CEG sells Houston gas subsidiary

The Baltimore Sun

Constellation Energy Group announced late yesterday that it sold a big piece of its commodities trading operations, once the biggest source of its growth but more recently the source of financial troubles that forced it to find a merger partner.

Macquarie Group of Australia agreed yesterday to buy Constellation's natural gas unit, based in Houston, for an undisclosed price, and supply gas to Constellation NewEnergy Gas, the company's retail division.

Yesterday's transaction is the Baltimore company's latest move to reduce risk and the large collateral requirements needed to run trading operations. Constellation is selling or winding down much of its trading operations to focus more on its traditional energy generation and distribution businesses, including Baltimore Gas & Electric Co. CEG announced last month that it's selling most of its London-based commodities business to Goldman Sachs.

Constellation's Houston unit, one of the largest wholesalers of natural gas in North America, had contributed significantly to the company's bottom line for several years.

But the London and Houston commodities unit also put up a large chunk of the company's cash collateral, a requirement that posed a risk to Constellation's survival.

In September, Constellation agreed to sell itself to billionaire Warren E. Buffett's MidAmerican Energy Holdings Co. when a threat of another downgrade in the company's credit rating put it on the edge of bankruptcy. A further downgrade would have required Constellation to put up more cash collateral than it could raise.

In December, Constellation abandoned the takeover deal with MidAmerican in favor of a bid from France's largest utility, Electricite de France, to pay $4.5 billion for half of Constellation's nuclear power business. Constellation would remain an independent, publicly traded Baltimore company.

The Houston trading business, with about 130 employees, will be integrated into Macquarie Cook Energy, the company's North American natural gas trading and marketing unit. The deal is expected to close in the second quarter.

In November, Constellation projected that it could increase its liquidity by up to $1.5 billion through the return of collateral once the sales are completed. Constellation is also trying to sell its natural gas production assets, subject to market conditions.

"We continue to assess the ongoing capital requirements of our merchant businesses with an eye toward reducing risk, stabilizing risk-adjusted returns and optimizing the value of our premiere generation assets and leading customer supply businesses," said Mayo A. Shattuck II, chairman and chief executive officer of Constellation Energy.

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