15% cap on rate rise gains favor

THE BALTIMORE SUN

A plan to limit electricity rate increases to 15 percent this summer with the remainder of the rise phased in over three years is gaining momentum among legislators reacting to a public uproar over the end of price caps.

The proposal has bipartisan support in the General Assembly, which is controlled by Democrats. It would provide consumers with a longer transition to market-rate electricity prices than would a Public Service Commission-approved plan that would send rates soaring 72 percent this summer, an average of $743 per household.

To keep rates down, legislators said, they want to recoup $528 million that customers of Baltimore Gas and Electric Co. have paid to the utility in the past few years to compensate for an anticipated loss in the value of its power plants, a loss that never materialized when energy prices surged.

Saying they might need a major bargaining chip to gain concessions for consumers, legislators threatened to hold up the proposed merger between Constellation Energy Group Inc., BGE's parent company, and Florida's FPL Group Inc., to force the Maryland utility to the bargaining table.

"We need to step back and make sure we have all the proper information and details to make sure the ratepayers receive the full return on their investment over the last 100 years," said House Speaker Michael E. Busch, an Anne Arundel Democrat.

Meanwhile, top aides to Gov. Robert L. Ehrlich Jr., who has been criticized by political opponents and some members of his party for not coming up with a plan to limit the increase, met yesterday with the four members of the Public Service Commission appointed since the governor took office in 2003.

The fifth member - Harold Williams, an appointee of Ehrlich's Democratic predecessor, Parris N. Glendening - said he was not invited to the meeting and also complained that the PSC staff had failed to provide alternatives that would have mitigated the sharp increase in rates.

Ehrlich Chief of Staff James C. "Chip" DiPaula Jr. said the meeting resulted from a chance encounter with Public Service Commission Chairman Kenneth D. Schisler, who was in Annapolis to discuss electricity issues with legislators.

DiPaula said the three other Ehrlich appointees to the PSC were also in town and attended the meeting. He said he did not intend to exclude Williams and would have been happy to meet with him.

"Right now we are in aggressive pursuit of solutions," DiPaula said.

Jack Schwartz, an assistant attorney general who advises the Maryland Open Meetings Compliance Board, said he could not comment on whether yesterday's meeting violated the Open Meetings Act.

In general, he said, state law says that if a majority of the members of a public body meet to discuss public business, the meeting must be open.

DiPaula said the governor is working with the commission and the legislature to craft a new plan to help consumers. He did not provide details.

Last week, the PSC approved a plan that would automatically defer all but 21 percent of customers' increased bills for two years but force them to pay 5 percent interest on the difference. Customers would be able to opt out of the plan.

Lawmakers of both parties aren't waiting for the governor toformulate a plan.

Sen. E.J. Pipkin, an Eastern Shore Republican, said he expects the Senate to take up legislation to force BGE to return to ratepayers the $528 million they paid after deregulation for the anticipated loss of value from its power plants, known as "stranded costs." A refund would probably be enough to prevent a catastrophic rate increase, he said.

The money was included in the 1999 deregulation legislation because legislators expected BGE's power plants - especially the nuclear plant at Calvert Cliffs - to lose value. Instead, Calvert Cliffs is more valuable than ever, helping make BGE's parent company an attractive target for a buyout, Pipkin said.

"I want to take the money back from Constellation and give it back to the customers of BGE," said Pipkin, the Republican nominee for the U.S. Senate in 2004. "That's where it came from, and I think that's where it should go back to."

BGE President and Chief Executive Officer Kenneth W. DeFontes Jr. said the utility has invested more than $1 billion in its infrastructure in recent years and that the "stranded costs" concept has been thoroughly examined in the courts.

Legislators in the House and Senate heard testimony yesterday on more than a dozen bills to protect consumers from the BGE rate increase, which has quickly become the dominant topic in this year's General Assembly session as lawmakers seek to avoid a shock to voters' pocketbooks months before the fall election.

"In November, the public isn't going to be talking about stem cell research; they aren't going to be talking about slots," said Del. Patrick L. McDonough, a Baltimore County Republican, referring to major issues the legislature has faced. "They are going to be asking, 'What the hell is this bill all about and what did you do?'"

BGE rate limits established in 1999 as part of a bill deregulating Maryland's electric industry are to expire July 1, at a time when the aftershocks of Hurricane Katrina and instability in world markets have driven energy prices to near record highs.

Leading Democrats in the legislature joined the state's utility industry in pushing for deregulation, expecting it to spur competition and bring prices down for consumers. Most Democrats and all Republicans in the General Assembly voted for deregulation, and Glendening signed the bill.

No competition developed.

Yesterday, BGE representatives and officials from other Maryland power companies strongly argued against any further extension of the rate caps that have determined electricity prices since 1999 or other plans to delay the rate increase, saying it would hurt their financial standing and destabilize Maryland's power supply.

Lawmakers and others working on the issue said that because they cannot force BGE to forgo the rate increase without just compensation, they are looking for a source of compensation or a means to get the utility to voluntarily delay the rate increase.

Del. Dereck E. Davis, a Prince George's County Democrat who is chairman of the Economic Matters Committee, said he expects to see legislation tackling three issues: ensuring greater oversight by the state government of utility mergers; creating guidelines for procurement of power in the future; and providing relief to consumers.

He said more help for low-income customers is needed, and he has proposed legislation that would require BGE to help pay for the assistance. A more gradual transition to market rates is also necessary, Davis said.

The General Assembly is feeling pressure from the public to eliminate any interest charges on deferred rate increases, he said.

No consensus has developed among legislators over whether customers would be charged interest.

Davis said the state must be careful to avoid imperiling the utility's solvency.

"Obviously, we would love to be able to tell the utility to eat that charge," he said. "We're going to see what we can do to eliminate it. But the whole thing is a balancing act."

DeFontes said forcing the utility to defer the rate increase without compensation could lead to a downgrade in the company's bond ratings and eventually to insolvency.

"If we take steps to artificially control energy prices, it's going to put BGE at substantial risk," DeFontes said.

Neither the Ehrlich administration nor Schisler took a position yesterday on any of the bills under consideration.

Schisler defended his agency's handling of the rate increase, saying the PSC offered the most aggressive protection of consumers it could while respecting BGE's right to a fair return on its purchase of energy contracts.

The commission is working with the governor and legislature to find other options, he said.

"If it's doable, if it's more acceptable to policymakers than what the commission put on the table, the commission would stand ready to adjust," Schisler said.

Williams, the Glendening appointee to the commission, said he is concerned about his exclusion from yesterday's meeting. He said the PSC's plan would force the poor and elderly to choose among food, rent and electricity.

"There was one recommendation, and from that we agonized over the plan," said Williams, a longtime BGE executive before joining the commission. "Other options should have been considered."

Critics have contended that the PSC's staff has been robbed of experienced consumer advocates in an Ehrlich administration attempt to make the agency more oriented toward industry.

Schisler defended the commission staff, saying the PSC simply followed laws and procedures established before Ehrlich appointees took control of the agency.

"I understand demagoguery. I understand the need for a scapegoat," Schisler said. "But the reality is the commission has implemented the statues and the order passed by the commission in 2003 flawlessly."

andy.green@baltsun.com kelly.brewington@baltsun.com

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