No Sweethearts in This Deal

Goldman had evolved from Constellation's longtime adviser into its full-blown partner with the formation of Orion in 1997. According to The Economist, Goldman invested a couple of dozen employees and some technical assistance in the partnership. Constellation also threw in some employees, as well as money, facilities and a crucial understanding of the energy industry.

The following year, when Orion officially started business, some Goldman partnerships actually put up some money. Constellation stepped up with additional cash and, perhaps more importantly, the credibility needed to trade electricity.

Over the next three years, Orion swelled to become a notable player in the merchant energy field. But by the time Orion got the sweetheart offer from Reliant, things were starting to go badly for Orion's energy-related parent.

Constellation was on the verge of abandoning a split-up plan that it had urgently promoted for nearly a year. After watching the merchant energy business slide -- and predicting worse ahead -- Constellation saw more downside than up in separating into a low-risk utility and a high-growth energy merchant.

In October 2001, a month after Orion inked its proposed deal with Reliant, Constellation went public with its about-face and took a huge hit in the market. It also took a hit from its own partner, Goldman, which had planned to be a part of the stand-alone merchant company.

Constellation paid $355 million to buy out Goldman's interest in their combined trading operation, taking a $200 million charge in the process. It still managed to scoop up $273 million from the Orion sale -- plus profits it had earned from the venture over the past three years -- but came out with a far smaller prize than Goldman.

Goldman's partnerships tripled their $370 million investment in Orion, pulling in $1.1 billion -- or about what the bank itself was making in an entire quarter -- for their stake in the venture. And that sum is in addition to at least $45 million Goldman already had collected for various advisory and investment banking services provided to Orion.

Reliant, on the other hand, continues to pay for the deal.

"Goldman Sachs took Reliant for a ride," one energy expert said. "But Reliant could have broken the deal before it closed. Instead, they let Goldman stick it to them at the top."

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