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Exelon, Constellation Strengthen Merger Proposal

Companies make additional commitments and safeguards regarding BGE, settle market power issues, and reaffirm the benefits the merger will provide BGE, its customers and Maryland



Chicago, IL and Baltimore, MD - Exelon Corporation (NYSE:EXC) and Constellation Energy (NYSE:CEG) today filed rebuttal testimony with the Maryland Public Service Commission (PSC) that strengthens the companies' commitments related to the proposed merger, which is currently under review by the PSC. The testimony addresses statements, concerns and proposed conditions set forth in intervenor testimony submitted Sept. 16 from the State of Maryland, Maryland Energy Administration (MEA), PSC Staff and the Office of People's Counsel, as well as other parties.

The merger proposal provides a direct investment in Maryland of more than $250 million, including a $100 rate credit for each BGE residential customer, investments in energy efficiency and renewable energy, and a new headquarters building in Baltimore.

"We are confident that the proposed merger is good for BGE, its customers and the state of Maryland. Our proposal offers significant direct benefits to BGE's customers. Now we have agreed to additional conditions proposed by the parties," said Christopher M. Crane, president and COO of Exelon. "We appreciate the input from stakeholders and look forward to a continuing dialogue to address their issues."

Additional Safeguards to BGE

The Exelon/Constellation testimony filed today addresses BGE's ability to continue to provide safe and reliable service and operate in the public interest. To ensure BGE has a strong voice at Exelon, the company has agreed that BGE CEO Kenneth W. DeFontes, Jr. will sit on Exelon's executive committee-which assists the CEO with the overall management of the company--and that Crane will sit on the BGE board of directors. Exelon also has proposed a series of corporate governance measures that will ensure that BGE will remain locally managed and has the resources to provide safe and reliable power. The combined company also will follow a series of ring-fencing requirements designed to protect BGE customers and will not seek to change it for at least three years. To ensure reliable service continues, BGE also commits to capital spending and O&M expenditures consistent with BGE's plan for two years and will notify the PSC regarding a wide range of financial metrics, so it can monitor BGE's ongoing financial health.

"BGE will remain locally managed, will have the same accountability to the PSC as it currently does, and will have a strong voice at Exelon," said DeFontes. "As part of Exelon, BGE will continue to provide safe and reliable service to its customers at just and reasonable rates."

Other Conditions

Some of the conditions proposed by the other parties are unnecessary, could harm BGE and its customers, or would adversely impact the terms of the transaction. For example, the MEA proposed that Exelon dramatically increase its 25 megawatt commitment to new renewable energy projects in Maryland.

"We believe that our commitment to 25 megawatts of new renewable energy in Maryland will add substantially to the state's generation resources, create jobs, advance the state's goal of increasing its reliance on clean renewable resources and reduce greenhouse gas emissions," Crane said.  "Our 25 megawatt commitment is about five times larger than the one accepted by Maryland regulators in the recent merger between FirstEnergy Corp. and Allegheny Energy, Inc."

Exelon also said it could not accept proposals that would limit its future growth as a condition of the merger, nor can it agree to spinning off BGE, even at an unspecified future date.

"We can't commit to limiting future growth and doing so could limit our ability to expand our businesses and grow jobs in Maryland. It would cripple our ability to adapt to a continually changing marketplace and to make decisions that are in the best interests of all of Exelon's stakeholders, including Maryland-based Constellation NewEnergy and BGE," said Crane. "A spin-off also would harm BGE customers and destroy much of the benefit of the transaction."

Other parties similarly made proposals that are unnecessary for the merger to be in the public interest. For example, the Office of People's Counsel suggested a three-year rate freeze at BGE, which would jeopardize BGE's ability to make the significant capital expenditures needed to maintain the reliability of the distribution system.

Market Power Commitment

Exelon's original proposal included 2,648 megawatts of proposed divestitures to mitigate concerns about market power.

Earlier this week, Exelon and Constellation reached a settlement with Dr. Joseph Bowring, the PJM Independent Market Monitor, who had previously raised market power concerns regarding the merger. The settlement contains a number of commitments by the merged company, including limiting the universe of potential buyers of the divested assets to entities without significant market shares in the relevant PJM markets. The settlement also includes assurances about how the merged company will bid its units into the PJM markets.

The PJM Independent Market Monitor works with PJM and all market stakeholders to help ensure the PJM markets remain robust and competitive.

In a letter Bowring filed together with the settlement at the Federal Energy Regulatory Commission and the PSC, Bowring said: "The commitments made by the applicants in the settlement, if binding on the applicants, would alleviate the market monitor's concerns about the effects of the merger on PJM markets." 

Exelon and Constellation will ask both FERC and the PSC to include in any order approving the proposed merger a condition that the companies abide by the terms and conditions of the settlement.

In addition to the companies' merger filing with the PSC, Exelon and Constellation made other regulatory filings in support of their proposed merger. On Aug. 3, the Public Utility Commission of Texas approved the merger. Other regulatory approvals required include the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission and the New York State Public Service Commission. The companies plan to seek shareholder approval for the transaction in November. Pending all required approvals, Exelon and Constellation expect to complete their merger in early 2012.