One of the nation?s leading bond rating companies published a negative outlook for Constellation Energy last week, a move tied to a state agency?s report concluding that ratepayers have paid more than they?ve saved in the deregulation of Maryland?s electricity market.
The rating came as Constellation plans to file a lawsuit in the next few weeks alleging the state unconstitutionally ordered it to pay $386 million in credits to customers in return for the state?s approval of a merger deal that never came to pass.
Fitch Ratings on Friday placed Constellation and Baltimore Gas and Electric Co. on its Ratings Watch Negative list, a notification to investors of a likely downward grading of the company. Fitch said the ongoing feud between the state?s Public Service Commission and Constellation, including the PSC report, has “materially elevated the risk profile and operating environment for [Constellation and BGE].”
Constellation spokesman Rob Gould said the report and efforts to undo 1999?s deregulation could make investors nervous. The PSC has scheduled a hearing for 9:30 a.m. Wednesday for Constellation to outline its complaints about the report.
“If we?re going to potentially spend … millions of dollars, investors want to know that legislative and regulatory stakeholders won?t simply come back a decade or two later and reopen agreements because [they] don?t like the way things have turned out,” Gould said.
In 2006, Constellation sought to complete a $12 billion merger with FPL Group Inc. of Florida, while increasing rates for BGE customers by 72 percent as part of the state?s move into a wholesale energy market.
In exchange for regulatory approval of the deal, state lawmakers demanded that Constellation provide a credit to customers. The credit would replace a charge customers had been paying to the company for the eventual decommissioning of two local nuclear power plants.
The credits were enacted during the June 2006 special session of the General Assembly, though Constellation dropped the merger attempt later that year, which Gould said represents an unconstitutional taking of property. Constellation had agreed in November 2006 to postpone the lawsuit, an agreement it terminated last week.
The wide-ranging bill codifies the credits but doesn?t directly link them as a concession for approval of the merger, something that may trip Constellation in court, said Diana Moss, former economist for the Federal Energy Regulatory Committee and now a senior fellow at the American Antitrust Institute.
“Unwinding that $386 [million] from the restructuring legislation will be tough, and BGE and the state will have to battle it out,” Moss said.
