Howard County Maryland Blog

Local Politics and Current Events

Destroying Pension Plans

Posted by David Keelan on Friday, April 7, 2006

I have been thinking about this angle for a while and decided to look into it.

Since the dust up over unregulated price increases looming in Maryland, which is a result of a deregulation plan implemented by the General Assembly in 1999, every one has been talking about the $880 million rate increase ($732 X 1.2 million customers).

No one has been talking about the effect on shareholders.

Now wait. I am not talking about the executives. I am talking about you and me.

Who are the shareholders? According to the liberal Proposition 1 organization … half the company is owned by a couple hundred shareholders, mutual and pension funds, whose managers vote large blocks of stock. The other half of the company is owned by 250,000 small investors, many of whom live in Maryland.

That is right, over half of the company is owned by individual investors either directly or in mutual funds, or in pension plans. I don’t know how many of these investors are Maryland residents but I am certain, as Proposition 1 states, that there are a large number of them and I would suggest at least 25% of the shareholders are also BGE customers.

Right now, Constellation value is $9 billion. After the proposed merger it will be worth $11 billion and these individuals will realize a gain in the pension plans of $3 billion. Many people feel that FPL is seen at trading at a pre-merger discount.

There are 178.5 million outstanding shares in Constellation today. Since the dust up total stock value has dropped almost $800 million. Coincidentally that is almost as much as the rate increases. So these retirees just lost 1/3 of the gain they hoped to make on the merger.

My point is this. If the General Assembly keeps mucking around with Constellation Energy, and refuses to live by the deal they made in 1999 how much wealth will they destroy in terms of the value of the pension plans of the same people they are trying to “save” from market driven rates?


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