Stakes high for action on energy

THE BALTIMORE SUN

The General Assembly plans to swoop into Annapolis this week and accomplish in a brief special session what it couldn't in 90 days this spring: protect BGE customers from the 72 percent electricity rate increase coming July 1.

But even if they approve a relief plan heralded by consumers, it is doubtful that lawmakers will end the confusion over electricity rates, the finger-pointing over who is responsible for the increase or the jockeying for political advantage that has dominated the political scene for months.

"For better or for worse, it's going to be a political football in the primary and the general election," said Del. Dereck E. Davis, a Prince George's County Democrat and chairman of the House committee that handles utility issues. "Over the course of the campaign season, everybody is going to try to outdo one another in terms of how best to provide rate relief."

If Democrats get their way and the state Public Service Commission is replaced, customers will have certainty about electricity costs only for a few months until a newly reconstituted regulatory agency can determine what the rates should be.

But with the political, financial and legal stakes running high, there is plenty that could derail the Democrats' plans.

Lawmakers have not included Gov. Robert L. Ehrlich Jr.'s staffers in the drafting of the legislation up for consideration, and it is unclear whether he will veto the product of the session. If he does, that means legislative leaders would have to muster three-fifths of the vote in both chambers to override him.

Constellation Energy, BGE's parent company, hasn't been at the table either. Company officials have threatened to sue over some of the measures lawmakers are considering, and industry watchers expect that enacting them would land the state in court, with the fate of consumers up in the air.

The PSC could revive a lawsuit from an earlier attempt to fire its members, tripping up a key component of the legislature's plan.

As for the finger-pointing and politicking, neither Ehrlich nor his prospective opponents show any signs of abandoning what has been a defining issue in the races for governor and the legislature.

The rate increase comes with the July 1 expiration of rate caps instituted as part of Maryland's 1999 deregulation of the electric industry. The legislation was championed by Democratic Senate President Thomas V. Mike Miller as well as Public Service Commission Chairman Kenneth D. Schisler, who was then a Republican delegate from the Eastern Shore.

Advocates believed at the time that deregulation would spur competition and help consumers, but the benefits haven't developed. Those who continue to support deregulation, including the governor, say the rate caps interfered with the free market, but customers in suburban Washington and the Eastern Shore, where rate caps were lifted two years ago, have seen steady price increases and no significant competition.

"We're the ghost of Christmas future - we've seen where this leads," said Sen. E.J. Pipkin, an Eastern Shore Republican and one of the Assembly's leading critics of electricity deregulation. "It's just a flawed scheme."

Democrats and some Republicans in the legislature see a new PSC as the key to solving the immediate rate crisis. Many critics say the current PSC is too closely aligned with the industries it regulates, and the governor has acknowledged that he has made business-friendly appointments to that agency and others.

The idea is for the legislature to set an initial rate cap of about 15 percent while a new commission hires corporate attorneys, accountants and other experts, holds hearings and determines how large the rate increase should be.

Former PSC Chairwoman Catherine I. Riley said that she thinks the current commission is legitimately to blame for a large part of the rate increase BGE customers face. When the energy market went haywire after Hurricane Katrina last fall, the commission did not delay or modify its plans for BGE to buy its electricity. There would have been a large increase anyway, she said, but it might have been 40 percent or 45 percent instead of 72 percent.

Even so, replacing the PSC members won't instantly solve the problem, she said. Mistakes in the timing and format of BGE's power purchases are irreversible, and investigations into the validity of the 72 percent figure and other matters will take time, particularly as new commissioners get up to speed, Riley said.

"You're asking an awful lot of the commission," she said. "The more direction the legislature can give to the commission, the better."

Ehrlich and Schisler, whom the governor appointed to run the agency, have argued that changing the commission will do no good. The deregulation law took the PSC out of the business of setting electricity rates, they say, and all it can do now is make sure there is no collusion among the companies bidding to supply BGE with power.

The governor vetoed a bill during the session that would have fired the PSC, and Schisler filed a lawsuit in an attempt to block it.

