Big power's big shock

Fizzle: Constellation Energy envisioned its reorganization would reap endless profits. But the plan ended badly in October and a new CEO was hired.

November 18, 2001|By Bill Atkinson and Dan Thanh Dang | Bill Atkinson and Dan Thanh Dang,SUN STAFF

Christian H. Poindexter settled into a high-backed leather chair at the head of Constellation Energy Group Inc.'s boardroom on the 24th floor overlooking the Inner Harbor and Camden Yards.

Seventeen company directors took their seats around the richly polished, horseshoe-shaped table. After they sipped coffee and nibbled on Krispy Kreme doughnuts, Poindexter called the Oct. 19 meeting to order precisely at 9 a.m.

After the customary reading of the minutes, Poindexter, much like a conductor, led the directors through a maze of information. The energy industry, which just months earlier seemed poised to ride deregulation to unlimited profits, was in trouble, said the chairman and chief executive officer.

And worse, Constellation's vaunted plan to become a major national player by splitting into two publicly traded businesses was unraveling.

There had been indications before, at least since June. But this time, the situation was different. This wasn't an update; it was a precursor to the end.

Thomas F. Brady, head of corporate strategy and development, flashed multicolored charts on a screen that showed plunging stock prices and diving profitability ratios of rivals.

The mood was "very, very serious," recalled Jerome W. Geckle, a director for more than 20 years. "The entire board was really into it. Nobody was going to sleep, I can tell you that."

Pulling the plug on its reorganization, a plan in the works for a year, would be a bitter pill for Poindexter.

There also were ramifications, none greater than what to do about the company's deep-pockets partner, Goldman Sachs Group Inc., and picking a successor to 63-year-old Poindexter, who had privately informed the board that he was prepared to step aside.

The meeting, which normally would have ended at 11:30, stretched on until 2 o'clock. Poindexter wanted matters resolved within days.

"Make yourselves available," he told the directors.

It would be another six days before a vote would be taken, but directors left the room that day knowing the likely outcome: The reorganization was dead and Poindexter would resign as CEO.

"It wasn't a tough decision, because the situation had changed," Poindexter said later. "I thought it was the right decision. Was I disappointed things hadn't worked out? Absolutely. It's been a rough year for us and a rough year for me."

How Poindexter and Constellation's board decided to pull the plug on the carefully crafted plan had little to do with personal desires. It had everything to do with a drastically changed world, altered by California's flawed deregulation that contributed to wild swings in the energy market, a rapidly deteriorating economy and - in a final, unexpected blow - the terrorist attacks of Sept. 11.

It was just a year earlier - on Oct. 23, 2000 - that an upbeat Poindexter stood at a podium in the glass-walled lobby of Constellation's bustling, block-long trading room where energy traders bought and sold electricity, and dropped a bombshell.

Flanked by senior company executives, the chief executive announced that Constellation, the parent of Baltimore Gas and Electric Co., was transforming itself. The boring utility, favored by conservative investors for its reliable dividend and steady earnings, would split into two independent companies.

Move to next level

One company would keep the Constellation name and dive into the highly lucrative and unregulated wholesale market to build power plants and sell electricity nationwide. The new company would have the backing of Goldman Sachs, which would invest $250 million for a 17.5 percent stake, a seat on the board and the right to acquire more shares.

The other company, BGE Corp., would continue to focus on delivering electricity to Central Maryland. Both multibillion-dollar companies would operate out of Baltimore.

"We've gotten through deregulation, and the time has come to move to the next level," Poindexter declared. "The growth of our industry is really what's precipitating this. We think we'll be a very strong competitor, not only here but also in the national wholesale market."

It was a good time to be in the energy business.

With electric deregulation sweeping the country, energy companies could shed their slow-growing, regulated delivery businesses, and focus on the riskier, high-growth business of building power plants to sell electricity nationwide.

Some competitors were well under way.

Northern States Power of Minnesota announced March 29 that it was creating a publicly traded company called NRG Energy Inc. to buy and sell power.

Several days later, Southern Co. of Atlanta agreed to break off Mirant Corp., which would own power plants and buy and sell energy globally.

Reliant Energy Inc. of Houston followed in July, announcing the creation of its own power-selling unit.

Orion Power Holdings Inc., an independent power company in Baltimore that Constellation and Goldman Sachs helped launch, watched investors snap up 27.5 million shares in its initial public offering.

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