BGE buys air-conditioning firm

November 23, 1994|By John E. Woodruff | John E. Woodruff,Sun Staff Writer

Baltimore Gas and Electric Co. said yesterday it will buy one of Maryland's biggest air-conditioning contractors and become the first utility in the United States to have its own employees sell, install and upgrade the heat pumps, furnaces and cooling equipment that use its energy.

Maryland Environmental Systems Inc., a 180-employee Columbia-based company, will become part of BGE Home Products & Services, a wholly owned subsidiary that BGE set up in June to run its existing gas-furnace repairs and its 11 retail appliance-electronics stores, the utility announced yesterday.

Terms of the deal, outlined in a letter of intent between the two companies, were not disclosed.

At one stroke, the acquisition will get BGE into a business it has been considering as a key piece of its strategy. The company is diversifying at a time when some of its core electric and gas business is threatened by competitors who have been freed to enter its markets as the industry has deregulated.

That strategy has been deeply controversial, especially with local heating and air conditioning contractors who fear the marketing power of the giant utility.

"Definitely, the point here is to make this business grow," William H. Munn, president and sole stockholder of MESI, said yesterday. Mr. Munn will become president of the expanded subsidiary, which will have about 730 employees after his company's staff is added to the utility's.

"We are not aiming to cut costs by consolidating or laying off but to make all facets of Home Products & Services grow," Mr. Munn said, adding that the business will be run temporarily from offices in both Baltimore and Columbia.

To BGE customers, the acquisition means that for the first time they will be able to have their utility company install and service their heating and air conditioning equipment, a convenience the utility says many customers have long requested. Only two other utilities, in Minnesota and Illinois, are known to provide these services, and both use subcontractors rather than their own employees.

"It will give our customers an option they've requested from HP&S," said its chairman, Edward A. Crooke.

To BGE stockholders, the acquisition points to a potential new source of profits at a time of uncertainty in the industry.

"We have been aiming to become a full energy services company, and this acquisition is an important step in that direction," said Arthur J. Slusark, a BGE spokesman.

But to local heating and air-conditioning contractors, that strategy has been a point of growing contention with the utility. They formed an association last year to lobby against the utility's expansion into what had always been their uncontested turf.

"I feel bad for the smaller contractors. They're the ones that are going to get hurt in a major way," said Larry L. LeDoyan, chairman of that association, the Maryland Alliance for Fair Competition.

The alliance already has a case before the Maryland Public Service Commission challenging BGE's growing consumer arm.

That challenge argues that BGE improperly subsidizes its sideline businesses with income from its regulated gas and electricity rates and benefits from its name.

"Once they have to pay their own overhead, they will never be able to compete with independent heating and air-conditioning companies," Mr. LeDoyan said.

One of BGE's purposes in creating HP&S as a separate subsidiary with its own board of directors and its own accounting train was to create a "firewall" that might convince the PSC that the utility's ratepayers are not subsidizing the other operations.

Mr. LeDoyan said the independent contractors welcome the choice of Mr. Munn, who has served as a director of the alliance, to head BGE Home Products & Services.

Since its creation in June, HP&S has been headed by Herbert D. Coss Jr., the BGE vice president in charge of the recently tTC created gas division. He will continue to run the gas division after Mr. Munn takes over HP&S.

Mr. Munn, 47, worked for General Electric for five years after graduating from Tufts University.

He started MESI 17 years ago. It has grown to serve customers from Baltimore to the Washington suburbs of Maryland, installing heating and air-conditioning equipment in both residences and large office buildings.

Its latest big job was the 32-story Commerce Place office tower on South Street, Mr. Munn said yesterday.

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