Maryland Wary of Exelon-Constellation Merger

The proposed merger between power companies Exelon Corp. and Constellation Energy Group Inc. has hit a snag with regulators in Maryland.

According to a report from The Wall Street Journal, analysts hired by the state to look into the potential impact on electricity prices in Maryland have raised some concerns about the deal. Though Exelon is based out of Chicago, Constellation is headquartered in Baltimore, giving Maryland veto powers over the merger.

Exelon and Constellation first announced plans for the nearly $8 billion merger in April of this year. Both companies had previously pursued acquisitions of their own, with Exelon attempting a hostile takeover of NRG Energy and Constellation attempting a sale to Berkshire Hathaway's MidAmerican Energy Holdings, according to The New York Times.

The Times reports that the deal is expected to create the largest comparatively green electricity companies in the country. Both Constellation and Exelon boast multiple nuclear plants and substantial natural gas capacity, as well as sizable investments in renewable electricity sources.

The two companies even offered some major incentives to Maryland to satisfy the state's rule that any merger of utility companies must provide a benefit to consumers rather than simply not having a negative effect. Exelon deputy general counsel Paul Bonney told reporters that the pair had offered $250 million in direct benefits ranging from one-time rebates for Maryland customers to energy efficiency programs.

Despite these potential benefits, state officials are skeptical and Maryland Governor Martin O'Malley insists he will not approve the current deal. The primary concern among policymakers is that the consolidation of the state's energy generators could lead to higher wholesale electricity prices, driving up rates for regular consumers. Frank Wolak, an economist at Stanford University who was brought on as an analyst for the state, suggests these prices could increase anywhere from 12 percent to 37 percent.

Bonney argues that Wolak's analysis reflects only a worst-case scenario and much of the companies' generation capacity is accounted for in long-term contracts. The two companies have already proposed a plan to limit the effects of the merger on prices that would sell-off several smaller generators in Maryland.

The Baltimore Sun points out another concern that has arisen in the months since the merger was announced in that Exelon has been accused in the past of artificially reducing its generating capacity to drive up electricity rates. Though no action has ever come of the charges, the company's reputation has suffered because of it.