Maryland's ratepayer advocate is objecting to Exelon Corp.'s proposed buyout of Constellation Energy Group, telling federal regulators that the combined company would have too much control of electricity prices on the grid that serves much of the Mid-Atlantic region.
The Maryland Office of People's Counsel, which represents state consumers in matters involving utilities, joined with its Pennsylvania counterpart this week to ask the Federal Energy Regulatory Commission to hold a hearing on the issue.
"If market power can be exercised, it would have an effect on wholesale prices and transmission rates, and it's not a good thing for Maryland ratepayers," People's Counsel Paula Carmody said Thursday. "The natural expectation is that this can lead to an increase in prices."
Illinois' attorney general filed a similar protest Thursday. Spokeswoman Robyn Ziegler said the merger would "result in further consolidation in an already highly consolidated Illinois electricity market. As a result, we expect that will increase electricity prices for Illinois customers."
FERC approval is one of several regulatory hurdles the companies must overcome to complete the $7.9 billion deal. The Maryland Public Service Commission is considered the biggest obstacle, given that regulators thwarted an earlier takeover attempt of Constellation and have clashed often with the Baltimore company over rates.
"We expect Maryland approval to be the biggest hurdle," Morningstar analyst Travis Miller said. "However, we haven't seen a deal yet that involves such a huge share of regional market power."
Carmody acknowledged that it might be difficult to get a hearing before the FERC, because the federal agency generally rules on merger cases without holding hearings. But she was hopeful that the FERC would consider the matter.
Anticipating concerns about market share, Constellation and Exelon have announced plans to sell Constellation's three coal-fired plants as part of the merger. The facilities — Brandon Shores and H.A. Wagner in Anne Arundel County and C.P. Crane in Baltimore County — overlap significantly with Exelon's power units in the PJM market, which covers the electricity grid in Maryland and 12 other states.
"We are confident that our proposal will satisfy the relevant regulatory authorities and that the post-merger company will have no adverse impact on the competitiveness of the PJM market," the two companies said in a statement Thursday.
Paul Patterson, an analyst at Glenrock Associates in New York, said it's likely that the "companies thoroughly anticipated that their mitigation efforts would be sufficient in this case."
But Carmody said selling the three Constellation plants would not be enough to alleviate concerns.
The Maryland and Pennsylvania consumer advocates, which together commissioned a market power analysis using FERC standards, are proposing that Exelon also sell four power plants in and around Philadelphia.
Concerns over market share are common in utility mergers, said Sue Kelly, senior vice president of policy analysis and general counsel at the American Public Power Association, a nonprofit that represents the country's community-owned electric utilities.
"The issue is really how much is generation market power consolidated as a result of that merger and how many plants do they need to get rid of to get it to an acceptable measure," Kelly said. She said the FERC has not held an evidentiary hearing on merger cases in many years.
Robert McCullough, an energy economist and consultant who has worked for the Illinois attorney general's office on power issues, said PJM needs more competition, not less.
McCullough described PJM as a "highly opaque market" in which wholesale prices to guarantee generation capacity — which get passed onto BGE customers — are "enormously volatile."
The price volatility "makes the expansion of market power in these mega-mergers very troublesome," he said.
FERC spokesman Craig Cano said the commission has 180 days from the filing of a complete application to act on a merger request. Constellation and Exelon filed their application May 20.