Nazarian Needs Assurance PSC Wasn't "Duped" in Approving Exelon-Constellation Merger

Maryland PSC Chairman Douglas Nazarian said that he needs to be assured that the Commission wasn't "duped" in approving the merger of Exelon and Constellation Energy, after the merged company violated market power mitigation conditions contained in the merger order relating to its generating plants.

Nazarian's comments came this morning during a hearing on a show cause order concerning the violations, which as previously reported Exelon said resulted from an inadvertent software coding error.

The error led to $230,000 in excess revenue to Exelon, which represents the impact from higher LMPs as well as excessive compensation for operating reserves. The total impact of the higher LMPs on Maryland load, from both excessive revenue paid to Exelon and higher amounts paid to other cleared generators under the higher LMP, was $151,000.

"In the time since we issued the order approving this merger, here's what we've learned: we learned, first of all, that Constellation entered into the biggest settlement in the history of the FERC over charges that it was manipulating the electricity markets in the New York ISO and in New England and to a small extent in PJM ... we've seen press accounts about the NRC [Nuclear Regulatory Commission] being upset with Constellation about its failure to disclose information on the Nine Mile Point plant; we've seen press reports about employees falling asleep at Calvert Cliffs; and then we have this [the violation of the mitigation conditions]," Nazarian said

"We heard a lot of testimony [in the merger case] about how behavioral conditions were going to solve the market power problem, and here we have, the day after the merger closes, we have a violation of behavioral conditions," Nazarian said.

"I want to come out of this proceeding with a much clearer understanding, first of all, that we haven't been duped in letting this merger happen," Nazarian said.

Exelon has already undertaken a series of remedial measures (including engaging Potomac Economics as a mitigation monitor), and during the show cause hearing Exelon agreed to implement all of the recommendations proposed by PSC Staff, the Maryland Energy Administration, and Office of People's Counsel. These recommendations largely relate to greater compliance monitoring and reporting of such monitoring to the above stakeholders.

The PSC directed Exelon to summarize all of the additional commitments in a filing to the Commission. After such filing is made, the PSC said that it would rule further, if necessary, on the show cause order.

The $230,000 in excess revenues to Exelon is being returned to PJM, which PJM will then disburse to load.

Exelon has also agreed to compensate Maryland load for the approximately $151,000 paid to other sellers as a result of the inflated LMPs. OPC has recommended that such funds be directed to various energy assistance agencies, given the difficulty in assigning the costs borne by individual customers due to the fixed-price nature of SOS for most customers. The PSC invited comment on the distribution of the $151,000.