O'Malley, other Md. leaders hail Shattuck's CEG deal

Gov. Martin O'Malley speaks about the Constellation deal before entering Severna Park Middle School, part of his monthlong tour of public schools. (Baltimore Sun photo by Doug Kapustin / September 18, 2008)

Two years ago, then-Baltimore Mayor Martin O'Malley and Constellation Energy Group chief executive Mayo A. Shattuck III were trading barbs in public and through advertising campaigns over a proposed 72 percent electricity rate increase.

What a difference a market meltdown of global proportions makes.

The politician and the executive appear to have come together over financial woes at Constellation, which owns Maryland's largest utility. Their offices kept in close contact as Shattuck negotiated almost nonstop over 48 hours with a potential buyer. And when Shattuck finally settled a deal to sell Constellation to MidAmerican Energy Holdings Co., they talked again.

"He seemed a lot better," O'Malley said, relaying their phone conversation.

In stark contrast to the political posturing of the past, O'Malley and other state officials embraced the sale of Constellation to MidAmerican as a way to avert a broader crisis at the company that serves 1.1 million residential customers in the state. MidAmerican is owned by billionaire super-investor Warren E. Buffett's Berkshire Hathaway Inc.

"You couldn't find a more reputable, stronger white knight than Warren Buffett," O'Malley, a Democrat, said at an appearance at Severna Park Middle School. "It's my understanding that Mr. Buffett really likes Maryland, spends a lot of time in Maryland … and understands that Maryland is a very good place for business."

But who knows how long the honeymoon will last. The governor's office, lawmakers and regulators will likely examine the impact of the deal on consumers and the electricity rates they pay, and some have called for a hearing, perhaps before the next General Assembly session in January. Possible multimillion-dollar payouts to Shattuck and other Constellation executives are also expected to come under scrutiny.

Nonetheless, politicians expressed relief that Constellation found a partner in MidAmerican, a Des Moines, Iowa-based company that is part of Buffett's storied empire, with utilities in the West, Midwest and operations in the United Kingdom. MidAmerican is paying $4.7 billion in cash for the deal, which is subject to approval by state and federal regulators.

They also expressed hope that MidAmerican would move forward with plans to build a nuclear reactor in Calvert County to help ease energy supply constraints in Maryland, and that the company would embrace environmental initiatives in Maryland that call for more renewable energy and conservation programs. MidAmerican's predecessor developed geothermal power production facilities.

MidAmerican CEO Gregory E. Abel said his company is committed to Constellation's business plan, and Shattuck said the acquiring company gave Constellation executives "incredible comfort" that Marylanders would be "well-served."

"For them to make this decision to be purchased by MidAmerican, I think, was an extraordinarily great move because it's my understanding that the company will allow them to be autonomous and continue to operate and function here," said Baltimore Mayor Sheila Dixon, who also spoke with senior Constellation executives.

Maryland's Public Service Commission, the energy industry's regulator, declined to comment on the proposed transaction. In a statement, the agency said it would review the acquisition application to determine whether the deal is in the public interest, weighing any benefits or harm to consumers.

Much has changed since Shattuck and O'Malley butted heads in 2006, when the proposed rate increase caused friction as FPL Group Inc., owner of a Florida utility, was seeking to buy Constellation. Lawmakers seeking concessions for ratepayers helped to scuttle that deal.

Since then, rate increases have been phased in, and O'Malley and the company have signed a $2 billion settlement. That agreement put to rest many disputes regarding the 1999 deregulation of the state's energy industry and included one-time, $170 rebates for residential customers.

But fireworks over the latest deal are still possible. "I'm sure there's going to be a lot of political jockeying taking place," said Christopher Summers of the Maryland Public Policy Institute.

To be sure, some lawmakers said they have concerns about the sale of Constellation to an out-of-state company.

"I'm glad someone came in to save it. That's a good thing," said Sen. E.J. Pipkin, an Eastern Shore Republican. "But having said that, in my opinion, senior management at Constellation ran this into the ground, and my thoughts are with employees and Maryland citizens who lose control of a venerable local institution."

Pipkin, who believes the transaction with MidAmerican presents an opportunity to re-regulate the industry, added that there's no guarantee that a new owner would work to help solve an impending energy crunch. "Buffett may have deep pockets, but that doesn't necessarily mean you're going to get your hands in those deep pockets," he said.

Del. Dereck E. Davis, a Prince George's County Democrat and chairman of the House Economic Matters Committee, said yesterday that he would like to hold hearings, though he added that politicians "need to step back and let regulators do their job." He said he would talk to Constellation and PSC officials to find an "appropriate" time to have a public briefing.

"They may tell me now is not the time," Davis said.

He added: "I think this is good news, and I congratulate Mayo Shattuck for how quickly he was able to get this done because some of the other corporate giants haven't been able to survive."

Sun reporters Gadi Dechter and Annie Linskey contributed to this article.