Hoping to dilute consumer anger about record electricity rate increases, the state's utility commission issued a plan yesterday allowing customers to spread the higher costs over two years, with interest payable to Baltimore Gas and Electric Co.
But even then, the change will amount to one of the largest single rate increases ever in Central Maryland.
The increase is the result of electricity deregulation, which was approved seven years ago with the hope - so far unrealized - of more competition. The 1999 legislation capped residential rates for six years, but those caps will expire in July and result in higher rates for customers.
Under the Public Service Commission order, residential customers will see their bills climb by 21 percent in July, rather than the 40 percent to 81 percent expected when rate caps expire. Certain low-income customers will have the option of spreading the increase over three years.
But participants in the plan will have to pay BGE 5 percent annual interest on the amount of their bill that gets deferred, to meet borrowing costs the utility will incur as a result of the program, officials said.
That means customers who can't afford to pay the higher rates will end up paying more in the long run - similar to what happens when shoppers pay interest on items they purchase with a credit card.
The PSC plan goes against the recommendations of its staff by automatically enrolling customers in the deferral plan unless they request to be excluded. The commission reasoned that customers wouldn't have time to educate themselves about the plan before the July 1 deadline.
Proponents say the delayed payment plan could be enough to help some customers cope with much higher electricity bills this summer, although some complain that it's a "pay me now or pay me later" scenario.
"The bottom line is that if you stay in the plan offered by the [PSC], you're going to see somewhat lower bills at first, and then the money you save will have to be repaid plus interest," said William F. Fields, a lawyer who represents the Maryland Office of the People's Counsel, a consumer watchdog agency that favored a phase-in with no interest payments.
Under the phase-in option, BGE customers would get hit with a 21 percent increase in July. For the first eight months, customers would continue to pay less than the true market rate. But for the rest of the two-year plan, customers would pay extra charges to make up for the amount that was deferred, until the total amount - plus accrued interest - is paid.
Low-income customers who make 150 percent of the federal poverty level or less would get an extra year to transition to market rates. BGE customers who contact the utility to opt out of the program would pay the true cost of power starting in July and avoid any interest charges.
The PSC ordered the "rate stabilization" plan to help BGE's 1.2 million customers cope with a rate shock few foresaw when lawmakers voted in 1999 to deregulate the state's electric industry. They anticipated that competition would lead to lower prices.
Critics of deregulation point out that competition has not materialized in the past six years. At the same time, rising energy prices have pushed the cost of producing electricity to record levels just as BGE is renegotiating supply contracts with electricity providers in the deregulated wholesale market.
BGE criticized yesterday's decision as bad public policy. It said the PSC's order to delay the rate increases punishes it for having provided power at below-market rates for six years.
The company has said it could be forced to borrow as much as $248 million if all customers participate in the rate stabilization program. The added debt could hurt the company's credit rating, which would lead to higher borrowing costs that would ultimately be passed on to customers, utility officials said.
"The fact is that since the passage of the Maryland electric industry restructuring law in 1999, BGE residential customers have benefited from a substantially lower rate structure ... well below the market rates paid in other parts of the country," said Rob Gould, a spokesman for the utility. "BGE has no choice but to procure power at prevailing market rates. Every dollar deferred is a dollar that might not be invested in infrastructure for the utility."
The looming rate increases have touched off a political storm in Annapolis as lawmakers seek ways to defuse consumer outrage over rising energy costs.
The debate over deregulation has extended to criticism of BGE parent Constellation Energy Group's plan to merge with Juno Beach, Fla.-based FPL Group Inc. in a deal valued at $11.5 billion, one of several large mergers under way in the industry. Some lawmakers want Constellation to direct more of its profits back to consumers in exchange for approval of its merger. Yesterday's PSC order did little to appease the utility's critics.
The PSC plan "doesn't go far enough," said Sen. Leo E. Green, a Democrat from Prince George's County who serves on a Senate commission examining deregulation. "That's why we're pursuing the situation with the merger because I don't feel the customers are getting anything out of this."
PSC staff are undertaking a separate inquiry into the company's proposed merger, but hearings in that matter are pending. In its order yesterday, the commission said its rate stabilization plan would offer consumers choices without hurting BGE's financial condition.
"Adopting this rate stabilization plan for BGE customers allows families to better prepare for the potential rate increases," PSC Chairman Kenneth D. Schisler said in a statement accompanying the order. Schisler, a former Republican delegate from the Eastern Shore, was appointed chairman by Gov. Robert L. Ehrlich Jr. in 2003.
Legislation to deregulate the power industry capped BGE's residential rates at 6.5 percent below 1993 levels for a period of six years. PSC staff estimate Maryland customers have saved about $1 billion as a result of the rate caps during that period.
The plan the PSC adopted is less favorable to BGE than one initially proposed by PSC staff: a two-year plan that would have given BGE a 12.5 percent return on the amount of deferred income. Staff argued that the utility was entitled to a rate of return similar to other regulatory assets, such as a power plant. Anything less could send a negative signal to credit rating agencies, potentially resulting in BGE getting hit with a lower credit rating, they argued.
But commissioners sided with consumer advocates, who said BGE should get a return only equal to short-term interest rates it would have to pay on the amount it borrows to cover the cost of the program. Short-term interest rates are currently in the 4 percent to 5 percent range.
"It's a start," said Mitch Klein, an organizer for the Association of Community Organizations for Reform Now, or ACORN.
ACORN has joined a coalition of labor and community activist groups in opposing Constellation's merger with FPL and calling attention to the rate increases.
"Even a 21 percent increase is huge," Klein said, "when people's incomes are not going up."
Highlights of rate stabilization
As rate caps expire under the electric deregulation plan approved in 1999, Baltimore Gas and Electric customers face rate increases estimated at 40 percent to 81 percent as of July 1.
Under an order yesterday by the state utility commission, customers will automatically be enrolled in a plan to phase in the increases over two or three years depending on their incomes, but they will pay interest to BGE.
Under the deferred plan, customers would see a maximum 21 percent increase beginning in July. They would begin paying increasing amounts starting early next year until the deferred amount plus interest is paid (by May 2008).
Customers will be automatically enrolled in the plan unless they inform BGE they want to opt out. Those who opt out would avoid interest charges and start paying the full market rate starting July 1.