CEG chief forfeits more pay

Flurry of SEC filings shows Shattuck waiving millions contingent on merger

June 24, 2006|By PAUL ADAMS | PAUL ADAMS,SUN REPORTER

Constellation Energy Group disclosed yesterday that its chief executive has waived tens of millions of dollars in bonuses and accelerated pension payments that would be triggered by the company's planned merger - putting an exclamation point on a day that also marked the end of a months-long political battle over a BGE rate plan.

The news came in regulatory filings the company made hours after Maryland lawmakers over-rode Gov. Robert L. Ehrlich Jr.'s veto of a bill that would soften BGE's imminent 72 percent rate increase and fire the state's Public Service Commission.

The legislation was the culmination of a fierce debate on electric rates that also cast a spotlight on Constellation executives over the compensation they would receive after the company's merger with FPL Group Inc. of Juno Beach, Fla.

Yesterday's flurry of Securities and Exchange Commission filings contained normal merger-related documents that had been held up for months as a result of the political fury, which at times threatened to severely alter or even undo the nearly $11 billion deal. Even now, the documents say, the merger remains at risk as a result of uncertainty over what a new panel of Maryland regulators might demand as payback in exchange for approving the deal.

"Consistent with what we've said, the merger review process continues," Robert L. Gould, a Constellation spokesman, said yesterday. "Today's filing with the SEC is yet another required filing in that ongoing process."

The filings included a more than 400-page draft proxy statement that offered new details about how the deal came together over months of meetings - some of which took place as FPL's service territory was under repeated assault by last fall's hurricanes. Numerous discussions were held in Juno Beach, Baltimore and New York in which executive compensation was a key topic of discussion.

With yesterday's filings, Constellation Chairman and CEO Mayo A. Shattuck III has essentially thrown out part of the product of those negotiations, choosing instead to blunt critics of the deal who claimed executives stood to reap millions while BGE customers were facing a record rate increase.

Shattuck has waived potentially lucrative revisions to his pension plan and given up virtually all other compensation that would be triggered by the merger. The extraordinary givebacks are in addition to Shattuck's earlier agreement to waive a potential $15 million severance payment if he were fired from the company and give about $14.7 million worth of other pretax merger-related compensation to charity.

Under the terms of an agreement Shattuck signed in December, the merger would have waived service requirements under Constellation's executive pension plan and caused him to be treated as a lifetime employee - even though he has worked for the company only a handful of years.

The pension would have paid more than $2 million a year for the rest of his life, beginning at age 62. The agreement also would have allowed him to take the pension payout as a lump sum when he left Constellation.

The documents filed yesterday also show that Shattuck has waived the right to receive a payment equal to three times his roughly $1 million annual bonus if he were fired in the first two years of the merger.

However, Shattuck, who made $9.3 million in total compensation last year, still holds tens of millions in Constellation stock and options. Those holdings include a $43.5 million paper profit that Shattuck earned in December by exercising options awarded in previous years. The company says Shattuck did not realize any cash from the transaction because he still holds the shares.

Shattuck and other top executives were asked to exercise the options to minimize taxes that would be triggered by the merger.

He also has struck a three-year employment agreement that will pay him at least $5 million in salary in the first year after the merger, and $2.5 million in the two years after that. The agreement also says that Shattuck, who will be executive chairman of the merged company, cannot make less than FPL Group's Lewis Hay III, who will take over as chief executive officer of the combined company.

The merger will create a fast-growing utility and energy marketing company with 45,000 megawatts of generating capacity and $57 billion in combined assets. In Constellation, FPL will be getting the nation's biggest seller of power to big industrial users and consumers in markets that allow competition.

The new company will retain Constellation's name and be incorporated in Maryland. But the company will maintain dual headquarters in Juno Beach and Baltimore for at least five years.

Shattuck and Hay, who serve on the board of directors for Capital One, began discussing the deal in May 2005 after examining rapid changes in the energy business. That touched off a series of meetings and phone calls throughout the summer and fall. Executives revealed later that the negotiating teams began to refer to the deal as "Project Nascar."

The deal was approved by each company's board of directors Dec. 16, with the deal becoming public Dec. 19.

The smooth regulatory approvals expected in December quickly gave way to a political maelstrom in Maryland over electric rates. The issue dominated the regular General Assembly session and last week's special session and has emerged as the primary attack line in the developing gubernatorial campaign.

The merger must secure approval from a new PSC, which lawmakers have ordered to take a hard look at the deal in hopes of extracting consumer-friendly concessions from the companies.

paul.adams@baltsun.com

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