Baltimore Gas and Electric Co. began notifying more than 70 power suppliers nationwide today that it plans to solicit bids to lock in its electricity supply through 2006 at current prices - two years earlier than originally planned.
BGE's action comes two weeks after an offer by parent Constellation Energy Group Inc., which took over the utility's electric plants last July 1, to supply power to BGE at current rates after the existing contract expires in 2003. Under deregulation legislation, BGE is obligated to provide residential electric service at frozen rates until 2006.
In a filing yesterday with state regulators, BGE said it wanted to accelerate the bidding to avoid the risk of higher prices after 2003.
"Given uncertainty regarding potential relationships between wholesale and retail rates, it is prudent to move away from relying on future spot markets and postponing decisions concerning long-term supply," BGE said in the filing.
The move is an attempt to address regulators' concerns that BGE could be caught in a California-type financial squeeze, especially in light of BGE and Constellation's planned split into independent companies this year. Constellation would become an unregulated wholesale nationwide power seller; BGE would remain a regulated, regional retail and distribution company called BGE Corp.
In California, the state's two largest utilities were forced to sell their power plants and buy electricity on the spot market. Bound by rate caps, they accumulated billions of dollars in debt because they were unable to pass along soaring costs for power to customers. One company filed for bankruptcy last month as rolling blackouts continued in the state.
"This is being done for a couple reasons. One, to comply with the law [to provide power at the frozen rates] and another to comply with the deregulation settlement, which says there will be a bidding process for a new power supply contract," Robert S. Fleishman, general counsel for Constellation, said yesterday. "The other thing is that it makes sense for us to lock in supplies so that our customers' needs will continue to be met."
Gregory V. Carmean, PSC executive director, concurred.
"From the perspective of customers, their rates won't change throughout all of this," Carmean said. "The commission does not have to formally review the wholesale bid process, but we are primarily concerned with the results of that bid in the context of reviewing BGE's separation from Constellation.
"We want to make sure they are able to secure a contract that doesn't cause them to lose a lot of money," Carmean said. "I think BGE wants to try and see what their risk is. It's a good move if they can lock in a wholesale supplier for standard offer service. We'll have to see what kind of bids come in."
In the supplemental filing with the Maryland Public Service Commission, BGE provided a new timeline for the bidding process.
BGE has a fixed-rate contract to buy power from what is now its affiliate, Constellation Power Source Inc., until June 30, 2003. Once that contract expires, the deregulation settlement requires BGE to solicit bids for a new contract on the wholesale market so that delivery of electricity to customers can begin without interruption July 1, 2003, and last until June 30, 2006.
In its filing, BGE said it will not accept bids that exceed the frozen rates outlined in the settlement.
After the early interest letters are sent out to potential power suppliers, including Constellation Power, Atlanta-based Mirant Americas Energy Marketing, Enron Corp. affiliates and others, BGE will meet with potential suppliers about the offer.
BGE is to issue formal requests for proposals June 15. Constellation Power will participate in the bid, company officials said.
BGE plans to award a new contract Aug. 1.