Exelon, Constellation Oppose Additional Maryland Renewable Obligations as Condition of Merger

Exelon and Constellation Energy rejected several conditions sought by intervenors in their merger proceeding before the Maryland PSC, including proposed requirements that the merged company's Maryland sales be subject to a higher in-state renewable energy obligation, and proposals to limit the merged company's future acquisitions.

As first reported by Matters (9/19), the Maryland Energy Administration proposed that the post-merger Exelon commit to meeting 25% of its 2022 Maryland RPS obligations through Maryland-based Tier 1 renewable energy projects directly developed by Exelon or developed through the assistance of Exelon over the ten-year period following consummation of the merger.

Originally, MEA's testimony suggested that this requirement would include any "sales" by an Exelon company, including sales by Baltimore Gas & Electric supplied by a third-party SOS provider. However, in interrogatories, MEA clarified that it would only impose the in-state RPS carve-out on sales for which Exelon was "obligated" to meet the RPS, excluding third-party SOS sales for which the full requirements supplier assumes the RPS obligation.

This distinction is key because it means that Exelon would be the only entity subject to higher costs due to the higher in-state renewable obligation.

In rebuttal testimony, the applicants called the MEA's proposal "unworkable" and, "very costly, both to Exelon and to Maryland's residential customers."

The proposal, "would require Exelon to invest over $1 billion in renewable generation in Maryland in order to meet MEA's proposed condition. Such a commitment goes well beyond any condition this Commission has found to be in the public interest in other transactions," the applicants said.

"Moreover, the State's proposal creates a strong incentive for Exelon not to sell electricity in Maryland so as to avoid having to construct uneconomic renewable generation. [MEA] Director Woolf's proposal will effectively impose a tax on Exelon as a condition to participate in Maryland's energy market that will not be imposed on any other market participant – disadvantaging Exelon in this market," applicants continued.

As to proposals that would prevent Exelon from engaging in future acquisitions, in order to limit risk to BGE, Exelon said that it, "cannot commit to limiting its future growth as a condition of this Merger. Doing so would cripple its ability to adapt to a continually changing marketplace and to make decisions that are in the best interests of all of Exelon's stakeholders, including Maryland-based Constellation NewEnergy and BGE."

"For example, Exelon could not expand Constellation NewEnergy or its renewable business in Maryland, two areas of the combined company that have high job-growth potential and an ability to significantly and positively impact the State's economy. It also could not build new generation or, as it just did, acquire over 200 MW of solar power in another state because doing so might be considered unrelated to BGE's utility service," applicants said.

Concerning jobs, the applicants said that approximately 200-250 Exelon Power Team positions will be relocated to Maryland to expand the Constellation NewEnergy competitive supply business. Based upon their expectations for growth in the competitive energy supply business, applicants estimate that 150 new positions will be created to support this growing business over the next several years, "many" of which will be located in Maryland.

Applicants also opposed retail gas market enhancements sought by IGS Energy as a condition of the merger (see 9/20)

EDF Trading submitted rebuttal testimony recommending that the PSC, "should deny the application outright," though EDF did offer a series of conditions to be imposed if the PSC permitted approval.

Among other things, EDF argued that the merged company would be unable to add new generation in PJM, and specifically Maryland, due to its resulting market power, which, in turn, could limit the ability of Constellation Energy Nuclear Group, of which EDF owns 49.99%, to invest in new Maryland generation.

In particular, EDF said that the merger's market power, "could be a serious obstacle," to Constellation Energy Nuclear Group responding to the Maryland PSC's recently issued RFP for new gas-fired capacity.