New Constellation in the sky

Split-up canceled: Local energy giant reacts to economy in pullback from heady separation plans.

November 01, 2001

CONSTELLATION Energy Group's latest strategic about-face reflects the harsh new realities of the electric power industry.

The abrupt, costly abandonment of plans to split its power generation and distribution operations into separate businesses will mean a loss of jobs in this region.

In the intermediate term, however, that may spell survival for the local Fortune 500 concern that owns Baltimore Gas and Electric Co. and employs 8,000 workers.

Over the longer run, Constellation's ability to avoid being gobbled up by another energy giant will depend on strengthening its financial picture and cutting its debt.

Naming investment banker Mayo A. Shattuck III as new chief executive underlines that corporate goal. A $355 million payout to former partner Goldman Sachs Group will add to the expensive restructuring and expansion plans underway for more than a year that must be accounted for.

BGE consumers may at least have more security from the altered corporate plans. There will be more resources for the regional utility to maintain its promised six-year price cut and freeze on electric rates for more than a million residential customers.

Constellation's optimistic plans a year ago were based on the hubris of rising energy demand and power deregulation. But this year has seen falling energy prices, a seriously slumping economy and uncertainties of world terrorism. Bigger and stronger is now the aim of Constellation, with $3.9 billion in annual revenues.

Shifting corporate strategies in recent years have cast doubt on the company's future. It canceled plans, again at a hefty cost, four years ago to merge with Potomac Electric Power. Then it forecast urgent U.S. power deregulation in plunging ahead with joint ventures and plans for the spinoff. Now that course is suddenly reversed.

Today's apparent power surplus can change tomorrow, making Constellation's plants more valuable. Amid these fluctuations, however, the Baltimore firm needs a period of managerial stability.

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