In Md., competing portraits of Constellation

Energy company depicts merger as triumph

consumers, lawmakers see picture of greed


At the intersection of politics and electricity lie two distinct images of Constellation Energy Group and its embattled top executives.

One is contained in the pages of the company's annual report to shareholders, which depicts a company that has triumphed in a competitive industry. At its helm is a visionary executive who has voluntarily waived millions of dollars in pay that could arise from a proposed merger with FPL Group of Juno Beach, Fla.

The other is summed up in a series of unflattering charcoal, oil and acrylic paintings by a group of Maryland Institute College of Art students, who created the works as part of a class project. Among them are images of Baltimore Gas and Electric sucking dollars out of the city with a giant vacuum cleaner and a portrait of Constellation's chief executive officer, Mayo A. Shattuck III, lighting a cigar with a spark from a power cord against a green backdrop with dollar signs.

The competing portraits have become the proverbial elephant in the room in the debate over rising electric rates. With elections around the corner, Maryland politicians have latched on to consumer perceptions of corporate greed, riding the wave of resentment that spurred Congress to summon oil executives before committees to answer for ballooning profits in an age of rising gasoline prices.

As Constellation CEO, Shattuck has been the critics' primary target. Though the size of his paycheck has little to do with the market forces driving energy prices higher, public officials and consumer activists have demanded that Constellation divulge how much Shattuck stands to gain from the merger with FPL.

Merger hearings will take place this summer. Constellation is banking on regulatory approval before the end of the year for the merger, which would create the nation's second-largest electric utility portfolio and the largest energy supplier in markets where unregulated competition is allowed.

Concerned that Shattuck might reap a financial windfall from the merger, politicians made his compensation a key talking point in recent negotiations with the company over a rate-relief plan for BGE residential customers who face an average 72 percent increase in their electricity bills.

"The fact that he was going to be richly rewarded for the merger ... was part of the discussion," said state Sen. Thomas M. Middleton, who as chairman of the Finance Committee played a key role in the talks. "People are just going to be outraged, and it is public perception probably more than reality. But perception is reality for a lot of people."

In interviews and regulatory filings, Constellation officials offer a reality different from the one portrayed in the political arena. They depict a CEO who has offered to give up as much as $25 million of the potential merger-related payout detailed in his employment agreement, with potentially more than $10 million in cash going into his family's charitable foundation.

"This is not at all about personal enrichment," said Robert L. Gould, a spokesman for Constellation, BGE's parent. "Our CEO has strongly demonstrated that by committing that all after-tax cash proceeds be donated to a charitable foundation."

Shattuck's charitable donation would come from a combination of long-term incentive pay and restricted stock that would accelerate after the merger and be converted to cash. The amount could vary, but the best estimate is a payout in the $12.5 million range, company officials said.

In addition, Shattuck has agreed to waive his right to receive a post-merger severance of up to $15 million if he were to leave the company. The pay details were contained in a filing with the Securities and Exchange Commission but were not otherwise publicized by the company.

Executive compensation experts say Shattuck's generosity is either the magnanimous gesture of a corporate chieftain who wants to give back to the community or a calculated ploy to deflect criticism at a critical time for his company.

"It's been done before, but sometimes you wonder why they're doing it," said Don Lind- ner, manager of executive compensation for World at Work, a trade group for compensation professionals in Scottsdale, Ariz. "This one sounds like -- since he has a history of giving to the community -- that it's an admirable thing he's doing to take part of his package and give to a charity."

Others are less generous, saying that Shattuck would still benefit from the money he has pledged to give away.

"Even though it's going to a foundation, it's the shareholder's money going to the foundation, and he still gets the benefits from it because it goes to a family foundation that he directs," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. "He can direct where the foundation spends its money, and he gets the benefits of the good will that is created by the foundation's work."

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