Utility split-up stirs anger

Constellation Energy investors lament dividend reduction

April 28, 2001|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Angry investors blasted Constellation Energy Group Inc. officials at the annual shareholders meeting yesterday for the company's ambitious plan to split itself into two publicly traded corporations - a move that cut dividend payments 71 percent on a stock that many elderly shareholders said they relied on every year for income.

But Constellation leaders said the company is on track for the split to take place in the second half of the year. And, pointing to a stock price that has climbed 47 percent over the last year, Constellation Chairman and Chief Executive Officer Christian H. Poindexter said that increasing shareholder value was still of paramount concern.

Frustration over the dividend cut slightly marred the bright outlook the company described yesterday as it also released first-quarter earnings that showed a 42 percent increase over last year's first quarter.

"Your goals are admirable, but for people like me who have been longtime, ardent supporters ... we might have to part ways," said Janice Gold of Pikesville, who has owned stock in the company for more than 50 years. "My husband and I are 89 years old; we own 4,500 shares between us. My income has been cut by approximately $5,000; I can't afford that.

"I don't think you've been fair to your shareholders."

Pending regulatory approvals, Constellation will split into a fast-growth, unregulated "merchant" energy business that will generate and sell power nationwide, and a regional electric company called BGE Corp. that will include its regulated subsidiary Baltimore Gas and Electric Co. Constellation shareholders will also receive a share of the new BGE Corp. on a one-for-one basis.

Now 12 cents a share

Starting this month, the company cut its quarterly dividend to 12 cents a share, from 42 cents a share, with BGE Corp. assuming the annual 48-cent dividend payout after the split. Constellation will not pay a dividend and, instead, use that money to reinvest in building new power plants.

"I am very upset," said Margarita Petrou, 70, a New York resident who came to town for the meeting at BGE headquarters on Lexington Street. "The dividend is important to me. My life is short; the new Constellation stock is a gamble. If I sell it, I'll have to pay capital gains tax."

But Constellation officials said the 48-cent rate is representative of a top-tier company similar in size to BGE Corp. At the time of the split, about two-thirds of the company's annual earnings will come from the merchant energy business and one-third from the retail activities of BGE Corp., company officials said.

"A lot of people don't understand," Poindexter said. "But I try to point out that we believe the sum of the parts will be greater than the whole.

"Despite the slowdown in the economy and the turmoil in California, we have a positive story to report."

In the three months that ended March 31, earnings from operations were $103.3 million, or 68 cents per share, compared with $72.1 million, or 48 cents per share in the first quarter of last year. However, the numbers reflect $37.5 million of additional depreciation and amortization on the electricity generating assets previously owned by BGE, which were transferred to unregulated subsidiaries to prepare for deregulation.

Total revenue in the quarter rose 17.2 percent, to $1.2 billion.

`Overall ... doing very well'

"They're doing as expected, but actually, when you net out everything, earnings only rose 7 percent," said Joan T. Goodman, a utilities analyst with the Pershing division of Donaldson, Lufkin & Jenrette Securities Corp. "But overall, I think they're doing very well. Company officials are saying the merchant plants will grow by 20 percent a year. That's a fantastic growth level.

"The future outlook is excellent for the merchant side of the company," Goodman said. "Constellation shareholders will come out better in the end. Utilities aren't what they were in terms of dividend payers anymore, so, for those who depend on it for income, they might have to switch out."

Shares of Constellation fell 77 cents to $47.68 on the New York Stock Exchange yesterday.

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