Power deregulation gets its day in court


Baltimore Gas and Electric Co. has the unwanted distinction of becoming the first utility in the nation to have power deregulation halted by a court illustrating how the move to give consumers cheaper electricity rates through competition has become complicated and fiercely contested.

BGE and the Mid-Atlantic Power Supply Association are just days away from going to battle for yet another time in a courtroom.

The state Court of Appeals hearing Thursday is expected to be critical in determining the immediate future of deregulation in Baltimore and its five surrounding counties.

Nonetheless, the hearing before the state's highest court - just like the seven months of legal proceedings that led to its stay June 30 - won't deal with core issues of deregulation, although it could decide them later.

For now, the court is to determine if New Jersey-based MAPSA's has the standing to file an appeal as a trade group. The group represents out-of-state power marketers that want to sell in Maryland. Deregulation was launched July 1 in the rest of Maryland, but not for Bee's residential customers who were to benefit from a 6.5 percent rate cut that was part of the settlement approved by the state Public Service Commission in November.

Deregulation is a difficult goal, industry experts said, primarily because there is a wide gap between the financial incentives of utilities like BEG and potential competitors. Moving disagreements to the courtroom makes it more so, they said.

"Reaching a settlement is always better than taking it through the legal process," said Jay Lukens, president and chief executive of Lukens Consulting Group, an energy adviser in Houston.

"It can be a pretty long road to haul, and it's unfortunate for customers because it adds a lot of delay."

Robert S. Fleishman, vice president of corporate affairs and general counsel of Constellation Energy Group, BGE's parent, said customers are the chief ones hurt by the legal maneuverings.

But Suzanne Daycock, executive director of the Mid-Atlantic Power Supply Association, said BGE has forced the issue.

"This is extremely unusual for MAPSA to take such a strong position, and we're taking that position because we believe it is so critical for competition in Maryland's residential market," she said.

At the crux of the Maryland controversy are two issues: the amount customers should pay utilities in "stranded costs" - partial repayment for the expense of building power plants - and the "price-to-compare," or the price the utility will charge residential users for power in the newly deregulated market.

The same issues have sometimes caused hiccups in the nine other states that have deregulated their power industries.

Disagreements over "stranded costs and [the price-to-compare] seem to fit a pattern of what we've been seeing in other states," said David Wagman, director and editor of Energy Insight, a daily Internet news service in Colorado.

"We always get back to those two issues," he said.

In Maryland, the settlement guarantees BGE's residential customers a six-year, 6.5 percent rate reduction. During the same period, the utility would collect $528 million in stranded costs from its 1.1 million residential, commercial and industrial customers.

The rate cut will save residential customers who decide to stay with BGE about $319 million, or an average of about $66 a year. Meanwhile, BGE residential customers also would pay $194 million of the $528 million in stranded costs. Commercial and industrial customers would pay the balance of those costs .

The settlement also sets the price-to-compare for residents at 4.28 cents per kilowatt hour.

By reaching a settlement, BGE avoided more hearings before the PSC and also had a large hand in crafting the terms.

The Mid-Atlantic Power Supply Association contends that the plan overwhelmingly favors BGE by granting the utility too much money in stranded costs and setting its power price so low rivals can't compete against it.

BGE said the other three utility service territories in the state also have low prices to compare, but within six years, BGE's will be higher than them all.

The Mid-Atlantic Power Supply Association did not oppose the state's separate settlements with Potomac Electric Power Co., Allegheny Power, and Conectiv Inc., the utility said.

MAPSA's Daycock said BGE's initial price-to-compare of 4.28 cents is about 14 percent lower than Pepco's, 13 percent lower than Conectiv's, and 1 percent lower than Allegheny's. But Allegheny's price should not be compared with the other three because it doesn't belong to the same power grid as the others, she said

Furthermore, Daycock said, BGE's price-to-compare will rise only about a tenth of a cent for each of the six years covered by the settlement, eventually reaching 5.08 cents per kilowatt hour.

The disagreement over stranded costs is just as contentious.

The Mid-Atlantic Power Supply Association argues that BGE has overstated its stranded costs, leading to a lower price-to-compare. BGE disagrees.

As the power association's appeal snakes its way through the state court system, both sides have claimed successes.

In April, a Baltimore Circuit judge ruled that MAPSA didn't have standing to file the appeal and declared moot its request for a stay.

MAPSA asked the Circuit Court to reconsider the case, but the judge again denied its request for a stay and said the group's appeal was unlikely to prevail on its merits.

In June, the Court of Special Appeals also denied the association's request for a stay.

Both courts agreed with BGE's contention that MAPSA has no standing on the issue because, as a trade association, it would not be harmed by the settlement terms.

To counter that, the association jointly filed another Circuit Court petition with Shell Energy LLC, a power supplier in Houston. The petition, which is pending, asks for judicial review of BGE's recent transfer of its power plants to non-regulated affiliates.

If the Court of Appeals on Thursday finds that MAPSA has standing, the case could be sent back to Circuit Court for a review of the merits of the BGE settlement and whether it should be upheld. Or the Court of Appeals could decide to hear the case on its own, or remand it to the Public Service Commission.

If the court rules that MAPSA doesn't have standing, the group could ask the Court of Appeals to re-consider the case.

Daycock said if MAPSA loses on the issue, the group would be interested in backing legislation to give trade associations standing in regulatory proceedings when the General Assembly convenes in January.

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