The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Constellation Energy brought down by speculating

Sep 22, 2008

Constellation Energy Group (CEG), owner of Baltimore Gas and Electric Company (BGE), recently announced it was being bought for about five billion dollars by MidAmerican Energy Holdings, a company with operations in ten states and three other countries. There could be other bids. But whatever bid is finally accepted, the deal is expected to be closed within nine months.

MidAmerican is proposing to buy CEG for less than half of what all its stock was worth just a week earlier on the New York stock exchange! Its stock took a nose dive when the credit crunch made it impossible for CEG to borrow the money it needed to pay off its speculative bets in the energy markets. Speculation combined with the credit crunch brought on its undoing just as it did at AIG, Lehman Brothers, Bear Stearns, Fannie Mae and Freddie Mac.

CEG became the largest energy trading outfit in the U.S. by using the flow of money from customers at its BGE subsidiary to finance its speculation on the energy markets. This flow increased dramatically during the last two years when BGE imposed a 75% rate hike in electricity on its residential customers.

It’s obvious that none of these rate hikes produced more efficient power generation and distribution. Higher rates just went into the speculation that has now brought down all of Wall Street.