FPL, Constellation Merger Called Off

By Published On: October 27, 2006

A much-delayed merger between Constellation Energy and FPL Group was terminated October 25. The pact was reportedly worth $12.5 billion and would have created one of the nation’s largest energy companies with generating assets including nuclear, wind, solar, and coal. Constellation called for a halt to the deal, in which FPL would have acquired Constellation. Constellation recently announced the sale of its High Desert power plant in Victorville. A spokesperson for Constellation did not know whether the changed merger plans affect the sale. FPL owns wind, natural gas, and solar projects in California. “The risks were too significant to overcome,” Mayo Shattuck, Constellation chair, president, and chief executive officer, stated. The merger faced regulatory opposition and legal setbacks in Constellation’s home territory in Maryland. It also needed regulatory approval from the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission. FPL is “disappointed,” stated Lew Hay, FPL Group chair and chief executive officer. The move did not affect Constellation’s rating from Standard & Poor’s, which remains at BBB+. S&P’s outlook for the company is “negative,” it noted October 25. “The negative outlook reflects that the company will have to achieve and maintain financial measures commensurate with higher business risk levels given the growth of its unregulated business,” stated S&P analyst John Piecuch. That includes selling assets such as the High Desert plant and applying them to pay down debt. S&P also affirmed its A corporate credit rating for FPL and removed the rating from CreditWatch with negative implications. The agency said FPL’s outlook is “stable.” The merger was announced in December last year, after the federal government repealed the Public Utility Holding Company Act in the 2005 Energy Policy Act. Before the merger could get to the point of being considered by FERC – the agency now in control of mergers and acquisitions – it was bogged down in the Maryland Public Services Commission. State lawmakers disbanded the commission after it approved a 72 percent rate increase for Constellation’s utility, Baltimore Gas & Electric. A state appeals court reversed that breakup but prevented the merger from being approved until the commission is replaced. – J.A. Savage

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