NEW YORK FPL Group Inc. (FPL.N) and Constellation Energy CEG.N said on Wednesday they canceled plans to link up due to uncertainty over regulatory and judicial approvals, the second deal among large power companies to fail this year.
The move, which comes a month after Exelon Corp. (EXC.N) canceled its planned purchase of Public Service Enterprise Group (PEG.N) due to regulatory hurdles, follows repeal of a long-standing federal law limiting mergers that may have spurred increased scrutiny at the state level.
The 10-month-old deal had been in trouble since the spring, particularly in Maryland, and the companies had said several times that they might not be able to close their agreement.
In May, they stopped integration work and Constellation continued to pursue other strategic plans, such as the sale of its gas generation plants for $1.64 billion.
FPL was caught up in politics in Maryland over Constellation's Baltimore Gas & Electric's plans to raise electricity rates, which have since been scaled back.
"As we considered the situation in Maryland, we determined the risks and uncertainties were too significant to overcome," Constellation Chief Executive Mayo Shattuck said in a statement.
"I think the timing was poor," said energy analyst Daniele Seitz of Dahlman Rose. "Going to market-based rates is a big challenge in itself but trying to do that along with the merger was obviously difficult."
FPL, the parent of Florida Power and Light utility, announced in December 2005 plans to acquire Constellation, a move aimed at creating a top-tier nuclear generator and as part of broader expansion plans away from Florida.
The acquisition, which at the time was worth about $11 billion, was part of a series of large announcements marking consolidation in the power sector.
Of those, only Duke Energy Corp.'s (DUK.N) purchase of Cinergy has closed. Still outstanding is National Grid Plc's (NG.L) plan to buy KeySpan Corp. KSE.N in the U.S. Northeast.
The increased difficulty in closing deals has come as power shifted away from the Federal Energy Regulatory Commission after the repeal of the Public Utility Holding Company Act, which had limited utility mergers since 1935.
While that repeal, effective in February, was expected to ease the abilities of companies to merge, it may have pushed some state regulatory commissions to take a closer look at such deals.
FPL said it would continue to look for ways to increase shareholder value, which a company spokeswoman said would include growth at its electric utility, improvements in its wholesale power business and acquisitions for its nuclear and wind businesses.
The companies' shares have both risen since the deal was announced, and on Wednesday FPL was up $1.43, or 3 percent, at $49.60, while Constellation fell $1.06, or 1.7 percent, to $61.50, both on the New York Stock Exchange.