In the glass-encased trading floor at Constellation Power Source's Inner Harbor offices, up to 120 traders work round the clock buying and selling orders as they sit glued to computer monitors.
But instead of stocks, bonds or pork bellies, they are trading blocks of electricity, putting 3-year-old Constellation Power Source at the forefront of a new industry.
Constellation Power is a subsidiary of BGE parent Constellation Energy Group, and is advised by an affiliate of Goldman Sachs Group Inc.
Power marketing is the business of agreeing to sell electricity to utilities, municipalities and other bulk customers at a set price while trying to make it or buy it for less from another source. Because electricity cannot be stored and is priced by the hour, price fluctuations can be extreme, exposing the company to huge risk.
A megawatt-hour of electricity -- enough to power 1,000 homes -- could sell for $30, but the price could skyrocket to more than $1,000 or more when demand spikes, typically during a heat wave.
For a power marketer that is locked into a fixed-price contract, the impact could be disastrous. There have been instances where some companies have defaulted on contracts and others have left the business.
Nonetheless, Constellation Energy Group has embraced power marketing as a key component of its post-deregulation business strategy to become a major power provider.
"Electricity is a real-time commodity," said Charles W. Shivery, Constellation Power Source's president and chief executive officer. "A trader does not have the ability to take it and hold on to it, and it's very volatile pricewise. But the less risk, the less growth potential. We're building an energy business in an uncertain time."
Constellation Power has been successful. It has become a major contributor to its parent's bottom line, adding 23 cents per share to earnings last year, up from a contribution of 5 cents per share in 1998.
"In three years, we're very happy with our progress," Shivery said. "We're beginning to get a good reputation in the marketplace."
Analysts agree, saying Constellation Power has distinguished itself as a major player in the $200 billion power marketing industry that promises to expand.
"Based on what Constellation Power has done so far, it seems like it is well-suited for power marketing," said Matt Stith, an analyst with First Union Securities in Richmond, Va.
