BGE holding company is approved

Utility to operate as subsidiary of Constellation Energy

CEG to be launched May 3

Move allows company to compete, take `bold' steps, says chairman


April 17, 1999|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

Buttressing Baltimore Gas and Electric Co.'s ability to compete in Maryland's soon-to-be deregulated power industry, shareholders yesterday approved the creation of a holding company, Constellation Energy Group Inc.

"We have been doing a lot of heavy lifting to get the rules in place to give us a chance to compete," said Christian H. Poindexter, BGE chairman, president and chief executive, during the company's annual meeting at the Mechanic Theatre downtown. Poindexter will hold the same titles in the holding company.

Constellation Energy will be launched May 3, trading under the "CEG" ticker symbol on the New York Stock Exchange.

Shares of BGE common stock will automatically represent an equal number of shares of Constellation Energy common stock.

The name of the local utility will remain BGE. It will operate as a Constellation Energy subsidiary.

With a holding company, BGE will have the ability to beef up its unregulated subsidiaries without requiring approval from regulators, and it will have an easier time obtaining capital for its subsidiaries, Poindexter said.

Gov. Parris N. Glendening signed the legislation in February that allowed the move. The measure, which failed the year before, was deemed by proponents as an important indicator of Maryland's business climate.

Poindexter lauded the victory, but said the year's delay hurt the company. Among other things, it kept the stock price down, he said.

"We have been held back previously from taking some bold actions," Poindexter said.

Yesterday, BGE's shares closed at $26.0625, up 81.25 cents. The 52-week high came Oct. 7 at $35.25. The 52-week low was March 24 at $24.6875. The stock price was also depressed by flat earnings growth over the past five years, Poindexter said.

Yesterday, BGE reported that its earnings in the first three months of 1999 increased a nickel over the first quarter of 1998, a result of lower temperatures this year. Natural gas sales in the quarter increased 10.4 percent over a year ago.

In the quarter that ended March 31, the company generated earnings of $82.8 million, or 55 cents per share, up 11 percent from the comparable period a year ago. Revenue in the quarter rose 7.6 percent, to $932.3 million.

Earnings in the quarter also were bolstered by BGE's entrance into the wholesale electricity market, Poindexter said.

"We have to look to our generation and wholesale trading business since that is where the growth in revenues will occur," he said.

Opening the electricity market to competition will cause BGE's traditional business to lose revenue, Poindexter said.

Starting next year, new laws will allow residential customers to choose suppliers of electricity. Deregulation also requires a cut of 3 percent to 7.5 percent in rates for residential customers who stay with BGE. Rates will then be capped for four years. The actual size of the rate cut will be determined by the Public Service Commission.

The company will have no choice but to focus on energy-related ventures, said Ronald S. Tanner, a Legg Mason Wood Walker Inc. energy industry analyst.

"The retail business is getting very competitive, and there will be other players coming in trying to take customers away from them," Tanner said. "The business that holds the most promise is the nonregulated businesses."

In preparation for competition, BGE has been working down both channels, Tanner said.

After the meeting, Poindexter said he has a team of employees sifting through ideas for new energy ventures.

"We are not looking for expansion in the pipes-and-wires business, as we call it," Poindexter said, referring to the retail utility business.

Pub Date: 4/17/99

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