Exelon promptly accepted the terms imposed by the Maryland Public Service Commission, which means the $7.9 billion deal is one huge step closer to completion.
The PSC's approval came with several dozen conditions that largely mirrored concessions the companies had previously promised, most recently under a $1 billion settlement with Gov. Martin O'Malley and the state. Besides commitments to provide more investments in green energy, financial aid for low-income ratepayers and additional protections for Baltimore Gas and Electric, the companies pledged a $100 rate credit for each of BGE's 1.1 million residential customers.
BGE ratepayers would receive the one-time credit within 90 days of the deal's closing.
Merger critic Good Jobs Better Baltimore, a community organization, said the rebate still falls short, given the high electricity prices BGE customers paid after the industry was deregulated over a decade ago in Maryland.
The five-member state regulatory panel found that the merger was in the public interest as long as the two companies agreed to the terms.
"The Applicants have identified several benefits to the State of Maryland that are broadly consistent with the public interest, even if the extent of their contribution to that interest remains disputed," the commission wrote in its 118-page order.
The commission also ordered the companies to provide additional financial aid for BGE ratepayers with $43.5 million more for a new customer investment fund. That amount reflects half of the estimated "synergy" savings that would result from the merger, according to the commission, which said that "BGE ratepayers [should] receive at least a portion of these benefits as immediately and certainly as Constellation's shareholders."
The balance of the $113.5 million fund would come from money that the two companies already agreed to provide over three years for weatherization efforts, energy efficiency programs and financial aid for low-income electricity customers.
With Maryland seen as the toughest regulatory obstacle to overcome, Constellation Chairman and CEO Mayo A. Shattuck III could finally realize the sale of the company he has led since 2001. Beginning in 2006, the company had attempted twice before to sell itself.
The deal, however, is still waiting on word from the Federal Energy Regulatory Commission, which has until April to make a decision. The companies have urged the federal agency to rule around the time Maryland regulators do so that the deal could close in the first quarter.
"I would assume if they get FERC approval, they would close their transaction shortly thereafter," said Paul Fremont, an analyst at Jefferies & Co.
Many analysts and business leaders expected the merger to gain approval in Maryland even though Constellation has had conflicts with regulators over the years.
"I think people were generally expecting some sort of approval because of the [governor's] settlement," said Paul Patterson, an analyst at Glenrock Associates, who was reviewing the order. "People would have been very surprised if the commission had rejected the transaction outright."
O'Malley said in a statement Friday that he appreciated the commission's "thoughtful consideration" of the merger.
Even as the Public Service Commission was reviewing the deal, O'Malley, who initially opposed the merger, was negotiating behind the scenes with Exelon officials. They reached a settlement in December, helping bolster the companies' standing before the regulator, which had the power to veto the transaction.
But critics of the proposed merger remained. The Maryland Office of People's Counsel, the consumer advocate for utility matters, argued that the deal — even with the companies' settlement with the governor — would harm BGE customers. It worried that BGE would lose local autonomy and that the combined company would have too much power in the Mid-Atlantic electricity grid with the potential to raise wholesale electricity prices.
The consumer advocate asked for additional concessions, including a three-year rate freeze and a doubling of the rate credit to $200.
The commission's staff, too, recommended $200 in rate relief.
The commission said in its order that it "struggled hard with this issue, both as to the extent of the rate credit and whether an immediate, one-time credit reflects the best way to provide relief to ratepayers."
Because the companies promised millions of dollars to fund energy efficiency and low-income programs, which "can have a more meaningful impact over the long-term," the commission decided not to impose a higher credit or impose a rate freeze.
The commission said in its order that it would have rejected the companies' initial merger proposal, which was filed in May.
But over the course of many months, Exelon and Constellation kept increasing its incentive package to win over critics. The initial $250 million climbed to $515 million before the two companies reached the $1 billion settlement with O'Malley.
The companies also agreed to provide additional measures to protect BGE from the financial troubles of its parent company, including having the utility not pay dividends to the parent company through 2014.
"Certainly throughout this process, we have seen an evolution in commitments that were not present when they filed their application," People's Counsel Paula M. Carmody said. "We do think with our pursuit of additional benefits even after the [governor's] settlement was signed, we were able to secure additional protections and additional benefits for our customers."
Among the conditions imposed by the commission:
•Exelon would develop up to 300 megawatts of new energy generation in Maryland, with more than half coming from renewable resources such as solar and wind.
•Exelon would provide $30 million to create an offshore wind development fund.
•Exelon would maintain $7 million in annual charitable contributions in Maryland for a decade.
Exelon would not lay off BGE workers for at least two years after the merger is completed.
If the deal closes, Constellation and the 195-year-old BGE would become part of Exelon. Executives of the two companies said the merger could create a stronger company able to better weather the increasingly competitive and capital-intensive energy market.
Still, officials have said the merger would lead to the elimination of about 630 positions across both companies, with job reductions felt most in Baltimore. While the combined company would be headquartered in Chicago, it will still have a large presence in Baltimore, where Exelon has committed to building a new skyscraper at Harbor Point.
Constellation's name will remain as the brand for the two company's retail and marketing business, which would be based in Baltimore.
This third merger try could be the charm for Constellation, which had pursued two other large-scale deals under Shattuck, who will become executive chairman of the combined company.
After transforming itself from a small utility to the largest energy marketer in the United States, Constellation reached a low point in late 2008 amid the financial sector meltdown. Facing a credit crisis, Constellation agreed to a shotgun deal to sell itself to Warren Buffett's MidAmerican Energy for $4.7 billion.
But in an about-face, Constellation terminated that agreement to remain an independent company in Baltimore by selling nearly half its nuclear power business to its then-largest shareholder, French utility EDF Group, for nearly the same price as the earlier deal with Buffett.
In 2006, a merger with Florida Power & Light fell through amid political and regulatory pressure and growing rancor over increasing rates.
The Public Service Commission put conditions on the deal's approval, which the companies accepted. They include:
•BGE residential rebate of $100 per customer, amounting to $112 million
•Creation of a $113.5 million consumer investment fund that would help Baltimore Gas and Electric customers with weatherization and energy efficiency programs and provide financial aid for low-income ratepayers. The PSC will determine how the fund will be used.
•Development of up to 300 megawatts of new energy generation in the state.