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FPL Merger Integration Activities Put on Hold by Constellation

Constellation Energy Group has, for the time being, ceased FPL Group merger integration activities, Constellation CEO Mayo Shattuck said in a letter to company employees that was included in a May 31 Securities and Exchange Commission filing.

"This reflects the reality that integration activities require a great deal of time and manpower, and in this uncertain climate we believe that effort is more appropriately applied to our day-to-day business," Shattuck wrote in the letter. "We will resume integration planning when it is warranted. Our merger approval process continues in the normal course."

Shattuck said that while "we still believe strongly in the proposed merits of our merger, we are disappointed in the ongoing political controversy in Maryland. While we remain hopeful that our merger with FPL can move forward, we think the prudent thing to do is put our integration efforts temporarily on hold while the political issues are being resolved."

Shattuck "spent the past week or so speaking at employee meetings across the company, and one of my goals was to reinforce the point that Constellation Energy will thrive and grow with or without this merger. We have an extraordinary record of success and we continue to meet or exceed our business objectives."

A Baltimore circuit judge ruled last week that the Maryland Public Service Commission (PSC) must convene a new hearing on a plan to defer part of Baltimore Gas & Electric's (BGE) pending 72% rate increase, "but this time it must consider whether so large an increase is justified," the Baltimore Sun reported in its Wednesday editions. BGE is a unit of Constellation.

Judge Albert Matricciani's ruling responded to legal action previously filed by Baltimore Mayor Martin O'Malley and the city council of Baltimore. O'Malley is vying to win the Democratic gubernatorial nomination to take on incumbent Gov. Bob Ehrlich this year.

In his 10-page ruling, Matricciani wrote that the court "does not believe that the commission acted in the public interest or with fairness to customers in the face of a recently announced 72% residential rate increase, when it abruptly terminated an adjudicatory proceeding following the city's intervention on behalf of its BGE customer residents and denied the city the fundamental fairness of a due process hearing on all relevant facts and circumstances relating to a commission approved plan to mitigate the dramatic residential rate increase."

Responding to the ruling, Ehrlich said that in "the seven years since Maryland lawmakers enacted a flawed electricity deregulation law, only one credible plan has been put forth to protect working families from overnight 72% increases in their electric bills. That optional plan includes a twenty-four month phase in of market rates and an unprecedented $600 million cash contribution from Constellation Energy that goes directly to working families."

The court decision "puts this rate relief plan in severe jeopardy. Without this rate relief plan, 1.2 million Marylanders could face overnight 72% price spikes on July 1," he said.

The PSC in early March announced the results of the third year of the bidding process for the market-priced electric standard offer service (SOS). Through a competitive bidding process, electric suppliers compete to provide SOS for Maryland customers of investor-owned companies whose rate caps have expired.

What had jaws dropping was that for residential customers in the BGE service territory, a typical bill would have increased by a whopping 72%, or $743, annually. BGE in April filed a comprehensive rate stabilization plan that would allow its residential electric customers to reduce and defer the pending July 1 rate increase.

The state commission wound up approving an amended rate stabilization plan to help BGE customers more gradually adjust to upcoming electric bill increases. The plan adopted by the commission accepted provisions submitted by BGE on April 20 with a modification to eliminate interest charges to rate stabilization plan participants.

Meanwhile, an analysis completed for Constellation shows that BGE residential customers saved $1.8 billion from July 1, 2000 through June 30 of this year, a time period when the state's power market was restructured, while commercial and industrial customers saved $800 million from their ability to shop for power in a competitive market, Constellation said in a lengthy May 31 letter to key Maryland state lawmakers.

The letter to Maryland Senate President Thomas Miller and House Speaker Michael Busch responds to various questions and information requests from the state lawmakers.

"To help the public and policymakers better understand how meaningful the economic contribution from electricity restructuring has been," Constellation recently engaged the economic consulting firm Bates White LLC to perform an empirical market analysis of the actual rates that BGE customers have paid over the past six years compared to the probable rates they would have paid under a regulated market structure, Constellation's CEO Mayo Shattuck and BGE President Kenneth DeFontes said in their letter.

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