Baltimore, home of the branch office

Our view: It was only a matter of time before Constellation was sold, and the city's last Fortune 500 company departed

but a corporate headquarters isn't what it used to be

April 28, 2011

It's never a good thing to lose a corporate headquarters, particularly the last Fortune 500 company in town. None of the purported benefits Constellation Energy Group is trotting out to pretty up its proposed sale to Exelon Corp. of Chicago changes that fact. But it is also no surprise that Constellation would be sold. CEO Mayo A. Shattuck III has clearly been aiming for such a deal for years, and has tried it twice before. It's only a matter of time before he succeeds, and this deal, at least, is not so bad for Baltimore as it might have been.

When people talk about the importance of having corporate headquarters in a city, beyond the matter of civic pride, they are usually talking about charitable contributions and community involvement. Exelon and Constellation are promising they will keep up Constellation's $10 million in local charitable giving for at least a decade. But far more important than that is the idea that a company headquartered in Baltimore would keep in its heart a desire to boost the region, to see its future as being tied to that of its home. This is a particularly resonant notion when it comes to a utility, the kind of business that builds cities.

Or at least, it's the kind of business that used to aim so high. Baltimore Gas & Electric is a grand old company that has its name on manhole covers and electric meters across half the state. It's fortunes and central Maryland's fortunes were one and the same. But since the state's 1999 decision to deregulate the electricity market, that has changed. Constellation, BGE's parent company, is a national energy trading firm. It makes its money generating power (or buying contracts for power somebody else generates) and selling that to regulated utilities — including BGE — and to industrial and corporate customers. Its fortunes are tied only tangentially to Baltimore's, and it has long acted accordingly.

The pitch the company made when seeking state approval for its sale of nearly half its nuclear business to Electricité de France is a case in point. Company officials made much of the fact that merging with EDF would make possible the construction of a third nuclear reactor at Calvert Cliffs. There were no guarantees, they stressed, but EDF's capital and experience in nuclear construction made possible what would be the single largest construction project in Maryland history, a project that would substantially reduce the state's electricity supply problems and, theoretically, would one day lower customers' electric bills. That kind of thinking is what you expect from a company headquartered in your town. Maryland's Public Service Commission extracted an additional rebate for BGE customers and approved the deal.

Not long after, when Constellation got worried that the cost of building the reactor might be greater than it expected, it walked out of negotiations for federal loan guarantees, much to the dismay of EDF and Maryland political leaders who had been lobbying the Obama administration on the company's behalf. But it was a classic Constellation move — the company's mission is not building things, it's making money and increasing its share price, and there was more and less risky money to be made at that moment by other means. The fact that a third reactor would be good for Maryland was not part of the equation.

So given that a Constellation sale (whether to Exelon or someone else) was all but inevitable, and that Constellation has not for years acted like we imagine a homegrown company should, evaluating this transaction becomes a colder affair. The combined energy trading operations of the two companies will be headquartered here, as will the new corporation's renewable energy division. Those are not bad parts of the business to have, and officials say they expect net job growth here in the long run, so much so that they plan to construct a new headquarters building in Baltimore to accommodate it.

And then there are the direct bribes. Having been down the road of seeking Public Service Commission approval for his deals before, Mr. Shattuck is coming prepared this time. He knows he's about to get shaken down, and ever the shrewd negotiator, he's decided this time to be the first one to throw out a number. Exelon and Constellation are offering BGE's customers a $100 rate credit after the deal closes; they are promising to contribute $5 million to the state's low-income energy assistance program; $4 million to state energy efficiency projects; $10 million for Maryland's electric vehicle infrastructure; and $50 million to develop 25 megawatts of green electricity generation here.

The PSC will and should take a long, hard look at this deal, particularly to make sure the measures taken during the EDF deal to protect BGE's finances from the fortunes of its parent company remain sufficient. It needs to consider how this transaction will impact electric rates and reliability in the long term. And while the package of incentives the company has offered appears tailor-made to push all of Gov. Martin O'Malley's buttons — it's like they got a peek at his Christmas list: renewable power, electric cars, energy efficiency, ratepayer relief — the regulators should make sure the deal is in the broad best interests of BGE's customers.

But during the municipal tooth-gnashing that's bound to ensure over Baltimore becoming a branch town, it's important to bear in mind what we're actually losing. Having a corporate headquarters doesn't mean what it used to mean.

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