UPDATE: EDF Asks Maryland Regulators To Block A Merger

French utility Electricite de France SA (EDF.FR) asked Maryland regulators Wednesday to reject Exelon Corp.'s (EXC) proposed $8 billion buyout of Constellation Energy Group Inc. (CEG) unless Exelon sells several of its nuclear-power assets and agrees to other conditions.

Paris-based EDF, which bought half of Constellation's nuclear power fleet in 2008 for about $4.5 billion, said the merger would have a "negative impact" on its relationship with Constellation, and could hurt Maryland consumers "and the state generally," according to testimony filed with the Maryland Public Service Commission.

EDF's main concern is that the merger would give the combined company control over a generation fleet so large that EDF's joint venture with Constellation, called Constellation Energy Nuclear Group, would be prohibited from expanding in the Mid-Atlantic electricity market "and possibly other markets," according to the testimony, filed by Jeffrey Johnson, an energy consultant hired by EDF.

"Like many in Maryland, EDF has serious concerns about the Exelon-Constellation Energy merger" EDF said in a statement. "We agree with Governor O'Malley and others opposing the merger that the transaction is not in the best interests of Maryland."

EDF's objections add to a growing chorus of opposition to the deal and raise doubts about whether or not the Maryland PSC, which has the power to scuttle the deal, will allow it to proceed and if it does, what conditions it may extract, such as cash rebates for utility customers and the sale of power plants and other assets.

Gov. Martin O'Malley and other state officials have said they do not support the merger as proposed.

In September, Maryland's chief energy official, Malcolm Woolf, said the state didn't support the merger, over concerns that Baltimore Gas & Electric employees and customers could be at risk and that the combined company could exercise market power, or a virtual monopoly, over the region's electricity market.

Economists who have analyzed the merger for the state and for the region's grid operator, PJM Interconnection LLC, have said the combined company would have a market position large enough to drive up wholesale electricity prices. In one analysis, Stanford University economist Frank Wolak found the Exelon-Constellation deal could increase wholesale prices by 12% to 37% for parts of the PJM market such as Philadelphia and Baltimore, in certain circumstances.

As for EDF, Johnson said the merger would "create a serious structural conflict of interest" in which Exelon would own almost one-fifth of U.S. nuclear capacity, allowing the company to exercise market power. Exelon's partial ownership of CENG's nuclear fleet would hamstring the joint venture from being able to expand and could essentially prohibit EDF from expanding in the U.S. power market, Johnson argued.

Johnson suggested that EDF may have approached Exelon to collaborate on a new nuclear-power plant at CENG's existing Calvert Cliffs plant, about 40 miles south of Annapolis, Md.

"Exelon could have made a useful contribution by, for example, volunteering to join Calvert Cliffs 3 as a U.S. partner to remove one of the regulatory obstacles to the project," Johnson said. "Exelon has not done so. When it comes to a project that really counts for Maryland, Exelon has looked the other way."

An Exelon spokeswoman said the company was still reviewing Johnson's testimony and was not prepared to comment.

A telephone call to Constellation was not immediately returned.

In October 2010, EDF and Constellation ended a separate joint venture, called UniStar, to develop new U.S. nuclear power plants, after Constellation dropped out of an application for a federal loan guarantee for Calvert Cliffs 3, the partnership's first project. At the time, Constellation said high government financing costs made the company unable to proceed with the project.

Under an agreement, EDF retained the right to continue pursuing construction of the new reactor and two additional U.S. sites, and agreed to give Constellation $250 million in cash and stock. Constellation's departure raised questions about whether EDF would be able to develop new nuclear projects in the U.S. alone, or whether it might need a U.S. partner.

Shares of Exelon were recently trading 1.7% higher at $42.83; shares of Constellation were up 1.8% at $38.24.

-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468;

cassandra.sweet@dowjones.com

--Rebecca Smith contributed to this article.

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