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Exelon, Constellation File $8B Merger at FERC

Moving their $8 billion stock-for-stock merger deal another step closer to the finish line, Exelon Corp. and Constellation Energy late last week filed an application for approval by FERC, which contained a list of divestitures aimed at eliminating any market power concerns held by regulators.

First announced in late April, the merger would create a combined company that would have the nation's cleanest power generation fleet, with about 55% relying on nuclear power, 24% on natural gas and 8% on renewables, the partners said (see Daily GPI, April 29).

The companies said the filing with the Federal Energy Regulatory Commission (FERC) demonstrates their strong commitment to ensuring that the merger will not cause market power or competitive concerns. In the filing, the Exelon and Constellation commit that the combined company will, within 180 days after the closing of the transaction, enter into contracts to divest three Constellation generating stations totaling 2,648 MW of generating capacity.

The facilities are located in the PJM market, which is the only market where there is a material overlap of generation owned by both companies. The companies would close on the plant divestitures no later than 30 days after the receipt of all regulatory approvals associated with them.

The generating facilities planned for divestiture are:

In addition, the combined company commits to sell 500 MW of baseload energy under contracts that will extend until 2015. The combined company has proposed to make these sales due to a short-term marketing agreement that gives Constellation an 85% share of the output of Constellation Energy Nuclear Group LLC units from 2012 through 2014. Beginning in 2015, the share of the output is reduced to 50.01%, which reduces the amount of generation in PJM controlled by the combined company to levels below FERC limits.

By undertaking these actions, Exelon and Constellation believe the merger will not negatively impact competition. In addition to their filing with FERC, Exelon and Constellation have made other filings in support of their proposed merger, including with the Nuclear Regulatory Commission, the New York State Public Service Commission and the Public Utility Commission of Texas. The companies will also be filing with the Maryland Public Service Commission.

The merged company would become the nation's largest energy provider in terms of load -- with about 165 terawatt hours -- and customers, serving millions of households across 38 states, the District of Columbia and the Canadian provinces of Alberta and Ontario. It also would be the nation's second-largest residential electricity and gas distribution company, serving 6.6 million customers in Maryland, Illinois and Pennsylvania; and become the nation's top competitive power generator with more than 34 GW of power generation and 226 terawatt hours of expected output. The company would have the nation's largest nuclear fleet with 19,000 MW.

The companies plan to seek shareholder approval for the transaction in the third quarter of 2011 and anticipate closing the merger in the first quarter of 2012.

It is not the first time Exelon has attempted to merge with other companies. Stockholders of NRG Energy Inc. rejected Exelon's hostile takeover bid in July 2009 (see NGI, July 27, 2009), and Exelon scrapped plans to merge with Public Service Enterprise Group (PSEG) in September 2006 (see NGI, Sept. 18, 2006). FERC had approved both mergers. Meanwhile, Constellation and FPL Group Inc. canceled plans to merge in October 2006 (see Daily GPI, Oct. 26, 2006).

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