Constellation's CEO defends rates, merger

Interview // Mayo A. Shattuck Iii


Early last summer, Mayo A. Shattuck III and his managers at Constellation Energy Group Inc. were worried.

Energy prices had been climbing for years. Shattuck anticipated that the company's regulated utility, Baltimore Gas and Electric Co., faced a steep increase in power costs this July once rate caps expired with Maryland's move toward electric deregulation.

The chief executive was worried about what looked to be a 30 percent to 35 percent rate increase at the time, and how that would sit with consumers. What he didn't know then was that hurricanes would hammer the southeastern United States weeks later and wipe out natural gas production in the Gulf of Mexico, sending gas - and electric - prices into record territory.

Last week, the Maryland utility commission announced that residential electric prices will rise on average 72 percent this July, twice as much as Shattuck and others feared less than a year ago.

The Constellation chief executive now finds himself in the middle of another storm, this time a political one, that threatens to tarnish a year shaping up to be his most accomplished. In an expansive interview Friday in his 18th-floor office overlooking the Inner Harbor, Shattuck defended BGE's rising electric rates and Constellation's merger - shaping up to be major political issues.

Consumer advocates have criticized the company for raising BGE's rates when its corporate parent is earning record profits. Also, state lawmakers are threatening to interfere with Constellation's proposed $11.5 billion merger with Florida's FPL Group Inc. to form one of the nation's largest electric utility portfolios, unless the company does more to soften the arrival of deregulation, which was engineered in Annapolis in 1999.

"I would say that six years ago, no one did foresee the escalation in energy prices around the world," Shattuck said Friday. "The fact is that as of fall of last year, this global energy crisis became exacerbated by the hurricanes and became exacerbated by geopolitical events which forced oil to go way up, and as a consequence, I think the transitional pricing actually became much more severe in the last six months than anyone could have anticipated."

A consummate deal maker, Shattuck helped orchestrate the sale of the Baltimore investment firm Alex. Brown & Sons in 1997. In less than five years at the helm of Constellation, he has transformed a once-struggling energy company facing a hostile takeover into the nation's biggest marketer of power to large industrial customers and municipalities in deregulated markets. Fortune magazine has dubbed it the nation's most admired energy company.

As Hurricanes Katrina and Rita were wreaking havoc on BGE's future rates, Shattuck and Constellation negotiators were behind closed doors laying the groundwork for the merger with FPL Group. If the deal is consummated, the 51-year-old executive stands to play a prominent role in a growing Fortune 100 company.

But Shattuck will have to navigate the political landscape in Annapolis.

The following are excerpts from Friday's interview, with questions from a Sun reporter and Shattuck's answers:

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