New Perils for BGE Merger fails: Now local utility must survive de-regulation while searching for new partner.

December 29, 1997

THE NEXT FEW years could bring anxious moments for customers of Baltimore Gas & Electric -- which means just about every homeowner and business in the Baltimore region. BGE's failed merger with Washington-based PEPCO leaves the company vulnerable to an out-of-state takeover even as BGE prepares for the coming of deregulated electricity.

In the short term, Baltimore dodged a bullet. The BGE-PEPCO merger would have deprived this city of nearly all BGE's top managers: Upper echelon would have shifted to Annapolis, while the District of Columbia's Public Service Commission demanded that half the utility's executives work in Washington.

Instead, BGE will remain here -- in the city that gave it birth in 1816. BGE is a crucial civic player, especially with the loss of many home-grown companies. The utility must focus on remaining viable and quickly adjust to the demands of a market-driven electric industry.

That challenge is closer than customers think. Maryland's Public Service Commission has set an ambitious schedule for gradual implementation of electric competition. One-third of Maryland customers will be able to choose their power provider a year from next April; the entire market will be open in 2001.

BGE will compete to supply electric power, but it still will bring that power into your home.

Deregulation sharply cut prices for long-distance calls and led to new and improved telephone services. Look for a similar scenario in the electric power industry. Bringing off a complex and delayed merger with PEPCO would have distracted attention from the major challenge facing BGE -- deregulation.

On paper, the merger looked like a natural. Both companies are low-cost providers, with some of the best East Coast rates north of Virginia. Merger savings were estimated at $1.3 billion, which would have put the combined company on firm footing to compete in a deregulated environment.

But the utilities did not count on union opposition that greatly delayed PSC consideration. And the companies failed to anticipate that regulatory bodies would insist on returning the bulk of any savings to customers, not to stockholders (the same thing is happening to Delmarva Power & Light's planned merger with Atlantic Energy in Delaware and New Jersey).

Now the company is likely to look around for a smaller regional utility that would make a good partner. That would help BGE fend off acquisition-minded utilities from the Northeast seeking a low-cost electricity supplier to give them a competitive price advantage.

But even without a partner, BGE must get ready for electric competition in Maryland, only 16 months away. The company has strong advantages, including an all-important brand name, consumer recognition, a complete infrastructure in place and ample sources of inexpensive power. It cannot rest on its laurels, though. Not when it must win over customers with the lowest prices in town.

Pub Date: 12/29/97

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