BG&E; stores subsidized by ratepayers Study confirms competitors' charges

More than half a million dollars of ratepayers' money was used to subsidize Baltimore Gas and Electric Co.'s nonregulated appliance and electronics business last year, according to an independent study released yesterday.

The report, conducted by the national accounting firm of Ernst & Young, confirmed repeated charges levied by competitors that BG&E;'s regulated utility business was helping support its merchandise business. Paid for by BG&E;, the study was ordered by the Public Service Commission (PSC) in April as part ofa decision to allow BG&E; to raise electric rates 6.5 percent.


Despite the finding, BG&E; critics said yesterday that it did not go far enough and have asked for additional hearings before the PSC on the matter.

"That only scratches the surface," said Gary R. Alexander, an attorney for the Maryland Alliance for Fair Competition, a group of heating and air conditioner contractors and appliance dealers that pressed for the study.


Trying to adjust to competitive pressures, BG&E; has been expanding beyond its traditional regulated business of supplying gas and electricity to residential and commercial customers.

One area of expansion has been the retail appliance business, a nonregulated operation not restricted in the amount of profit it can make. The company owns 11 stores that carries products ranging from washing machines to video games.

But the company's competition has mounted a counterattack, claiming some of BG&E;'s merchandise operations enjoy unfair advantages by using the utility's resources that are supported by ratepayers.

The study confirmed BG&E;'s position that its regulated utility operation was charging the nonregulated merchandise arm of the company for services directly provided by the regulated side.

But, Ernst & Young concluded, the utility was not charging the separate merchandise division for various indirect costs such as insurance expense, computer services and customer billing. This indirect support amounted to a $555,000 net subsidy from the parent utility in 1992, the study concluded.

If the expense was returned to BG&E;'s customers, it would amount to 2 cents a month for the typical BG&E; customer using 600 kilowatt hours each month, according to BG&E; spokesman Arthur Slusark.

The study also found that BG&E;'s appliance servicing business -- which is included in the utility's regulated business for rate-making purposes -- contributed $8.2 million in profits to the company.

If this business were shifted out of the regulated portion of the company to the unregulated divisions, it could theoretically increase the typical ratepayer's bill by 44 cents a month, Mr. Slusark said.


BG&E; officials said they would include all the indirect costs of themerchandise business in the future, but would not seek a rate change on the issue.

"We want to get rid of this bone of contention and let us compete in these businesses," said Richard M. Bange Jr., BG&E;'s controller.

Even with the extra expense, the merchandise stores would be profitable, Mr. Bange said.

According to testimony before the PSC, the appliance stores have revenues of about $50 million a year.

Mr. Bange said BG&E; has not decided whether to move its appliance service business into the nonregulated area when it expands the operation in January to include service for all household appliances as well as heat pumps and central air conditioners.