DOJ settles with merging utilities

The U.S. Department of Justice proposed a settlement agreement in federal court Wednesday, Dec. 21, to resolve objections over the $8 billion merger of Exelon Corp. and Constellation Energy Group Inc.

The settlement has already been agreed to by the companies and only needs approval from the U.S. District Court in Washington. The pact involves the divestiture of three electricity-generating plants in Maryland.

The DOJ sought to ensure competition in the mid-Atlantic region, and the related asset sales have been expected. But the agreement pushes the deal toward a close. The merger still requires clearance from the Maryland Public Service Commission, the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission.

Maryland reached an arrangement earlier this month that would allow the combination to proceed with commitments by Exelon to develop gas-fired and renewable-energy production within the state. That agreement must be accepted by the MPSC, but the negotiation by the state governor's office included input from the companies based on hearings before the MPSC, making formal approval likely. That commission must render a decision by Feb. 17.
The DOJ approval could indicate that FERC will allow the deal to proceed, as the terms of concessions have been consistent between the two tracks, but FERC does operate under independent guidelines. The NRC is not expected to object to the merger.

Exelon said it expects the deal to close in early 2012. A deal close in February is possible, but it's unclear which of the regulators will be the final sign-off on the merger. FERC and the NRC do not operate under defined deadlines.

The plants to be divested under the DOJ settlement are Brandon Shores and H.A. Wagner in Anne Arundel County, Md., and C.P. Crane in Baltimore County, Md., which represent 2,600 megawatts of generating capacity. The divestiture process will not begin until after the deal close under guidelines in the DOJ agreement.

The deal has already passed regulators in New York and Texas and has shareholder approval. The merger agreement calls for a close within three business days of satisfying its conditions, which should not extend past regulatory approvals.

Shares of both companies traded up about $1, or roughly 2.4%, Wednesday. Constellation shares traded at a spread of 76 cents, or 1%, to their value in the stock exchange. If the deal closes Feb. 20, that represents an annualized return of about 11.5%.