A subsidiary of Baltimore Gas and Electric Co. was ordered yesterday to pay its parent company a royalty that could be as much as $1 million a year for the use of its name and other benefits it gets from the utility.
The decision by Public Service Commission hearing examiner Joel M. Bright ends the first round in a battle that was sparked two years ago by BGE's decision to aggressively expand its sleepy 11-store retail operation into heating and air conditioning work, plumbing, kitchen remodeling and even window and door replacement.
Competitors in those fields challenged the BGE operation -- now called the Home Products & Services subsidiary -- saying it is improperly subsidized with ratepayers' money. They also said the subsidiary should pay for the use of the BGE name.
But Mr. Bright's order is not the last word. The decision is certain to be appealed to the full five-member commission and then to go to the Maryland Court of Special Appeals.
"This is really historic," said Gary R. Alexander, the lawyer representing two business groups that challenged BGE's arrangement with its retail subsidiary. "If this is upheld, its going to make a dent in the way BGE hides everything from the commission and the ratepayers."
Larry L. LeDoyan, chairman of the Maryland Alliance for Fair Competition, one of the groups fighting BGE, praised the decision, but said it fell short. "Just that in itself will not protect us," he said. "But that opens the door a little bit."
BGE criticized the royalty, saying it is simply a tax selectively imposed on one company in a competitive market. "We remain firmly opposed to a royalty payment. Any value associated with the name is a product of company management and employees," said BGE spokesman Arthur J. Slusark.
Mr. Slusark said BGE has not made a decision on an appeal since it only received the decision late yesterday afternoon.
In his decision, Mr. Bright proposed a 2 percent royalty on the revenues of the HP&S; subsidiary. This would amount to about $1 million a year, based on the $50 million revenue figure that BGE opponents used in a past case. BGE has refused to release sales figures for the operation.
The effect of the royalty would be to hold down future electric and gas rates by providing more revenues to the regulated portion of BGE's business.
Mr. Bright said the royalty was proper since there is not a clear structural separation between BGE and the subsidiary, and there are many small and intangible contributions the parent company makes to the operation.
"If the company believes these conditions are too onerous, it clearly has the management prerogative to engage in full structural separation as had been advocated by other parties in this proceeding," he said in his decision.
Other provisions in the order included:
* BGE does not have to receive prior approval from the PSC before starting a new nonutility business. Instead, it simply has to notify the commission when the business begins.
* The utility does not have to make refunds or rate adjustments despite a finding by an Ernst & Young audit that the subsidiary received $555,000 annually in subsidies from the regulated utility. Mr. Bright said to make refunds would be improper retroactive rate making.
* BGE's gas and appliance service operation, which was combined with the retail operation in the new subsidiary, should remain in the regulated portion of the business, at least until a new rate hearing.