Download number r-1350, r-1351, r-1352, r-1353, r-1354

NUMBER R-1357
MAY 23, 1997
MAIL LOG NO. 56561
TO:
H. Russell Frisby, Jr., Chairman
Claude M. Ligon, Commissioner
E. Mason Hendrickson, Commissioner
Susanne Brogan, Commissioner
Gerald L. Thorpe, Commissioner
FROM:
Gregory V. Carmean, Executive Director
Baltimore Gas and Electric Company’s and Constellation Energy
Corporations’ application to execute a tax exempt long-term financing
agreement, promissory note and related documents to finance the
installation of scrubbers and related equipment at the Conemaugh
Generating Station.
CASE NO.8758
RE:
______________________________________________________________
Description of the Applications:
Baltimore Gas and Electric Company is seeking authority to enter into a loan
agreement, issue a promissory note, and related documents so as to obtain long-term
tax exempt financing for scrubbers installed at the Conemaugh Generating Station.
Groups which should receive a copy
of Staff’s Recommendations:
Office of People’s Counsel
Recommended Action (Including Conditions)
Staff Recommends Approval
_______________________
Alan Haymes
Director, Rate Research &
Economics Division
____________________
Andrew Katz
Staff Counsel
Commission Action on ____________
Approved__
Disapproved__
Accept for Filing __
Comments of the Rate Research and Economics Division (R-1357
RE: Baltimore Gas and Electric Company’s and Constellation Energy Corporation’s
filed application to obtain long-term tax exempt financing for installation of scrubbers at
Conemaugh Generation Station.
Mail Log No. : 56561
Page No. : 2
I
Background:
On April 28, 1997, Baltimore Gas and Electric Company (BGE) and Constellation
Energy Corporation (Constellation) jointly filed an application requesting Commission
authorization to enter into a long-term tax exempt agreement with the Indiana County
Industrial Development Authority (Authority) for funds to finance the costs for the
installation of scrubbers at Conemaugh Generating Station . The closing date for this
financing is to be on or before June 10, 1997.
In order to comply with the Clean Air Act Amendments of 1990, BGE, Potomac
and Electric Power Company (PEPCO) and other Co-owners of the Conemaugh
Generation Station have installed scrubbers and related equipment to reduce sulfur
dioxide emissions at Conemaugh Generation Station. BGE and PEPCO are part of two
interim short-term tax exempt financings made available by the Authority. These short
term financings agreements totaled $76 million. BGE and PEPCO’s share of the costs
were $16,875,000.
The utility owners which are part of the short term financing agreement desire to
convert these interim short-term financing agreement into long-term financing through
bonds issued by the Authority. Under the proposal, the Authority will issue tax exempt
bonds which will be either fixed rate or variable, and will loan the proceeds of these
bonds to the utilities. The utilities will in turn issue promissory notes to the Authority
pursuant to a pollution control facilities agreement that mirrors the indenture The
utilities will also obtain credit support, bond insurance or other credit enhancements to
equalize the credit quality among the utilities.
BGE and Constellation have filed this application jointly because it is possible
that the merger of BGE and PEPCO (Constellation). will be consummated prior to the
expected closing date (June 10, 1997). If the merger is not completed by the closing
date, BGE will need authorization from the Commission to go forward with the long-term
financing agreement for its portion of the costs or $8,785,000. If the merger is
completed by the closing date, then Constellation will need authorization from the
Commission to go forward with the long-term financing agreement for the combined
(BGE and PEPCO) costs of $16,875,000. BGE and Constellation state that they are
asking for this authority jointly so that if the merger is consummated prior to the closing
date, then Constellation will not have to file a separate application.
Comments of the Rate Research and Economics Division (R-1357
RE: Baltimore Gas and Electric Company’s and Constellation Energy Corporation’s
filed application to obtain long-term tax exempt financing for installation of scrubbers at
Conemaugh Generation Station.
Mail Log No. : 56561
Page No. : 3
COMMENTS
Staff notes that interest rate spreads between tax exempt fixed rate local and
state bonds and A rated public Utility bonds is approximately 200 basis points. Thus,
the use of tax exempt bonds for the pollution control costs demonstrate potential
savings to the utility owners and thus to the ratepayers. Also the acquisition of the bond
proceeds from the Authority will not result in any significant change to either BGE’s or
Constellation’s capital structure, or in either company’s ability to service its debt.
Staff further notes that BGE and PEPCO (Constellation) have not yet submitted
the installation of the scrubbers and related equipment for Conemaugh Generating
Station project to the Commission for approval. Consequently, staff’s recommendation
is only for the financing of this project, and not a finding for approval of the project itself.
RECOMMENDATIONS
According to BGE’s and Constellation’s joint application, the proceeds of the
bonds received from the Authority will be used for the retirement of debt, the acquisition
of property, construction and improvement of facilities, and the lawful discharge of
obligations relating to BGE’s and or Constellation’s utility business expended by the
companies within five years prior to the filing of this application. Although the bonds to
be issued by the Authority may be fixed rate or variable, projected interest rate levels
and the fact that the bonds will be tax exempt make the acquisition of this additional
debt favorable. Accordingly, Staff recommends that the Commission approve the joint
application of BGE and Constellation for authority to execute the loan agreement,
promissory note and related documents in regard to the long-term tax exempt financing
for the installation of scrubbers and related equipment at the Conemaugh Generating
Station.
_____________________
Gunter J. Elert
Financial Analyst
cc:
Bryan G. Moorhouse, General Counsel
Daniel P. Gahagen, Executive Secretary
O. Ray Bourland, Chief Hearing Examiner
Chrys Wilson, Director of External Relations