martin!

Post a comment

All comments must be approved by the blog author. Please do not resubmit comments if they do not immediately appear. You are not required to use your full name when posting, but you should use a real e-mail address. Comments may be republished in print, but we will not publish your e-mail address. Our full Terms of Service are available here.

Verification (needed to reduce spam):

About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Tuesdays and Sundays.

Most Recent Comments
Baltimore Sun coverage
Sign up for FREE business alerts
Get free Sun alerts sent to your mobile phone.*
Get free Baltimore Sun mobile alerts
Sign up for Business text alerts

Returning user? Update preferences.
Sign up for more Sun text alerts
*Standard message and data rates apply. Click here for Frequently Asked Questions.
Charm City Current
Stay connected