The approval by the Federal Energy Regulatory Commission ends an almost yearlong effort to combine the companies — creating the largest non-utility energy provider in the United States. The deal also means that Baltimore will lose its last Fortune 500 company; the new company will be headquartered in Chicago but will maintain a large footprint here, including a new building in Harbor Point.
Separately on Friday, Constellation agreed to pay $245 million to settle FERC's allegations that the company manipulated the New York wholesale energy market through its trades from September 2007 to December 2008. The FERC's claims were revealed for the first time Friday.
While the company said it disagreed with the FERC's investigation and admits no wrongdoing, Constellation Chairman and CEO Mayo A. Shattuck III said in a statement that "we believe it is in the interest of all parties to settle this case and avoid expensive, protracted litigation."
Once the merger closes, each of Constellation's Baltimore Gas and Electric residential customers can expect to receive a one-time $100 rate credit within 90 days. The rate relief was among dozens of conditions that the two energy companies have agreed to provide as part of a settlement with state regulators and Gov. Martin O'Malley.
"We are pleased to now be able to proceed with this transaction and unite our two companies," said Shattuck, who will become the combined company's executive chairman.
The Maryland Office of People's Counsel, the state's consumer advocate, and its counterpart in Pennsylvania had raised concerns that the combined company would hold too much market power in the PJM Mid-Atlantic electricity grid, potentially pushing wholesale electricity prices higher.
But in its 48-page order, FERC said it found that the merger "will not harm competition in the relevant geographic markets" in part because the companies had agreed to several conditions to alleviate those concerns. The conditions include selling three Maryland plants that employ 300 workers in Baltimore and Anne Arundel counties.
"[W]e conditionally authorize the Proposed Transaction as consistent with the public interest," Nathaniel J. Davis Sr., the agency's deputy secretary, wrote in the order.
The Maryland Public Service Commission, seen as the toughest regulatory obstacle to overcome, approved Constellation's sale in mid-February. Constellation and Exelon agreed to several dozen conditions that largely mirrored concessions the companies had previously promised, most recently under a $1 billion settlement with O'Malley.
Besides the $100 rate credit, the companies agreed to provide more investments in green energy, financial aid for low-income ratepayers and additional financial protections for BGE.
Come Monday, Shattuck will finally realize the sale of the company that he has led since 2001. Two previous plans to sell the company had collapsed.
Three years ago, Constellation faced an uncertain future as a credit crunch amid the financial crisis pushed the company to the brink of bankruptcy. The company's commodities trading operation, which required a lot of cash collateral, was the source of its credit troubles.
The FERC allegations about market manipulation related to some Constellation transactions in New York are different from the liquidity issues that the business faced in 2008.
Under the FERC settlement, the company agreed to pay a $135 million civil penalty and another $110 million, which will be distributed in two ways.
Constellation will provide $1 million to each of the six U.S. regional grid operators, while the remaining money will be directed to a fund overseen by a FERC administrative law judge. The fund is designed to benefit consumers in the six grid markets, and state agencies can request the money on behalf of the consumers.
In an email Friday to employees, which was obtained by The Baltimore Sun, Shattuck said it was in the company's best interest to settle FERC's allegations to move ahead with the merger. He added that the company "would have preferred the opportunity to argue our case with full transparency."
"I want to strongly reinforce that in our view we violated no FERC or [New York's wholesale market] rules," Shattuck wrote. "We engaged in lawful hedging and risk-management activities."
After the deal closes, Constellation and the 195-year-old BGE will become part of Exelon. Executives of the two companies believe the combined company, called Exelon, will be better able to weather the increasingly competitive and capital-intensive energy market.
Still, the merger is expected to lead to the elimination of about 630 positions across both companies, with job reductions felt most in Baltimore. Exelon has committed to building a new skyscraper in downtown Baltimore, and picked Harbor Point as the site.
Constellation's name will not go away entirely. The brand will remain for the companies' retail and marketing business, which will be based in Baltimore.
The FERC merger order can be read here.
Sun reporter Steve Kilar contributed to this article.