Constellation Energy profit soars 83%

Utility credits gains in its supplying of power, gas in 20 states

January 31, 2004|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Rapid growth in supplying power to businesses in 20 states with deregulated markets helped boost Constellation Energy Group's profit 83 percent in the fourth quarter, the Baltimore utility said yesterday.

Constellation, the owner of Baltimore Gas and Electric Co., reported net income of $119 million, or 71 cents a share, for the three months that ended Dec. 31, up from $65 million, or 39 cents a share, for the fourth quarter of 2002.

Constellation shares rose 98 cents yesterday, closing at $40.23 on the New York Stock Exchange.

Excluding gains on asset sales of $5.9 million, the company made 67 cents a share. That compared with 41 cents - also excluding special items - in the fourth quarter of 2002. Analysts had expected the company to earn 60 cents a share on that basis.

Revenue soared 81 percent, to $2.49 billion from $1.37 billion, as the company continued a strategy of pushing into new markets to supply wholesale power and gas by acquiring competing suppliers, buying contracts to deliver power and seeking new commercial and industrial customers, the company said.

"All parts of the company are really clicking," said Mayo A. Shattuck III, Constellation's chairman, president and chief executive officer.

"Out of nowhere in one year, this business has been radically transformed."

The growth has come not from the utility, BGE, but from the "merchant" energy business in deregulated states.

The business generates and supplies power to customers such as Amtrak, Verizon Communications Inc., Wal-Mart Stores Inc., Ford Motor Co., Toyota Motor Corp. and Starwood Hotels & Resorts Worldwide Inc., Shattuck said.

The merchant business reported earnings of 52 cents a share in the fourth quarter, excluding special items, up from 22 cents a share in the fourth quarter of 2002.

The company's merchant business, NewEnergy, supplies power to 53 Fortune 100 companies.

"Their strategy is working well," said Edward Metz, director of the energy group for SNL Financial in Charlottesville, Va.

"They have a lot of credibility with Wall Street - the management team - and that's hard to come by in today's environment."

Constellation has benefited by having a mix of coal-fired, gas-powered and nuclear power plants, he said.

"A lot of companies that are in trouble are almost all gas-fired" plant operators hurt by rising natural gas prices, Metz said.

Constellation also has done well to lock in long-term contracts to sell its power, rather than relying on the spot market, which has an oversupply, he said.

Shattuck said stabilizing the company's balance sheet two years ago "allowed us to transform the company into a business everyone else had to retreat from" and build the largest competitive energy supply business in North America.

For the year, Constellation's net income dropped to $277.3 million, or $1.66 a share, from $525.6 million, or $3.20 a share.

The company said the decline resulted mostly from changes in accounting principles as part of a switch to an accrual method of accounting.

Excluding the effect of those accounting changes, which translated into a net charge of $1.19 per share, Constellation said, it earned $2.76 a share, up 9.5 percent from $2.52 a share in 2002.

The company said costs of repairing damage from Tropical Storm Isabel cost 12 cents a share.

Constellation said its regulated utility, BGE, had earnings of 17 cents a share, a decrease from 22 cents a share in the fourth quarter of 2002 as consumer demand decreased because of warmer weather in the last three months of last year than in the final three months of 2002.

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