The same unpredictable power markets and soaring fuel prices that have frustrated utility customers contributed to a 26 percent decline in first-quarter profit for Constellation Energy Group, the company reported yesterday.
Though still highly profitable, Constellation said it suffered when power prices didn't keep pace with the rising price of natural gas - a critical factor in the price of electricity.
That rare disconnect in energy markets was good for electricity buyers, who were spared even higher power prices - at least for now. But it was bad for Constellation, which said the anomaly contributed to multimillion-dollar losses in a segment of its business that buys and sells energy in competitive markets.
And soaring coal prices - another big factor in electricity prices - also worked against the company last quarter when two of its suppliers couldn't deliver on promised production, forcing Constellation to write down the value of its supply contracts with key customers by about $68 million.
In the scheme of things, the setbacks amount to little more than a bad day for a company with $21 billion in annual sales. The rest of its business is humming, and the Baltimore-based energy conglomerate said it made a first-quarter profit of $145.7 million. The company said it still expects to meet its earnings projections for the year.
But for consumers facing higher utility bills, the fact that Constellation saw lower results at a time of rising energy prices provides a glimpse into the complexity of a global energy business few in Maryland understand.
"This is not your grandfather's utility," said Paul Patterson, an analyst with Glenrock Associates in New York. "This is a company involved in very dynamic and volatile and complex commodity markets."
The simple-to-understand part of Constellation's business - the part that makes electricity and sells it - is performing well. Profit from its generation fleet - made up mostly of its Maryland power plants - grew 12 cents a share for the quarter as the company benefited from higher energy prices in Maryland and elsewhere.
But it's the part of Constellation that trades in electricity, natural gas, coal and other energy products all over the world that carries the biggest potential for risk. Part of that business takes large positions in electricity markets, placing bets on where prices will go. When the market behaves normally, the company can squeeze sizable profits from the operation. But when things go awry, millions of dollars can hang in the balance.
