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Crafting a BGE bill as session draws near

THE BALTIMORE SUN

As lawmakers prepare for next week's special session on BGE rates, they find themselves with two potentially conflicting goals: Get the best deal possible for consumers and don't get sued.

Legislators have begun hashing out the components of a bill that would soften a pending 72 percent rate increase and bring more scrutiny to utility operations, with much of the discussion centering on the legality of the proposals. BGE's parent company, Constellation Energy Group, threatened to sue this spring over measures similar to the ones legislators are contemplating, but Assembly leaders say they're confident they can craft a plan that will hold up in court.

"We have our proposal and ... its legal sufficiency has been upheld throughout the attorney general's office," Senate President Thomas V. Mike Miller said.

But, he added, "Anyone can file a lawsuit."

With just weeks to go before rates are set to rise July 1, legislators are looking to rewrite some of the terms of the 1999 law that deregulated the electricity industry and established the rate caps that are soon to expire.

Among the ideas being considered are temporarily extending the rate caps; forbidding the company to charge consumers fees for the eventual decommissioning of the Calvert Cliffs nuclear reactor; rescinding administrative charges BGE was granted in 1999; and requiring Constellation to return $528 million in so-called stranded costs - payments consumers made to compensate it for the anticipated but unrealized drop in value of its power plants.

If lawmakers recouped the payments, the money could be used to lower customer bills.

Those issues would likely become flash points for intense debate during the special session, which is tentatively scheduled for next week. A large minority of legislators objected to similar measures during the spring General Assembly session and are likely to do so again on the grounds that they run afoul of the legal foundations of the American system of free enterprise.

"This nation spent the better part of 50 years post-World War II engaged in a cold war against a system that did these kinds of things on a regular basis," said Del. Anthony J. O'Donnell, the House minority whip from Southern Maryland. "And here we are with a state government appearing to do it. Mind boggling."

Constellation spokesman Robert L. Gould declined to say yesterday what legal options the company might pursue if the legislature tries to recoup stranded costs or extend rate caps. But legal experts in the utility industry say a suit under such conditions would be a near certainty.

In meetings at the end of the General Assembly session in April, participants said, Constellation CEO Mayo A. Shattuck III warned the legislature away from some of the more aggressive moves it was considering, such as going after the stranded costs, by saying the company would sue and would win.

Another of the Assembly's bills - one that would have fired the members of the Public Service Commission - drew a lawsuit before the legislature could even decide whether to override the governor's veto.

Public Service Commission Chairman Kenneth D. Schisler filed suit in his home jurisdiction of Talbot County in April, using agency money to hire a lawyer in the firm that once employed Schisler. A Talbot judge granted the PSC an injunction, and the Court of Special Appeals refused to dismiss the case on the grounds that the legislature might resurrect it in a special session.

Legislators now say that doing just that is their priority.

Robert A. Zarnoch, the assistant attorney general who serves as the legislature's general counsel, said his office weighed in during the regular legislative session on the legality of most of the measures now under consideration.

In the past few days, it has been giving advice again, and he said some of the proposals from the spring are being tweaked to put them on more solid legal ground.

"We've been thinking about these kinds of issues, and there will be ... differences to some bills designed to take care of any legal objections," Zarnoch said. "It doesn't mean there won't be a lawsuit anyway."

One of the central legal issues involved is the takings clause of the U.S. Constitution, which says that the government may not take private property without due compensation.

In March, Sen. Thomas M. Middleton, a Charles County Democrat and chairman of the Finance Committee, asked Zarnoch's advice on whether a bill requiring the return of stranded costs would violate that principle.

Zarnoch concluded that it wouldn't. He wrote in an advice letter that the basic premise of the law that granted them the $528 million - that deregulation would spark competition and benefit consumers - proved unfounded, thus making Constellation the beneficiary of "an unintended windfall."

Gould said the idea of the state recovering stranded costs is "a nonstarter."

"We've been through this before; it's been held up in the courts twice, and it was a fair process that resulted in a fair deal, and we're very confident in our legal standing," Gould said.

One of the ideas the legislature is pursuing in the new legislation is capping this summer's rate increase at 15 percent but leaving it to a newly constituted PSC to decide whether that figure is reasonable. If the commission determined that a higher figure would be required to allow BGE to recoup its rightfully incurred costs, it could adjust the rate later to compensate the utility.

Similarly, the disposition of stranded costs and other matters could be left up to the new PSC.

Democrats and some Republicans have accused the members of the PSC, all but one of them appointees of Gov. Robert L. Ehrlich Jr., of being too friendly to the industry. The Democrats who control the Assembly believe that a PSC controlled by appointees of the legislature would give consumers a fairer hearing.

The PSC has become a hot issue in the governor's race. Baltimore Mayor Martin O'Malley, a Democrat running for governor, successfully sued the PSC in circuit court to force it to reconsider a rate deferral plan that he believed was inadequate. Yesterday, he said the legislature must take control of the PSC.

"I think the first order that they will likely take up is the removal of the PSC, given its miserable failure under Bob Ehrlich to protect the public interest," O'Malley said. "Secondly you'll see some temporary rate cap until such time that regulators can be put back on the job to do in a professional way what regulators used to do before Bob Ehrlich purged the PSC of public advocates."

Ehrlich has defended the PSC, saying it is only carrying out laws sponsored by Miller and approved by other Democrats. On WJZ-TV yesterday, Ehrlich called demands for a new PSC mere political posturing.

Gould said that a new PSC wouldn't alter the fact that the price of energy has gone up. Any move to curtail BGE's ability to recoup those higher energy costs would destabilize the company, he said.

"Frankly, in this regard, we have to align ourselves with our customers," Gould said. "In this case, it's not just about recovering costs, but it's also about the calamity that would occur and the subsequent terrible consequences for customers that would result because of broken promises."

Sen. E.J. Pipkin, an Eastern Shore Republican who helped lead the General Assembly's negotiations with Constellation this spring, said the fear of a lawsuit kept many lawmakers from supporting some of the ideas that were being considered.

But a lot has happened since then, he said. One of the key revelations of the past few weeks, Pipkin said, came in Constellation's response to a PSC order that BGE not charge interest in a rate deferral plan that was then being put into effect. The company said it would accept it for the moment but reserved the right to challenge the order in court later.

"Wait a minute, the company wants to go to court," Pipkin said. "If it ends up in court, let it be. Let the courts decide then. ... I don't think [Constellation] would fare so well."

andy.green@baltsun.com

Sun reporters Paul Adams and Doug Donovan contributed to this article.

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