Rate reform should head Assembly's to-do list

With most of the pain from last year's 72 percent rate increase due to arrive in June, Baltimore Gas and Electric is trying look like it cares. Yesterday it launched a "smart meter" program that is supposed to eventually let households avoid the most expensive daily electricity and cut overall consumption.

Big deal, you say. This isn't that different from the "demand management" programs BGE used to offer in the 1990s.


Well, at least BGE is doing something. That's more than you can say about the General Assembly. After all was said and legislated last year, Annapolis merely delayed BGE's rate shock without doing much to address the underlying problems.

Legislators, get to work!


Just because BGE's parent, Constellation Energy, scrapped its merger with a Florida outfit doesn't mean an out-of-state buyer won't someday eye BGE.

Just because electricity prices stand to decline a little doesn't mean they're cheap. Just because the election is over doesn't mean the problems have disappeared.

In June the electric bill for the average BGE household is projected to rise a substantial 47 percent, or $46 a month, as my colleague Paul Adams reported Saturday.

This is the hangover from the "72 percent" BGE increase that shocked everybody last year.

Instead of allowing the full 72 percent to kick in last July, the General Assembly limited the increase to 15 percent for 11 months. Reality will strike in June, although a recent dip in energy prices is expected to keep the total percentage increase (compared with prices before July 1, 2006) to the mid-60s, rather than 72.


Maryland, which before deregulation enjoyed average electricity prices compared with those of other states, has moved into the "expensive" category.

BGE's economical coal and nuclear generators, which once passed on low costs to BGE customers, are now owned by Constellation and charge whatever the market will bear.


The merger craze expected to envelop BGE and other utilities has stalled, but it may revive. There is still "huge scope for consolidation" in the U.S. power market, PricewaterhouseCoopers' John McConomy wrote in a report last week.


So what to do?

Many people bring up "re-regulation," and not just in Maryland. Delaware just commissioned consultants to study re-regulating that state's utilities, reports Electric Utility Week. The Texas and Virginia legislatures have discussed it.

Defining what re-regulation means and making it work, however, is harder than talking about it.

Some people apparently just want to cap electricity prices. Ed Boyd, gubernatorial candidate for Maryland's Green Party last year, campaigned on a plan to seize former BGE generation plants through eminent domain. Others have suggested allowing BGE or cities to build new generation plants.


Sorry to say, none of these will work. If you simply cap retail electricity prices and ignore the supply side, as California did a few years ago, you risk bankrupting utilities. But building new plants or seizing old ones requires enormous capital costs that must be charged to taxpayers or built into rates, driving prices even higher.

Maryland would be better off if deregulation had never occurred, but I see no way of reversing time in a way that won't abuse the Constitution, the state budget or the laws of physics.

The job now is to limit further damage and play with the cards in hand. That means enhancing what market alternatives exist and eyeing further opportunities to get BGE and Constellation to contribute to rate relief.

Although many legislators believe deregulation has failed, "I'm not convinced that deregulation cannot work, that we have to go back to a regulated environment," says Sen. Thomas "Mac" Middleton, the powerful chairman of the Senate Finance Committee.

Nearly $400 million of the $600 million in BGE customer credits promised last year if Constellation completed its merger with FPL Group is still on the table.

After the legislature required the credits over 10 years even if there was no merger, BGE claimed it didn't owe the money. Even so, this month BGE began applying the amount to consumers' bills ($2 or $3 on a typical monthly bill), indicating it might be amenable to a compromise.


Great. Have BGE spend that money on the smart meters, which will reduce demand by letting households avoid expensive, peak-use kilowatts. That way, it won't have to build the cost into rates.

A pilot program

Although Middleton is skeptical of allowing cities to easily fold households into electric buying pools, he says the idea has more "wind under its wings" this session. Good. Try a pilot program of allowing cities to buy cheap, bulk-rate electricity.

Part of Maryland's problem is that it lacks both sufficient generation facilities and adequate lines to import juice from out of state. Short of subsidizing projects with taxpayer dollars, the Assembly should pave the way for new infrastructure.

Most of all, Maryland needs to end the make-out session between Constellation and BGE. A year ago two members (out of five) on the Public Service Commission found that low-cost loans BGE was making to unregulated affiliates imposed "unnecessary costs on customers; costs unrelated to the provision of utility service."

BGE customers are already paying enough; they shouldn't be subsidizing Constellation's other enterprises, too.


Before BGE is again shopped to an out-of-state buyer, Maryland should build a regulatory "ring-fence" around BGE and other utilities, in imitation of similar laws in Oregon and Wisconsin.

The law would give BGE separate real estate, require a distinct board, limit dividend and bankruptcy options and otherwise sequester it from its parent.

Don't wait for a new Public Service Commission and endless study panels, Annapolis. There is a lot to do now.