News Flash: Exelon, Constellation complete merger

Exelon (NYSE:EXC) and Constellation Energy Group (NYSE:CEG) on March 12 announced they had completed their merger, a single business day after FERC approved the action, with conditions, on March 9.

The merger creates the largest competitive energy provider in the United States, according to the company’s statement announcing the action.

Upon the closing of the merger, Christopher M. Crane became president and CEO of the combined company, and Mayo A. Shattuck III became executive chairman.

The new company retains the Exelon name and the NYSE ticker symbol “EXC.” Its corporate headquarters remain in Chicago. The three utilities within Exelon – Baltimore Gas and Electric (BGE), Commonwealth Edison (ComEd) and PECO Energy Company – remain headquartered in Baltimore, Chicago and Philadelphia, respectively. with significant operations in Maryland, Illinois and Pennsylvania.

The merged company is now one of the nation’s largest competitive energy products and services suppliers by load, about 164 TWh per year, and customers, serving approximately 100,000 business and public sector customer, and approximately one million residential customers. The merged company will serve more than two-thirds of America’s Fortune 100 companies, the statement continued.

Exelon will have a coast-to-coast presence with operations and business activities in 47 states, the District of Columbia, and Canada. The company also boasts “one of the nation’s largest and cleanest power generation fleets, with approximately 35,000 megawatts of owned power generation, including more than 19,000 MW of nuclear power,” the statement said.

Telephone calls seeking additional comment from Exelon were not returned by press time.

FERC ruling

FERC on March 9 conditionally approved the application to merge Exelon, Constellation Energy, BGE and Exelon Energy Delivery Company.

The proposed transaction had previously been approved by Exelon and Constellation shareholders. In addition, regulatory approvals or reviews had been completed by the New York PSC, the Public Utility Commission of Texas, the Maryland Public Service Commission, the Department of Justice and the U.S. Nuclear Regulatory Commission.

The FERC ruling addressed numerous concerns raised about the merger, including the possible exercise of market power.

Exelon and Constellation own or control overlapping generation in three relevant geographic markets: PJM, ISO-New England (ISO-NE), and the Electric Reliability Council of Texas (ERCOT), but the companies said the extent of the overlap was minimal in ISO-NE and ERCOT.

While the PJM market monitor performed an analysis which it said falls within FERC’s regulatory guidelines, the Illinois Attorney General said the proposed merger would give the company too much power in northern Illinois.

FERC found that the proposed transaction raised horizontal market power concerns in the relevant submarkets within PJM as well as PJM as a whole, and required measures to mitigate any existence of market power post-merger in certain PJM energy and capacity markets.

As mitigation for the energy markets, Exelon and Constellation proposed the divestiture of three generation plants in Maryland with 2,648 MW of baseload and intermediate capacity. The companies said the proposed plant divestitures, when combined with a reduction of approximately 600 MW of PJM capacity attributed to Constellation beginning Jan. 1, 2015, will be “more than sufficient to eliminate all screen failures,” according to the ruling.

In addition, Exelon and Constellation committed to enter into fixed price power sales contracts to sell 500 MW per hour of around-the-clock baseload energy until Dec. 31, 2014, for delivery into a PJM submarket.

The companies also proposed to address unresolved screen failures in the PJM capacity markets, additional interim mitigation measures to ensure that no market power issues are raised in another of PJM’s submarkets, as well as its ancillary services market.

The consumer advocates of Maryland and Pennsylvania and the American Public Power Association (APPA) raised concerns about the proposed mitigation measures and whether they would prove sufficient.

In its order, FERC found the proposed transaction, as mitigated and conditioned, would not harm competition in the relevant geographic markets. However, FERC conditioned its approval on the applicants’ commitment to abide by the terms of a mitigation agreement reached with PJM’s market monitor in October 2011.

FERC also found that the proposed combination of Exelon’s and Constellation’s transmission and generation assets, as well as the combination of natural gas distribution and generation assets, would not harm competition because the applicants will only control a relatively small amount of natural gas deliverable capacity and storage capacity.

Exelon and Constellation said the proposed transaction would have no adverse affect on rates, and agreed not to include transaction-related costs in their transmission revenue requirements for a five-year period following the merger.

FERC ordered the combined company to make the necessary filings under section 205 of the Federal Power Act to implement the proposed transaction. The companies must inform FERC within 30 days of any material change in circumstances that would reflect a departure from the facts the commission relied upon in authorizing the proposed transaction, and are to notify FERC within 10 days of the date on which the proposed transaction is consummated.

Finally, FERC ordered the companies to appoint an independent entity to verify that the bidding behavior in the interim mitigation period is consistent with that to which the companies have committed. Exelon and Constellation must file a report, certified by the independent entity, within 10 days of the end of each quarter in which they retain ownership of the facilities to be divested.

BGE headquarters are to remain in Baltimore, remain locally managed and continue to serve its customers under its own name, Maryland regulators said Feb. 17, adding that the PSC retains the authority to “divest BGE from its parent company should serious calamities occur.”