"In hindsight, that was something we probably should not have done," Mr. Trueschler, the former BG&E chairman, said about the KMS purchase. "We all need to relearn a lesson that no tree grows to the sky."
Other real estate problems have also proved troublesome. Constellation Holdings provided a $5 million loan to the exclusive Caves Valley Golf Club in Baltimore County and bought 15 executive memberships in 1989, worth a total of $1.1 million. It later spent $4 million to buy property around Caves Valley after the club ran into financial problems and BG&E was forced to honor guarantees it made on the loan.
The company is still trying to recoup its investment. Today, five of the memberships are used by BG&E executives. The remaining 10 memberships remain for sale.
Despite its problems, the real estate division is improving, according to Bruce M. Ambler, president and chief operating officer of Constellation Holdings. The occupancy rate of the company-owned property, amounting to 1.5 million square feet, has increased to 91 percent from 58 percent in 1991. "We have taken a situation that was difficult and we have turned that
around," he said.
Although the company contends its real estate was not a mistake, Mr. Poindexter has said he intends to exit the business eventually.
"Ultimately, we'd like to sell them, but we are not selling them at any price," he said.
"We don't see, beyond finishing what we've started, any new projects in real estate."
Retailing role questioned
Perhaps the most visible BG&E subsidiary has been its appliance and electronics stores, the largest and oldest of the company's divisions.
Although profitable, according to the company, BG&E's appliance business has raised a number of questions about the company's role in the retailing industry and its financial support of that division.
Some competitors charge that utility money has been used to bolster BG&E's position in the business.
A recent audit, undertaken by the company in response to an order by state regulators, lends credence to their claim. The audit, conducted by the accounting firm Ernst & Young, found that if the division paid for all the indirect services received from BG&E's utility business, it would have had to pay an additional $555,000.
Some competitors claim that the BG&E division had about $50 million in revenues in 1992. Based on that figure, they argue that the subsidy found by the audit merely scratched the surface.
Jack Luskin, chairman and chief executive of Luskin's, one of the region's largest appliance and electronics chains, estimates that expenses for a $50 million operation would be at least $13 million, far more than the $4 million the Ernst & Young report said the division charged the regulated operation.
These alleged subsidies, competitors charge, have given BG&E an unfair advantage.
In addition, these subsidies can have an even broader impact -- DTC money diverted to the merchandise division could be used to lower utility rates, says Mr. Glynn, the People's Counsel.
BG&E has maintained that its unregulated merchandise operation is not being subsidized.
Despite its separate status, the unregulated retail business is considered by company officials as part of the same division as the company's regulated service operation, which had an $8.2 million profit in 1992. The profit more than makes up for the $555,000 subsidy, BG&E said.
Further, the company said that any additional expenses beyond the $4 million cited in the Ernst & Young report were paid directly by the merchandise division, not the regulated entity.
But in reaction to continuing regulatory hearings about its merchandise and service business, BG&E has taken steps to eliminate the subsidy and said it intends to combine the merchandise and service operations into a single unregulated unit.
Focus on energy
That change in corporate structure is not likely to be the last.
These days, still burning from missteps in its earlier diversification and facing increasing competition, BG&E is narrowing its expansion plans to energy and energy-related operations. Part of that focus will be on energy production, part ,, will be on reaching into areas that depend on energy.
The company is aiming to expand its out-of-state power plant production effort. It will work to bolster its appliance stores, going head-to-head with major retail chains. It will continue to expand its service operation -- previously limited to gas furnaces and appliances it sells -- to cover any appliance in the home as well as central air conditioning and heating systems.
And it will pursue its involvement in developing electric and natural gas vehicles as well as building refueling stations for the cars of the future.
BG&E expects these steps to protect it against the threats and obstacles that it never encountered in its protected, regulated existence. With this strategy -- complete with its sleek new logo -- the company hopes to reinvent itself as a tougher and more resilient operation.
For Mr. Poindexter, it is a significant return home to the company's strengths from the expansion days of a decade ago. "We want to be the supplier of energy to the people of Maryland," he said. "We want to have a range of products and services so that if you need something in the energy field, you think of us and we work with you to provide it."
This concentration on experience has already pleased those who follow the company. "The closer they are to what they do, the more satisfactory the results," said William I. Tillies, senior vice president for equity research for Dean Witter Reynolds Inc. in New York. "They're less likely to make a major misstep."