BGE subsidiary, partners buy interest in Bolivian power firm


A consortium led by a Baltimore Gas and Electric Co. subsidiary has purchased a controlling interest in a Bolivian power firm for $34 million, a move the company believes could serve as a springboard for supplying energy throughout South America.

Constellation Energy Inc.'s acquisition of the Valle Hermosa Co. resulted from a three-year effort by Bolivian authorities to privatize government-owned functions, raise $2 billion in much-needed capital and import technology.

Constellation expects Valle Hermosa will provide both revenues from existing contracts with distributors and the opportunity to broaden into adjoining countries such as Brazil, Argentina, Chile and Peru.

"We look at this as a start, envisioning that eventually there will be more Latin American activities in countries beyond Bolivia," said Bruce M. Ambler, president and chief executive of Constellation Holdings Inc., an umbrella company which oversees BGE's energy, real estate, health care and investment subsidiaries.

Eventually, Constellation hopes about 20 percent of its energy assets will be in foreign countries.

Constellation, which will control 50 percent of Valle Hermosa with Bolivian partners and the Ogden Corp., a New York-based company with $2.1 billion in sales last year and extensive contacts in Latin America, hopes to close the purchase later this month.

Constellation's estimated $9 million investment in the venture isn't expected to contribute greatly to BGE earnings in either this year or next. Last year, Constellation Energy's $300 million in assets -- consisting of 24 energy plants in four states -- contributed 10 cents per share, or just 5 percent, to BGE's overall earnings.

In addition to opening up an international market, though, Constellation took its first step into foreign territory to further diversify BGE in an age of heightened industry deregulation and competition.

"Utility companies realize that no matter how good a job they do in the U.S., competition is likely to erode their earnings," said Barry M. Abramson, a Prudential Securities Inc. analyst who tracks BGE and who recently authored a study on utility deregulation. "Real earnings growth will come in emerging economies such as Bolivia's."

But not everyone is thrilled with Constellation's international bent.

"This is just another example of how out of control BGE is," said Larry LeDoyen, chairman of the Maryland Alliance for Fair Competition, a shareholders group containing 7,000 businesses which also opposes BGE's entrance into the appliance sales and repair business. "Where is the money coming from? It's unbelievable that they would do this at this time, in politically volatile South America."

The 9-year-old BGE energy subsidiary maintains, however, that the Bolivian investment is similar to ones in South America by utilities Duke Power Co., Southern Co. and Energy Corp. of New Orleans.

"This is a logical extension of our capabilities here in the U.S.," Mr. Ambler said. "We may even learn things that can help us here as we go forward."

Valle Hermosa currently has contracts with three power distributors, which supply electricity to roughly 65 percent of Bolivia's population of seven million.

To meet a growing energy need, the Bolivian company is also constructing two new power plants at a cost of $59 million. Both plants are expected to be operational by next June, said Edward K. Geehan, Constellation's manager of international projects.

In all, Bolivia's sale of the energy assets to Constellation, Virginia-based Dominion Energy and Energy Initiatives Inc., of New Jersey, will generate nearly $146 million -- $40 million more ,, than the Bolivian government had anticipated.

The government, which received 31 formal offers for the energy assets, had valued and set the minimum bid for Valle Hermosa at $30.75 million, Mr. Geehan said.

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