This time legislators say they will incorporate the PSC firing into a comprehensive bill that includes all the rate relief provisions, so that Ehrlich can't veto one measure and sign the other. The governor hasn't said whether he would veto any bill that fires the PSC, but he said on Stateline with Governor Ehrlich on WBAL-AM yesterday that such a plan would have to be enacted "over my objections."

"Coming in and taking down this PSC is clearly destabilizing," he said.

PSC spokeswoman Christine E. Nizer said there have been no talks about whether the commission would revive its lawsuit if the legislature fires its members.

Lawmakers and their aides say they learned from Schisler's legal arguments against their first bill to fire the PSC and will adjust the new bill accordingly.

One major change in the way rate relief plans are being approached compared with how they were handled during the legislative session is that Constellation has had little involvement in the process.

Toward the end of the session, Constellation CEO Mayo A. Shattuck III and his top executives were in Annapolis every day hashing out a deal. But as legislators and their aides have been drafting the new plan, Constellation officials have stayed in Baltimore.

Constellation spokesman Robert L. Gould said the company is watching and waiting, just like its customers.

Utility law experts say it would be surprising if Constellation didn't sue over some of the provisions lawmakers are contemplating, a case that would likely land in federal court and could leave the fates of consumers and the company in limbo for a year or more.

In addition to extending rate caps and firing the PSC, the legislature is likely to consider provisions that would return to customers some of the $528 million Constellation received as part of the 1999 deregulation plan to compensate it for the anticipated but unrealized decline in value of its power plants. Only a portion of that money, known as "stranded costs," came from residential customers.

Utility law experts say any attempt to recoup that money would almost certainly lead to a lawsuit.

Gould would not say whether the company would take legal action, but he said that legislators should be aware that their actions could destabilize Constellation and BGE, which could make supplying electricity unreliable and hurt consumers.

"If we think [our customers] were frustrated and angry before, this has only made it 10 times worse," Gould said. "We're on this path as a result of elected officials, and we're confused, and so are our customers.

Politics has been inexorably linked to the BGE rates issue, and no matter what happens this week, the issue is expected to remain a hot topic in the fall elections.

When the legislature failed to enact a rate relief plan in April, Ehrlich stepped in, negotiating his own with Constellation and unveiling it in a live television news conference from the lawn of the governor's mansion. Since then, he has said that he is the only one who has put forth a concrete plan to help ratepayers while his rivals have been playing mere political games.

Both Democrats running for governor, Baltimore Mayor Martin O'Malley and Montgomery County Executive Douglas M. Duncan, were quick to call for Schisler's resignation.

Duncan was among the first to call for a special session of the legislature, and O'Malley successfully sued to force the PSC to hold new hearings on Ehrlich's rate relief plan and to consider whether such a large increase is justified. The leaders of the House and Senate have said that legal victory was a major catalyst for the special session.

The mayor has begun running television ads publicizing his efforts on the issue. Duncan sent legislators a letter Friday outlining his nine-point plan for fixing Maryland's energy market - and getting in some quick jabs at Ehrlich and O'Malley.

"People are angry," Duncan said in an interview. "They're angry about what's happening, and they're angry about the lack of leadership they're seeing coming from Annapolis. This issue is going to carry on."

Even the November election might not bring an end to the utility issue. Many advocates and lawmakers - including Duncan and O'Malley - want longer-term solutions, and they believe comprehensive reform cannot be accomplished quickly.

Legislators "should be able to craft something that would provide some rate relief [in the special session], but they're not going to deal with the real problem," said former Del. Leon G. Billings, a Democrat from Montgomery County who was a leading critic of deregulation. "Any fix will be temporary, and any fix will be inadequate."

But legislators say the public pressure for immediate action to protect consumers and clear the uncertainty is intense.

Sen. James Brochin, a Towson Democrat known for knocking on constituents' doors, said people are worried about the pending merger between Constellation and a Florida utility, and they don't understand why customers had to pay Constellation for the stranded costs. They want some relief from the rates, and they want answers, he said.

"Everybody keeps giving their spin, and I think there's a real sense of confusion," Brochin said. "I think they want something that's been quite elusive in Annapolis and in Washington, D.C., and that is both parties to work together to do what is right for the people and go home."

andy.green@baltsun.com

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