Energy sales unit unveiled BGE looking to market nationally as it prepares for merger

February 26, 1997|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Baltimore Gas and Electric Co. yesterday unveiled a power marketing subsidiary to sell energy and related services to other utilities and municipalities, a move that establishes a platform for the utility to compete nationally.

The new Constellation Power Source Inc. subsidiary, which will be advised by an affiliate of New York investment house Goldman, Sachs & Co., will require a $100 million investment by BGE for technology and communications equipment.

The new subsidiary is part of BGE's plan to expand its diversified energy services business as it prepares for its anticipated merger with the Potomoc Electric Power Co. The subsidiary will be based in Baltimore and initially will employ 50 people, including several Goldman, Sachs officials.

"The way that the energy industry is moving, we absolutely felt we had to do this from a strategic perspective," said Charles W. Shivery, a BGE vice president and its chief financial officer, who has been tapped to become chief executive of Constellation Power Source. "The unique thing here is the relationship with Goldman, Sachs and what they bring to the table."

"This is the latest in a series of decisions intended to diversify, and it takes one more step and prepares us to become a national player as the industry moves toward retail competition," said Christian H. Poindexter, BGE's chairman and chief executive. "Eventually, we intend to sell electricity, natural gas and energy services as a complete package."

In creating the nonregulated subsidiary, the company hopes to compete with industry giants such as Enron Corp., PacifiCorp, Duke Power and UtiliCorp United, all of which began marketing power two to three years ago.

In all, the potential market for selling power to other utilities is valued at more than $300 billion a year. Currently, 10 firms control about 75 percent of the market.

"They [Constellation] are going to have to sell a lot of power very quickly if they want to win at this game," said Mark Palmer, a spokesman for Houston-based Enron, the nation's largest power marketer with 29 percent of total sales, according to federal government figures.

But, in linking with Goldman, Sachs, with more than $5.4 billion in capital and one of the nation's most prominent investment firms, BGE believes that it will have an edge. Poindexter said the company is so confident that it referred to Constellation Power Source internally as "Project Home Run."

BGE acknowledged that the new subsidiary doesn't yet have any customers, and that it must receive approval from the Federal Energy Regulatory Commission to proceed. The company expects to spend two to three months getting an FERC license.

"There were three reasons we went forward with BGE," said Timothy J. O'Neill, a Goldman, Sachs managing director responsible for its power business.

"First, we have a lot of respect for the management at BGE. We looked at a lot of companies who wanted to do this and decided Chris [Poindexter] and Chuck [Shivery] shared our vision.

"Secondly, BGE and Goldman, Sachs have a long-standing relationship and, most importantly, we have shared values. We're both customer-oriented."

Goldman, Sachs advised BGE prior to its September 1995 merger announcement with Potomac Electric.

Pub Date: 2/26/97

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