A Constellation of Bad Values

Mayo Shattuck III already has, effectively, a license to print money.  For years, our elected leaders have provided his Constellation Energy Group Inc. a monopoly to offer electricity to 1.2 million customers in central Maryland.  But now his proposed sale of Constellation to an out-of-state company means far higher electric rates for you -- and a big payday for this wealthy aristocrat -- unless the General Assembly comes to the rescue.

Until 1999, Baltimore Gas & Electric was a normal electric utility with a monopoly to serve most Marylanders under close regulation in return for guaranteed profits and government backing whenever it needed taxpayer subsidies and state support to build new plants, lay power lines, obtain rights of way, etc.  All your taxpayer support over many decades helped build up BG&E into a Fortune 500, multibillion-dollar entity.

Not satisfied with this sweet and stable deal, BG&E’s top executives were given control of BG&E’s publicly subsidized assets through California-style electricity deregulation.  That’s right: our lawmakers voted overwhelmingly in 1999 to let BG&E go private – just like Enron -- promising us that deregulation would lead to greater competition and consumer choice.  But seven years later, BG&E still has a virtual monopoly on residential service in central Maryland.

Our little BG&E became a mere subsidiary of a much larger, Enron-like conglomerate called Constellation Energy Group.  Now freed from most regulations, Constellation failed to invest in BG&E's infrastructure, maintenance, tree pruning, and the other unglamorous chores that keep electricity flowing.  The result?  Too many blackouts, especially after Tropical Storm Isabel, a topic of Progressive Maryland Education Fund's recent report.  (Helpfully, Constellation's website urges you to prepare for frequent blackouts by stockpiling blankets and flashlights.)

In 2001, Constellation's board hired a new CEO, not one that knew anything about energy (how passe') but rather an investment banker, Mayo A. Shattuck III.  Mayo III quickly more than tripled the CEO’s salary and bonuses, hiking his pay up to an obscene $6.9 million.

Did Mayo III share the largesse with his workers?  Of course not.  Though Constellation tolerates unions at subsidiaries in Florida and New York, here in Maryland BG&E remains one of the most aggressive union-busters in the state.

Moreover, under deregulation, Constellation is allowed to raise rates as high as it wants starting this July.  Think energy prices are too high now?  You ain't seen nothin' yet.

Deregulation has also been awful for the environment.  Constellation's air pollution is a major source of 700 deaths each year, according to a Harvard researcher. But to fend off those meddling lawmakers, Constellation has spent millions of dollars in campaign contributions and on lobbyists, according to Common Cause, violated ethics rules, and colluded with the Ehrlich Administration to kill legislation to reduce air pollution from power plants.

Progressive Maryland has been helping our environmentalist allies advocate for the Healthy Air Act.  But it is an uphill battle due to Constellation’s breathtaking clout in Annapolis. 

And now Mayo III and his pals have cooked up a new scheme to separate you from your money.  They now want to sell Constellation to Florida Power & Light for $11.5 billion – and write into the deal golden parachutes for themselves worth tens if not hundreds of millions of dollars.  The new company will be chaired by Mayo III and will operate in nearly every state -- and therefore be exempt from future state regulation.

If the deal goes through, Baltimore will lose yet another corporate headquarters and thousands of good-paying jobs.  And out-of-state FPL will do as it pleases with a crown jewel of Maryland’s economy -- perhaps auctioning off Constellation’s assets to finance FPL’s far-flung ventures.  Check out Jay Hancock's series of columns in the Baltimore Sun on the proposed merger.

Think about it: we the taxpayers helped build up BG&E over many decades, paying for plants and power lines and reducing the risk for BG&E's investors.  But in 1999 lawmakers inexplicably handed over control of this public asset to BG&E’s executives, after which point the execs brazenly gave themselves multimillion-dollar pay raises.  And now Mayo III and his pals plan to bilk us even further by liquidating the company and walking away with the profit.

The Public Service Commission could, in theory, block the sale.  But the corporate toadies appointed by Gov. Ehrlich to the PSC have turned it into an industry lapdog.

So it is up to the General Assembly to save the day. Three years ago, the Assembly was faced with a similar proposal.  The CEO of CareFirst Blue Cross/Blue Shield, Bill Jews, had proposed that the state allow his highly-subsidized HMO to convert to a for-profit and be sold to a predatory HMO, Wellpoint of California.  For his "brilliance," Jews was to be rewarded with a $28 million golden parachute and a seat on the Wellpoint board.  But thousands of Marylanders would have lost their health insurance and the premiums would have risen for the rest of us.  So instead of rolling over, the General Assembly stood up for Maryland taxpayers and blocked the sale.  Now's the time for them to stand up for Maryland consumers again.

The Assembly should conduct a serious investigation, including subpoenas, into the merger.  Constellation should have to prove to us why the sale is in the best interest of Maryland consumers, as they argue in their merger petition.  The General Assembly should demand that Constellation respect workers' rights, above all by requiring management to practice strict neutrality if employees want to form a union.  And the General Assembly should admit that the goals of deregulation have not been met and instead re-regulate Constellation to ensure that this monopoly built up by our tax dollars serves the needs of all Marylanders, not just greedy executives with Roman numerals in their names.

Tom Hucker
Executive Director
Progressive Maryland

State Headquarters: 8720 Georgia Ave., Suite 500 Silver Spring, MD 20910 • (301) 495 7004