Thomas Brooks

The biggest gain by a firm in this year’s Fortune 500 is ConstellationEnergy’s leap from number 352 in 2003 to 203 in the 2004 list. That anenergy company would perform strongly in this list is a surprise to many. Andwhat makes Constellation’s success all the more intriguing is that it has,unlike many of its peers, remained firmly in favour of the competitive, merchantenergy model.

The company took advantage of the 2000–2002 exodus from a crowded fieldof merchant energy players, says Thomas Brooks, head of the group’s wholesalesales and risk management arm, Constellation Power Source (CPS).

“We’ve seen good opportunities to grow in the past few years in wholesalesupply and risk management,” says Brooks. “When you hear other utilitiesreferring to ‘back-to-basics’ strategies, they mean their revenueline is driven by tariffs and regulated rates of return. That’s not Constellation’sbusiness model. Our approach is built around the concept of serving customersin competitive markets.”

It is perhaps not surprising that Brooks, president of CPS since October 2001,puts such store in the risk management and trading markets. Before joining thefirm, he was at Goldman Sachs, working with CPS to develop its energy marketingand trading business. And from 1992–1997 he worked in Enron’s energymarketing and trading businesses in North America and Europe.

Brooks’ investment bank experience seems to have served Constellation well. “WhenI was at Goldman, the bank was very focused – almost obsessive – onhaving strong controls to ensure the integrity of its trading business,” hesays. “CPS has to compete vigorously, so having this type of control cultureis very important.”

CPS is an active forward hedger: it has hedged well over 90% of its expectedfuel consumption and power output for 2004. Such activity is reflected in itsstaff levels – a quarter of CPS’s 330 employees work in trading andrisk management. And portfolio management – the trading and managementof CPS’s own financial and physical risk positions – is one of threeareas of commercial focus for CPS, says Brooks. The others are the ‘fullenergy requirements’ business and the ‘customer products’ business.

“In serving utility full-requirements customers, we don’t provide a standardproduct-hedging service,” says Brooks. “Instead, we provide the fullrange of energy products they need to serve their customers’ demand.”

The ‘customer products’ service provides the risk management productsthat CPS sells to firms other than its utility customers. These companies includemerchant generators or coal and natural gas
producers. CPS expanded coverageof customer products in 2003 and “took them more upstream”, saysBrooks. “We’re looking more now at gas and coal, both of which haveclearly seen significant price volatility recently.” The company expectssuch products to be a big area of expansion this year.

Brooks holds a bachelor’s degree in geology and geophysics from Yale, somight have been expected to become an exploration & production veteran. Instead,he is finding success at the other end of the energy spectrum.
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