CEO's check sets example for CEG to follow

May 03, 2006|By JAY HANCOCK | JAY HANCOCK,SUN COLUMNIST

Good for Mayo Shattuck for giving up millions in compensation as Baltimore Gas and Electric customers face a 72 percent pop in electric bills this summer. He can read the tea leaves.

Now if only BGE parent Constellation Energy would make a similar gesture - by contributing to genuine rate relief - we could forget kilowatts for a while and read about the new Justin Timberlake movie instead.

Shattuck, who is chairman and chief executive officer of Constellation, has apparently taken lessons at the William L. Jews school of public embarrassment and merger tactics.

Jews is boss of CareFirst BlueCross BlueShield, Maryland's biggest health insurer.

While agreeing to sell CareFirst to WellPoint Health Networks a few years ago, he almost single-handedly snuffed his own deal by negotiating a personal payout of up to $39 million, much of which was triggered by the merger.

Anger over the swag, amplified by the fact that CareFirst is a nonprofit, all but guaranteed then-Insurance Commissioner Steve Larsen's decision to block the transaction.

Now something like the CareFirst thriller is back on the marquee, thanks to Constellation/BGE's pending merger with Florida's FPL Group, worries about future control of BGE and millions in compensation being pocketed by executives.

(Unlike CareFirst, Baltimore Gas and Electric is for-profit. But as a historically regulated utility BGE is similar to CareFirst by being a quasi-public asset that is key to the regional economy.)

Soaring electric rates, which are unrelated to the merger, have nevertheless stoked the discontent even further. Now Shattuck apparently has been worried that his pay package jeopardizes the FPL marriage, even though regulators have far less control over that deal than Larsen did with CareFirst.

In recent days, Shattuck has agreed to forgo as much as $25 million in cash that he might have gotten in the merger and subsequent departure from the company.

First, Shattuck recently told Constellation to donate to his family charity what the company estimates as between $5 million and $10 million in long-term incentive pay and restricted stock, which would have been accelerated and, in the case of the stock, converted to cash upon the merger.

Then, on Friday, he agreed to give up between $5 million and $15 million in potential, post-merger cash severance, "taking into account our mutual interest in completing the proposed merger," according to a letter he signed and gave Constellation.

Constellation has always said Shattuck probably wouldn't get that money because he plans to remain with the post-merger company as chairman and senior executive. (FPL boss Lew Hay will be CEO.) But I figured he would be gone after a year, and he should get credit for forgoing the pay, however contingent.

(By my reading of the contract, Shattuck would have gotten $15 million if he resigned within a year of the merger and $5 million after a year.)

Don't worry about Shattuck and his family. He is still overpaid, owns tens of millions in Constellation stock, will get nice raises once the merger is complete and becomes eligible for a fabulous executive pension if the merger is closed. But giving up the money represents a material change in his situation and a recognition of political realities.

Now Constellation should mimic its boss by surrendering a substantial sum - unilaterally, requiring no negotiation - for BGE rate relief.

The companies are still playing the "poor BGE" game, saying substantial rate amelioration would hurt BGE, raise its borrowing costs and cost ratepayers money.

Yes, that's true.

That's why Constellation, which took control of BGE's generation plants six years ago without paying a fair price, needs to chip in more for rate relief. Constellation should finance the up-to-$24 million in interest payments needed to delay rate increases for BGE customers after July 1.

The Public Service Commission has told BGE to cover the interest. BGE has protested, saying it can't afford it. Constellation can solve the problem.

Constellation should also sweeten what it calls $600 million in "merger credits" and other credits for BGE ratepayers over 10 years.

A decade is too long to dribble out the money, and, as noted previously, it's not really $600 million. Give it to us sooner, as the deal negotiated by the General Assembly would have done.

You have a great role model, Constellation: Your boss. Get out the checkbook.

jay.hancock@baltsun.com

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