PSC adopts BGE plan on power; Panel clears way for consumer to pick electricity firm July 1; 1.1 million users affected; Rivals say local utility won a rate so low they can't compete; Deregulation


The Maryland Public Service Commission approved a settlement agreement sponsored by Baltimore Gas and Electric Co. yesterday, setting the stage for electricity consumers in the Baltimore area to pick a power company July 1.

The settlement guarantees residential customers of Maryland's largest utility a six-year, 6.5 percent rate reduction.

During the same period, the utility would collect $528 million from all customers in "stranded" costs -- partial repayment for what the utility spent to build power plants to furnish electricity to its 1.1 million customers.

BGE and a dozen parties -- including the people's counsel and the Maryland Industrial Group (MIG) -- drafted the settlement agreement in June after the General Assembly approved the ground rules for deregulation.

The PSC's five commissioners accepted the settlement unanimously, said Glenn Ivey, the commission chairman. "It was thumbs up or thumbs down, we couldn't piecemeal it," he said.

"Overall it represents a good compromise among the parties, and it follows the framework the General Assembly set out with its legislation."

Dissenters to the agreement said yesterday that they are considering every legal option to challenge the decision, including a Circuit Court appeal, said Gary Alexander, an attorney with Alexander & Cleaver, the Annapolis law firm that represents the Mid-Atlantic Power Supply Association, a group of out-of-state electric suppliers.

"The battle is not over yet," he said.

At issue is whether competition will develop after July, the association said. Once electricity prices are no longer regulated July 1, the so-called shopping credit -- the price BGE will charge consumers for power -- will be crucial in determining whether BGE will face real competition. Competitors would have to undercut BGE's rate of 4.224 cents per kilowatt hour to save customers money. The rate would rise to 5.02 cents after six years.

The association contends that the 4.224 cent rate is artificially low and was designed to keep out competition. Ivey said competition would evolve.

"We are going to get a competitive market, but not right away," Ivey said. "The settlement's six-year transition should be enough time to develop competition."

Electricity suppliers could begin seeking licenses to market in Maryland as soon as Nov. 22, he said.

Residential customers would pay $194 million, or 37 percent of the stranded costs, while BGE's 500 biggest accounts, including the state's 25 largest industrial companies, would be billed about $163 million, or 31 percent.

Every other customer, from medium-size chemical companies to restaurants and mom-and-pop businesses, would have to pay the balance of about $171 million. Maryland joins 23 other states pursuing the deregulation of the electric industry.

"The road is now clear for customer choice," said Robert S. Fleishman, vice president of corporate affairs and general counsel for Constellation Energy Group, BGE's parent corporation.

The commissioners "took all objections to the settlement, and found that they were not meritorious."

The people's counsel, the state agency that represents residential utility customers, also welcomed the decision, saying the rate cut will save residential customers about $319 million, or an average of about $66 a year for a residential ratepayer who decides to stay with BGE.

"We're very pleased that the commission's approval ratifies a plan that will guarantee that the residential consumers, and not just large commercial and industrial customers, receive some tangible benefits from deregulation," said Sandra Guthorn, deputy people's counsel.

Allan J. Malester, lawyer for 25 of BGE's biggest industrial customers, including General Motors, Domino Sugar and W. R. Grace, said his clients expect there to be competition.

Businesses had aggressively sought deregulation in Maryland, saying competition would save them money on their utility bills and that the ability to shop for lower rates would be vital to their profits.

"MIG fully supported the settlement, and the commission has done the the right thing," Malester said. "It's good for Maryland's economy and all of BGE's customers."

But one consumer group is not as pleased.

"This seals BGE's lock on Maryland customers for a while," said Dan Pontius, executive director of MaryPIRG. "It's certainly good for consumers that we have this initial rate cut because we are paying them more than half-billion dollars in stranded costs, but we are pretty skeptical that consumers are going to see many benefits beyond that."

Alexander, the attorney representing the Mid-Atlantic Power Supply Association, said the group has 30 days to file an appeal of the decision.

"We are afraid that the only area of the state that will not see the benefit of electric competition next summer that the General Assembly mandated" is the Baltimore area, he said.

The PSC has approved a proposal by Conectiv Inc. for deregulation in its Eastern Shore territory. Settlement agreements for Allegheny Power in Western Maryland and Potomac Electric Power Co. in Prince George's and Montgomery counties are still pending before the commission.

"BGE wins," said James J. Abromitis, president of Trigen Energy Baltimore. "The opportunity in the residential market is not as attractive as what we hoped for because of the ruling. The consumer is ultimately the loser in this."

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