Let's get a better deal
With competition for the Constellation Energy bailout, Maryland can reregulate electric rates

By E.J. Pipkin and Jim Rosapepe
The Baltimore Sun
September 23, 2008

There's no question that Warren E. Buffett's proposed purchase of Constellation Energy Group for $4.7 billion - together with the additional $1 billion investment by Mr. Buffett - is good for the management of Constellation. It's good for Mr. Buffett, too. However, it's not a good deal for Maryland.

According to Constellation's second-quarter SEC filing, its local distribution company, Baltimore Gas and Electric, was worth about 20 percent of the whole company. Therefore, the rest of the company can be bought for less than $4 billion. Assuming that its 21 plants outside Maryland and its energy speculation business are worth something, Maryland's plants could be returned to BGE ownership and regulated rates for less than the estimated value of just the Calvert nuclear power plant less than a year ago - around $4 billion. The original sin of energy policy in Maryland was the deregulation of electric rates in 1999, pushed by Enron and Constellation. They saw deregulation as a way to make big profits speculating with other people's money. For a while, it worked for Enron. And it worked for Constellation - until last week.

Contrary to the Enron and Constellation claims in 1999, deregulation brought no benefits to Maryland consumers, who instead were socked with a 72 percent rate increase and possible brownouts in years to come. That is old news. What is new is that last week's drastic reduction in the price of Constellation's assets has given Maryland the chance to scrap deregulation and start putting the interests of Marylanders first again.

Last month, Gov. Martin O'Malley said that Maryland must "take control of our energy future." We agree. Constellation's proposed fire sale to Mr. Buffett provides the vehicle to do just that.

Under Maryland law, the bailout can go ahead only if the Public Service Commission rules that it is "in the public interest." Clearly, a deal that protects the management of Constellation, which almost bankrupted the company, is not in the public interest. Approving a deal that gives Mr. Buffett Maryland's electric plants at a lower price than even the sweetheart deal Constellation got under deregulation is not in the public interest. Thus, if it follows the law, the PSC cannot approve this bailout.

But there is a deal that could be in the public interest - one that scraps deregulation, returning to BGE ownership and rate regulation the plants that ratepayers paid for over decades before 1999. The state should announce that it would support a purchase of Constellation if Maryland's power plants are returned at reasonable prices and the rates again regulated by the PSC. The rest of Constellation's assets - the plants in other states and its energy trading business - would be handled in any manner the purchaser prefers.

Mr. Buffett could agree to such a pro-Maryland deal at $4.7 billion, or he could adjust the price up or down to win PSC approval. If he's not interested, the state should solicit other buyers, just as the federal government has solicited private buyers for Wall Street firms that got in similar trouble speculating with other people's money.

Electricite de France, now a shareholder in Constellation, and major private equity firms such as TPG and KKR have expressed interest. If the state articulated our people's interests and made clear the PSC would approve a deal that was a win for BGE ratepayers, not just for Constellation and Mr. Buffett, we are confident other bidders would come forward.

Maryland's working families have nothing to lose and a lot to gain if the state solicits competing, pro-Maryland offers for Constellation. If we want to heed Mr. O'Malley's advice to take control of our energy future, now is the time and this is the opportunity to end the catastrophe of deregulation.

We are confident that such a good deal for Maryland would have strong support from the public and the General Assembly. Last spring, our proposal to regulate BGE's rates won support from a majority of Democrats and Republicans on the floor of the Maryland Senate.

Deregulation failed utterly to bring the promised benefits of competition to Maryland families. But rubber-stamping a sweetheart deal for Mr. Buffett and Constellation executives wouldn't, either. What it would do is continue the overcharging of Maryland consumers. Only competition for buyers of Constellation and aggressive negotiating by the state can bring those promised benefits to Maryland families.

E.J. Pipkin, a Republican, and Jim Rosapepe, a Democrat, are members of the Maryland Senate with a combined 33 years in the investment business. Their e-mails are ej.pipkin@senate.state.md.us and senator.rosapepe@inbox.com.