In October 2001, Constellation Energy Group’s Board of Directors elected Mayo A. Shattuck III President and Chief Executive Officer. Not your everyday utility CEO, Shattuck came to Constellation with a unique and powerful background of success in fields vital to the changing energy business—capital markets, trading, investment banking, and corporate finance.

He joined the company after leaving his position as Chairman of Deutsche Banc Alex. Brown, the successor company to the nation’s oldest investment bank, Alex. Brown & Sons, where he had been President. Earlier in his career at Alex. Brown, he headed the firm’s Technology Group, which managed several landmark initial public offerings including Microsoft, AOL, Sun Microsystems, and Oracle.

Shattuck says that his priority has always been, and always will be, creating shareholder value. In the following question and answer session, he articulates how his vision and unique skills will make that priority a reality at Constellation Energy Group.

You’re the company’s first CEO who has been hired from the outside. What perspective do you bring that’s important in today’s energy marketplace?
I really feel fortunate to be following in a long line of leaders who have helped transform and steward this great company for almost two centuries. Chris Poindexter has managed the company through its most challenging deregulatory years, and this management team is particularly grateful to have his ongoing guidance as Chairman and as an influential industry leader in the many trade and regulatory issues we face.

I assumed my new role at Constellation Energy during a time of great upheaval for this industry. In effect, we are experiencing the collapse of a speculative bubble. Bubbles are created when financial markets allow too much capital to flow to specific industries or ideas without sufficient pickup in demand to meet the new level of supply.

It isn’t difficult to find evidence of this in the power industry: the collapse of Enron and subsequent rating agencies’ actions; an expected oversupply in generation capacity; efforts across the industry to cut new generation spending and turbine orders, and to sell non-core assets; and finally, a retrenchment in expectations for earnings growth.

I’ve seen similar bubbles and, over the years, I’ve learned that, regardless of the industry, a management team needs to focus on its strengths and intensify the focus on managing risk to successfully navigate through a transition period like the one we are experiencing.

In my first several months on the job, we’ve taken steps to address the weaknesses that have hindered our performance in the past. We have reorganized the management structure and reinvigorated the organization to focus on execution and our ability to manage risk in a prudent and responsible way.

We now have a Chief Risk Officer as a part of our executive management team. Why did you create that position?
Success in today’s energy market is all about managing risk, a task that has become vastly more complex over the past several years. Volatility in fuel costs and power prices, congestion in transmission, illiquidity in financial markets, and many other factors all contribute to a much more dynamic business model.

We have to be smart in how we define and manage risk. That’s why I elevated the position of Chief Risk Officer to a corporate level, much the way I’ve managed risk at large financial institutions in the past.

The Chief Risk Officer reports directly to me and is responsible for defining our risk from a corporate portfolio standpoint. He bridges all business lines in an independent fashion and systematically identifies the risks that each part of our business faces daily so we can proactively make decisions about what we want to pursue. He also makes sure we’re continually and vigilantly assessing the credit risk of the many counterparties with which we deal.

One of the reasons given for not separating is the importance of having a strong balance sheet. How has that helped set us apart from the pack today?
Creditworthiness is a critical element of our strategic position. To grow and take advantage of opportunities, it’s important to have balanced sources of net income and a strong balance sheet.

The benefits of Constellation’s more stable businesses—like our utility and our generating plants—are that their solid cash flow and earnings balance the growth potential of our new origination business.

In effect, our decision not to separate helped preserve a portfolio of businesses that, when married together, create a nice balance between stability and growth. That allows us to be competitive on multiple fronts going forward.

The failure of deregulation in California and then the collapse of Enron have had a dramatic impact on the industry. What makes Constellation Energy different from the rest of the sector?
First, Constellation Energy is not even close to Enron in terms of the type of business we run and the way in which we behave. The best energy businesses have physical assets to complement their merchant capabilities and they maintain strong customer relationships. That’s what our company has and plans to preserve. In short, we have real assets, real customers, and a real business that has staying power.

We take the issue of disclosure very seriously. We have worked hard to ensure we provide our shareholders with the information they need to understand our financials and the factors that could affect our earnings results. It used to be that the weather was the main source of quarterly earnings variability. Today there are many other factors. Our goal is to keep our shareholders informed while we build a business that is viable over the very long term.

It’s also important to understand that Maryland is not California in terms of deregulation. Since implementing electric customer choice in July 2000, Maryland has been spared the problems associated with deregulation in California.

Today, all BGE customers have a choice as to their energy commodity suppliers. As the provider of last resort, BGE locked in wholesale power supply contracts in 2001 with Constellation Power Source and Allegheny Energy Supply Company, LLC. These contracts ensure the utility can meet its obligation to provide power through June 2006 at rates and terms set by the Maryland Public Service Commission’s 1999 Restructuring Order.

What makes certain regions more attractive than others for our business?
Our merchant energy business is focused on the national wholesale market. It serves customers—including distribution utilities, co-ops, municipalities, and other large, load-serving companies—that operate in regions that have meaningfully deregulated their retail energy markets.

That is why we have built a significant presence in the Northeast and Mid-Atlantic regions, and Texas. Over the next two years, we plan to continue to grow our load-serving market positions in these regions and expand beyond as we bring on plants in Florida, Texas, Illinois, and California.

What kind of growth do you see for our company?
We have set a long-term goal of growing earnings per share from organic sources at 10% a year, and we have a solid plan to achieve that. About 30% of our earnings still come from our regulated energy delivery business, while our competitive wholesale merchant energy business contributes nearly 70%. If we combine the share price appreciation, which should result from our earnings growth, with our new 3% dividend yield, we hope to achieve an overall total shareholder return of 13% or more.

What challenges do we face in meeting our growth targets?
The most important thing we have to do is execute well. We also must be ever more vigilant about making sure we have the best competitive cost structure in the industry. And we must leverage our human capital. Providing we do those things and improve the valuation of the company, we will be in control of our own destiny.

Are mergers and acquisitions a part of our future? Are you planning on building or acquiring more power plants to continue to strengthen your generating asset portfolio?
Our strategy is to grow the merchant energy business, so we are focused on merchant energy-related assets that support our customer-focused origination business. We evaluate all opportunities against a strict set of criteria. We are only looking for acquisitions that provide strong return to our shareholders.

Constellation Energy Group has been a leader in the nuclear industry. What role will nuclear play in the company’s future?
Nuclear generation remains one of our core competencies and an important part of our balanced portfolio of generating assets. We will continue to maintain a commitment to excellence at our two nuclear stations, which comprise more than 3,200 megawatts of our total 9,200-megawatt portfolio.

Toward that end, our Calvert Cliffs plant is replacing its four steam generators. Once the project is complete, the plant can continue to safely generate clean electricity for many years to come.

In addition, we are embarking on a long-term performance improvement plan at our Nine Mile Point plant and initiating a license renewal effort. Our goal is to take this asset to the next level in terms of safety, reliability, capacity factors, and productivity.

How does the future look for Constellation Energy Group?
This company has some very bright prospects. I believe that it is well-positioned to emerge from this period of uncertainty as a strong company with solid building blocks for growth. Our core strengths—high quality assets, the right people to operate them, and a strong balance sheet—will be the platform for that growth.