BGE says it'll stay in city, for now Pepco deal's collapse staves off another loss of a major home office

December 31, 1997|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Baltimore Gas and Electric Co. may have lost a merger partner, but the city has retained a corporate headquarters at a time when big business' presence downtown has been steadily vanishing.

In the wake of the decision last week by BGE and Potomac Electric Power Co. to scrap their $3 billion merger, the Baltimore-based power concern intends to maintain its headquarters at 39 W. Lexington St., where it has been for 180 years.

"Our plans are to keep the headquarters in Baltimore at the present time," said Arthur J. Slusark, a BGE spokesman.

At the same time, BGE provides a badly needed psychological boost to a city that has lost numerous high-profile headquarters in recent years -- including MNC Financial Inc., McCormick & Co. Inc. and Alex. Brown Inc. -- to mergers, acquisitions, relocations and general economic metamorphoses.

But BGE may not call the 21-story building downtown home base forever, thanks to utility industry deregulation, potential changes in state law and trends in executive lifestyles that place a high premium on living near work.

"While I'm grateful that the company's headquarters aren't moving to Annapolis, because of the psychological lift it provides and because it's better for the city, longer term I'm worried about their ability to maintain their headquarters in either Baltimore or Annapolis, because of all the industry consolidation taking place," said Roger C. Lipitz, chairman of the Baltimore Development Corp., the city's economic development arm.

"There's such a dearth of corporate headquarters here already, it just worries me," Lipitz added.

Thanks, in part, to changes in federal law that promote competition and deregulation of the monopolistic utility system, power suppliers nationwide have been pairing up in an effort to stave off erosion of market share and gain new customers.

Look out of state

Analysts speculate that without Pepco, BGE eventually may have to join forces with an out-of-state utility to gain size and financial strength.

Just last week, for instance, an Ohio utility announced plans to buy a Dallas power concern for $6.45 billion, one of the largest such acquisitions ever and a deal that would create an entity with customers in 11 states.

Possible alterations to state regulations could also send BGE to Annapolis, if company lobbyists are successful in persuading legislators in the General Assembly's session that begins next month to repeal a law prohibiting utilities from creating so-called holding companies in Maryland.

In Virginia, for instance, Dominion Resources Inc. serves as the holding company for Virginia Electric & Power Co., one of the state's largest energy suppliers.

Relocate executives

If the Maryland law is overturned, BGE could very well shift the holding company's headquarters to Annapolis, relocating the same 100 or more top executives that had been scheduled to head south with Constellation Energy Corp., an entity that would have been the nation's ninth largest power concern.

BGE's 39 W. Lexington St. headquarters currently has roughly 1,100 employees.

Slusark declined to comment on whether a BGE holding company's headquarters would be established in Annapolis, though he said the company would not rule out such a move.

"It's always a possibility," Slusark said.

Lifestyle considerations

But perhaps the biggest lure that Annapolis has is that it's essentially in the neighborhood for BGE's chairman and chief executive officer, Christian H. Poindexter, who resides in Arnold.

Such a shift for lifestyle purposes wouldn't be unprecedented in the Baltimore area. When McCormick relocated its world headquarters from the city to Sparks, in Baltimore County, executives privately cited the facilities' proximity to their homes as one of the primary factors behind the move.

Not that the decision to kill the merger would have doomed development of what was likely to be Constellation Energy's headquarters. Despite the announcement, BGE's real estate subsidiary remains "totally committed" to the estimated $25 million project, and intends to begin construction on the 10-story office building on a 28-acre parcel at Jennifer Road and U.S. 50 early this spring, sans tenants.

Constellation Energy had all but committed to occupying three floors of the One Annapolis Exchange project, or 60,000 square feet. The building is scheduled for completion in fall 1999.

"The building was designed around having their corporate headquarters there, but Constellation Real Estate has always been committed to the building and the site," said Craig Morrell, a partner in KLNB Inc., the Towson brokerage firm that Constellation Real Estate Inc. retained to lease the 200,000-square-foot building.

"And now, the marketing is gearing up to go full steam ahead at the beginning of next year," he said.

Morrell and Constellation Real Estate both cite the Annapolis office market's fractional vacancy rate of roughly 4 percent as reason enough to proceed, and local real estate analysts agree.

"It won't break the market at all," said Louis Hyatt, president and owner of Hyatt Real Estate, an Annapolis company.

"If the economy remains healthy," Hyatt said, "the market here won't have any trouble absorbing the space that that building offers."

Pub Date: 12/31/97

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