More News

Utilities: Bill may backfire

Special session plan for electric rates could be costlier to residents and damaging to companies, executives say

Wednesday, June 14, 2006

ANNAPOLIS — A complex bill designed to soften the blow of an electricity rate hike also could increase the cost of borrowing, forcing Baltimore Gas and Electric customers to pay even more, utility executives warned Tuesday.

Their comments came as lawmakers began poring over the 59-page bill that fires the Public Service Commission and limits rate increases to 15 percent for the 11 months following July 1. Customers would also pay $2.19 a month to cover the deferred costs.

After July 1, the new PSC would set rates and a course for ratepayers to pay market rates for electricity by June 2008.

Those elements of the plan have BGE officials concerned. They want customers at market rates by January 2008, fearing that a delay could raise red flags on Wall Street that would threaten the company’s credit rating. With a billion dollars in investment planned, a small increase in borrowing could mean layoffs or delayed maintenance.

‘‘People are watching Maryland and holding their breath that we get this right,” said Paul J. Allen, Constellation Energy Group’s senior vice president for corporate affairs. Constellation is BGE’s parent company.

A legislative hearing room was standing-room-only, not only for witnesses, spectators and reporters but for lawmakers as well. Two General Assembly committees took testimony and were expected to vote today, the official first day of a special session convened for rate relief.

Unlike a similar plan that died during the regular session, customers will have no choice but to accept the rate deferral. Pepco allowed its customers to pay a 38.5 percent increase in tiers or in one fell swoop. Less than 2 percent opted for the rate deferral.

The bill also includes provisions that would:

*Allow BGE to sell bonds to pay for customers to defer their utility bills.

*Have the People’s Counsel, which advocates for consumers before the PSC, to be appointed by the attorney general.

*Change the way companies conduct electricity auctions; instead of bidding out the entire needs at once, have the load divided into smaller contracts. Pepco has been advocating this change for months.

*Direct the attorney general to participate in PSC proceedings on the $11.5 billion merger between Constellation and Florida Power and Light.

*Order the new PSC to conduct a number of studies, including the viability of municipal aggregation, in which communities would band together to buy power in bulk.

*Increase the amount of money available — and the number of people eligible — to help low-income residents with electricity bills.

If passed, the bill would take the state a step closer to reinstating regulation of the electricity markets, said Warren G. Deschenaux, director of the legislature’s Office of Policy Analysis. It would give the PSC the authority to hold evidentiary hearings if rates increase more than 20 percent.

Under this provision, the PSC could re-open the 38.5 percent rate hike imposed on Pepco customers in June.

The bill has a few extraordinary touches.

For one, if anyone wants to contest it in court, they have to go to Baltimore City Circuit Court. That is where Baltimore Mayor Martin O’Malley won his suit against the PSC. Appeals would bypass the Court of Special Appeals and go directly the state’s highest court, the Court of Appeals.

For another, the bill fires the PSC in two ways. First, it terminates the existing commission members’ terms on June 30. If for some reason that turns out to be ‘‘invalid” — that is, unconstitutional — the commission members ‘‘serve at the pleasure” of the attorney general, who can fire them and appoint successors.

Unusual politics collided with atypical procedure to give birth to the special session. The regular session ended in April without a rate relief plan in place, which caused some legislators to predict a special session would be imminent.

Then Gov. Robert L. Ehrlich Jr. (R) joined the chorus on June 5, saying a special session was necessary to undo the ‘‘interference” caused by O’Malley’s lawsuit against the PSC.

Although Ehrlich signed an executive order calling the lawmakers back to the capital, the legislature also employed an alternative method in which they signed a petition calling themselves back to Annapolis.

Even though the provision is part of the state constitution, lawmakers have never used it before.

Unusual politics continued Tuesday. Neither Ehrlich nor anyone else in his administration testified for or against the bill. His aides have refused to reveal what Ehrlich would sign and what he would veto.

Supporting the bill were Montgomery County Executive Douglas M. Duncan and O’Malley, both Democrats vying for the party’s gubernatorial nomination.

‘‘The bill is a very perfectly drafted expression of sound policy,” O’Malley said.

In his testimony, Duncan advocated aggregation, which Montgomery used to save on the electricity bills of 19 governmental agencies in his county and in Prince George’s County. Residential aggregation is now illegal.

At the hearing, Constellation executives faced grilling from Sen. E.J. Pipkin (R-Dist. 36) of Stevensville, who rejected some of the company’s statements that it could be wronged by the legislators’ actions.

A former bond trader, Pipkin zeroed in on the increased value of Constellation’s assets since 1999, from $1.8 billion to $4.3 billion today, with a $900 million investment from the company.

‘‘It’s been a good six years for BGE regardless of how you spin your victimization,” Pipkin said.

Pipkin has pushed his colleagues to insist Constellation repay BGE customers $500 million in ‘‘stranded costs,” investments in power plants lost when deregulation forced the company to sell its plants in 1999.

Outside Annapolis, the rate debate had other developments. For one, the Office of People’s Counsel announced Monday that it opposes the $11.5 billion merger between Constellation and Florida Power and Light.

‘‘There needs to be mechanisms in place that Marylanders are protected from financing problems in Florida,” said Patricia A. Smith, people’s counsel.

Ehrlich and some Democratic lawmakers have touted the merger because it will generate savings that will be passed on to consumers.

‘‘The merger will generate cost efficiencies that will not be present but for the merger,” said Anirban Basu, an economist whose Sage Policy Group released a study of electricity issues on Monday.

The 72 percent rate hike will bring BGE rates on par with other area power companies. After the increase, BGE customers would be paying about $115 a month. Pepco customers pay about $113 a month, and Delmarva Power and Light customers pay about $123, according to the Sage study.

That will mean the region is more attractive to competitors, and the competition will temper future rate increases, Basu said. Already one supplier, Washington Gas Energy Services, is offering to supply power to BGE customers at a 10 percent savings, Basu’s report said.

The cost of the special session, assuming it lasts two or three days, should be less than $50,000, said Karl Aro, executive director of the General Assembly. He based the estimate on the $93,760 need to pay for the 2004 special session, when lawmakers returned to Annapolis to consider medical malpractice legislation.

Aro said a number of variables factor into the costs, but the bulk is likely to be member expenses: lodging, mileage, meals and parking.