Exelon-Constellation Merger Finalized; Duke-Progress Merger Remains in Regulatory Limbo

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Researched by Industrial Info Resources (Sugar Land, Texas)--Exelon Corporation (NYSE:EXC) (Chicago, Illinois) yesterday announced the completion of its $7.9 billion merger with Constellation Energy Group (Baltimore, Maryland). The Federal Energy Regulatory Commission (FERC) gave final approval of the merger on Friday, March 9. The application was filed with FERC in May 2011 and was the final regulatory hurdle to complete the merger. As a result of the merger, Exelon will now own approximately 35,000 megawatts (MW) of power generation, including more than 19,000 MW of nuclear generation.

The merger faced some headwinds from the U.S. Department of Justice. In December of last year, the Antitrust Division of the department filed a lawsuit on the basis that the resulting company would own between 22% to 28% of the generating capacity in the U.S. Mid-Atlantic region in an area encompassing Delaware; Washington, D.C.; New Jersey; eastern Pennsylvania; and parts of Maryland and Virginia, heightening the potential for increased pricing and reduced output. To resolve the situation, the companies will divest three coal-fired Constellation Energy plants in the Baltimore area. These include the 1,370-MW Brandon Shores power plant, the 1,020-MW H.A. Wagner power plant and the 400-MW C.P. Crane power plant. The companies will also sell 500 MW of baseload power under contracts to 2015.

The merger adds about 1,900 MW of nuclear generating capacity to Exelon's already nuclear-dominant portfolio. The merger significantly increases Exelon's natural gas-fired generating capacity, adding approximately 5,940 MW of gas-fired generation.

Monday was the final day for the trading of Constellation Energy Group shares. Elsewhere on the Power Industry merger and acquisition front, in late February, Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina) and Progress Energy Incorporated (NYSE:PGN) (Raleigh, North Carolina) submitted a second wholesale market power mitigation plan to the North Carolina Utilities Commission (NCUC).

The originally proposed merger of the two companies was rejected in September 2011 by FERC on the grounds that it would create a monopoly on power generation in the Carolinas. The companies then submitted their original market power mitigation plan, which included the capping of some wholesale power profits and a "virtual divestiture" of power by selling some available capacity into the Carolinas' wholesale market under short-term contracts. FERC rejected this plan in December, stating that the plan ""does not eliminate the opportunity for the merged company to act anti-competitively. Although Duke and Progress describe the proposal as a virtual divestiture, it would not transfer control of the energy the applicants propose to sell from the merged company."

The companies' latest power mitigation plan proposes the construction of up to eight power transmission projects in their service territories. In a press release from the two companies, Duke and Progress say, "These projects will expand the capability to import wholesale power into the Carolinas," adding that the projects would take approximately three years to complete and require an investment of between $75 million and $150 million.

During the three-year construction period of the transmission projects, the companies have proposed to sell energy to new market participants during the summer and winter months, including:

• 800 MW during summer off-peak hours
• 475 MW during summer peak hours
• 225 MW during winter off-peak hours
• 25 MW during winter peak hours

The NCUC's 30 days to review the plan before it is filed with FERC will be up next week. The companies have stated that they expect to secure contracts with potential buyers prior to filing the mitigation plan with FERC.

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