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BGE bill to increase $743

THE BALTIMORE SUN

Talk about an electric jolt.

The average bill for a Baltimore Gas and Electric customer will rise by 72 percent - or $743 a year - after July 1, the state utility commission said yesterday as it released the results of a reverse auction among suppliers to provide electricity to Maryland utilities.

The increase for BGE's 1.2 million residential customers will be one of the biggest one-year price hikes in the nation. And yesterday's news was the most tangible evidence yet that the power market is quite different from the scenario that state lawmakers and regulators predicted seven years ago when they approved a deregulation plan intended to spur competition and lower prices. It comes as consumers are already dealing with soaring prices for gasoline and heating fuel.

In July, legislated "rate caps" expire that had kept electricity prices frozen for six years, saving BGE customers more than $1 billion over what they might otherwise have paid.

Now, BGE must charge customers prices set by the competitive wholesale market, which the Maryland Public Service Commission says has been buffeted by hurricanes, war and the soaring cost of fuels burned to make electricity.

A backlash brewing among consumer advocates and some lawmakers in Annapolis mirrors growing anti-deregulation sentiment in state capitals across the country.

Similar debate is taking place in Delaware, where customers will see a 59-percent increase when their rate caps expire. In Connecticut, Massachusetts, New York, New Jersey, Ohio, Texas and Montana, lawmakers are considering ways to lessen the impact of soaring electricity costs as caps there expire and the free market takes hold.

"I hope we can get moving down here to head off this catastrophe that is going to hit the people," said state Sen. Leo E. Green, a Prince George's County Democrat who serves on a Senate commission examining deregulation. Green, who favors a plan to reverse deregulation, called the 72 percent rate increase "the worst news I've heard all day."

Most BGE customers won't see the bulk of the rate increase until next year because of a plan the utility commission announced Monday to allow them to spread the increase over two years.

The "rate stabilization plan" would give participants a 21 percent increase in July, followed by gradually increasing rates until the deferred amount, plus 5 percent interest, is paid at the end of two years. Those who opt out of the program would pay the full 72 percent increase starting in July and avoid interest charges. The $743-a-year cost estimate cited by the PSC is the average, so some customers will pay more and some will pay less.

The rate-deferral plan was devised after Gov. Robert L. Ehrlich Jr. asked the PSC to look into the matter. Electric rate increases and the broader topic of deregulation are likely to factor into election campaigns this year.

"The governor is concerned about the difficulties that customers of all economic statuses will face in the coming months," said Shareese L. DeLeaver, a spokeswoman for the governor. "It's a problem that is inescapable at this point, and Maryland citizens need a gradual transition."

She said the governor's office is investigating other options to help customers cover the rising costs.

Regulators and utility officials sought to place blame for the pending rate increases on forces beyond BGE's control. They pointed out that the 72 percent average increase is still less than the rise in other fuel costs since 1999. The cost of natural gas has gone up 127 percent since then; coal has increased 150 percent; heating oil, 192 percent, and gasoline, 154 percent, the state utility commission said in a press release.

"Unfortunately, high fuel prices resulting from the recent hurricanes in the Gulf region, terrorist threats and pressure from the global energy market have impacted the price of electricity," said PSC Chairman Kenneth D. Schisler in a statement announcing the increases.

The utility argues that this year's sharp increase is largely a result of the below-market power that Maryland customers have received as part of the arrangement to prepare for deregulation.

The legislation that deregulated the power industry in 1999 capped BGE's electric rates at 6.5 percent below 1993 levels for six years.

To remain profitable during that period, BGE locked in long-term power supply contracts in 2001. Power costs were much lower and finding cheap electricity was easier then, the power company said. But at the end of June, those low-cost contracts expire. BGE must now enter the wholesale power market and secure new contracts that reflect six years of rising energy costs.

"Today's PSC announcement is reflective of the fact that this was a fair and open process that was overseen by an independent third party, and it reflects accurately the market price" for power, said Rob Gould, a BGE spokesman.

Commercial customers also will feel the impact of rising electricity rates. The PSC said BGE's small commercial customers will see rates climb 40 percent. Medium-size businesses, which use more power, will see rates go up 14 percent. Price caps on commercial customers began expiring two years ago, which is why their increases are less pronounced than those for residential customers.

Customers in other parts of Maryland served by other utilities also face higher rates, but not as steep as in the Baltimore region because their move toward a free market arrived more quickly. Customers of Pepco, which serves Montgomery and most of Prince George's counties, and Delmarva Power and Light, which serves the Eastern Shore, will see rate increases this summer of 39 percent and 35 percent, respectively. Both utilities began transitioning to free-market prices two years ago, resulting in more-gradual increases.

BGE customers collectively would have paid about $1 billion more for power had they transitioned to market rates at the same time as those two utilities, officials said.

"Our customers have had the advantage of six years of frozen rates," said Wayne Harbaugh, BGE's manager of pricing and regulatory services.

Consumer advocates say the 72 percent increase for residential customers is in line with what they expected, but they still expect much anxiety because of it.

"No one is going to look at those increases and be happy about it," said Theresa Czarski of the Maryland Office of the People's Counsel, a utility watchdog agency. "But this has been the market results."

Czarski said angry consumers must consider that prices for all forms of energy have been going up. Even if Maryland had not decided to deregulate the power industry, she said, electricity prices would have gone up as a result of rising fuel costs.

Before deregulation, BGE was allowed to pass rising costs on to consumers as they occurred. The utility makes only a small profit selling power to customers. Most of its revenue comes from what it charges to deliver power over its distribution lines.

"BGE has to buy that power on the market, and we are now subject to those market forces," she said.

paul.adams@baltsun.com

Sun reporter Kelly Brewington contributed to this article.

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