BGE rates arrive quietly

The Baltimore Sun

More than a year after a major proposed electricity rate increase ignited a political firestorm, rates for BGE's 1.2 million customers are due to go up 50 percent today, bringing the price of power nearly as high as it would have been if state leaders had done nothing at all.

Gov. Martin O'Malley, a Democrat whose campaign included sharp criticism of his predecessor's handling of the rate increase and a promise to try to reverse it, said he believes his new appointees to the Public Service Commission will do a better job than their predecessors in making sure rate spikes like this one don't happen again. And he said he will soon launch conservation initiatives to help consumers keep their bills down.

But he said today's increase could not be stopped.

"There was little we could do to undo the damage of the last four years of nonregulation, but there's a lot we can do going forward," O'Malley said, referring to the administration of Republican Gov. Robert L. Ehrlich Jr. "The bubble has passed, and now what we have to do is mitigate increases in the future and immediately throw ourselves into the goal of conservation."

Ehrlich said last week on WBAL-AM that the rate increase shouldn't have come as a surprise to anyone, and dismissed O'Malley's statements blaming his administration. "The real problem here was the General Assembly and the PSC in 1999," Ehrlich said, referring to the passage of deregulation legislation that capped prices and, he says, disrupted competition.

Today's increase has been on the horizon for more than a year and was the dominant political issue in Maryland during much of last year's election campaign. In March 2006, the PSC announced rates would go up 72 percent starting in July 2006. The legislature met in special session to defer much of the rate increase in hopes that a new regulatory review could roll part of it back. But as of today, rates are 68 percent higher than they were a year ago.

Despite the intensity of the rhetoric that has surrounded the issue, today's increase has arrived quietly. Some members of the legislature have called for another special session, but the idea has not gained traction. And yesterday, the Maryland Public Interest Research Group, Progressive Maryland and the AFL-CIO, groups that helped lead last year's consumer revolt against BGE rates, held a final rally in Baltimore on the eve of the increase.

But instead of repeating their march on Constellation Energy President Mayo A. Shattuck's home in Roland Park or mobbing the entrance of the PSC's office building with protesters chanting and hoisting caricatures of the PSC chairman's head on sticks, a few activists stood in the blazing sun outside Constellation headquarters yesterday morning and conceded that the increase was the inevitable result of the state's 1999 decision to deregulate its electric market.

"On the eve of a 50 percent rate increase, it's all too clear that de-regulation has failed in Maryland," said Johanna Newmann, a policy advocate for the Maryland Public Interest Research Group. "Eight years ago, powerful utility companies promised us lower rates, but it's clear that exactly the opposite has happened. It's time we restored public accountability to our utilities."

After years of lobbying from utilities, the General Assembly voted in 1999 to deregulate the electric industry, meaning that companies such as BGE would no longer own the power plants that produced energy for their customers. Instead, they would buy power on the open market, largely from companies like BGE's parent, Constellation Energy Group.

As part of the 1999 deal, BGE's rates were reduced and capped for seven years with the idea that the delay would give time for competition to develop in the marketplace. It didn't, and when the time came for BGE to buy power contracts for its customers, auction rules established by the PSC forced it to buy its entire load at a time when global instability and hurricanes in the Gulf of Mexico had sent energy prices sharply upward.

Outside Constellation headquarters yesterday, the advocates blamed the increases on what they consider a sweetheart deal that utility lobbyists pushed for their clients that allows a virtual monopoly in Maryland's electric market.

Sean Dobson, the acting director of Progressive Maryland, said his group analyzed campaign contributions from the 1998 election cycle and found more than $200,000 in donations from energy companies to lawmakers in the months before they approved deregulation.

Constellation spokesman Robert L. Gould, who watched yesterday's rally from a meager patch of shade outside his company's downtown Baltimore headquarters, said the large increase isn't the fault of deregulation but of global changes in the energy market that happened to coincide with the end of the rate caps.

If not for hurricanes Katrina and Rita in the summer and fall of 2005, rates might only have increased by 25 percent, a relatively modest increase considering they had been frozen for the six years before that, he said.

"The fact is, the price of energy has been going up," Gould said. "It's a global energy problem. We've been saying that from day one."

The PSC approved a rate deferral plan for those who can't make the transition to the market price of electricity all at once. The plan brings customers who sign up to market rates in three steps over the next seven months, with the deferred amount paid back over 21 months. Customers will not be charged interest on the deferred payments.

Enrollment for the plan ended yesterday. Gould said that as of late yesterday afternoon, about 12,000 residential customers had signed up.

The advocates at yesterday's rally, who sharply criticized Ehrlich for not doing more to stave off the rate increase, largely gave O'Malley a pass, saying he did what he could.

"Under Governor O'Malley's leadership, we have a new PSC that will be more effective and more concerned about the interests of working people," said Fred Mason, president of the Maryland and District of Columbia AFL-CIO, which endorsed O'Malley against Ehrlich. "We believe with the leadership we have now in Annapolis, we can get on the path of resolving this energy challenge."

The state Republican Party issued a document this week saying O'Malley has failed to live up to his campaign promises to "stop the rate hikes" and "provide immediate relief" for consumers.

"Once known as the 'Believe' mayor, Governor O'Malley gives Marylanders reason not to believe his false campaign promises," the document says.

Neumann said O'Malley's PSC needs to do more in the short term and the long term to help consumers. She said the PSC should set immediate targets for utilities to invest in energy efficiency and should consider de-coupling utility profits from how much power they sell. She said the state should also expand its programs to help low-income consumers pay their bills.

In the long term, Neumann said, the PSC should move toward re-regulation. She said the PSC should develop a plan to allow the utilities to acquire their own power plants again and explore the idea of publicly owned utilities.

Gould said BGE is eager to work on energy efficiency and has taken steps to utilize better tools for power use management, such as "smart meters" that provide incentives for consumers to avoid using power during peak hours.

But he said the company objects to any moves toward re-regulation.

"We strongly believe in competitive markets, and furthermore, believe re-regulation, in and of itself, will not lead to reduced energy costs -- costs that are driven by a global energy marketplace," Gould said. "That said, we will certainly participate in any dialogue that the PSC engages in related to the topic."

Maryland People's Counsel Paula M. Carmody said her agency, which is charged with representing consumers in utility regulation matters, has received relatively few calls about today's rate increase, but she said she expects that will change when bills come out in July.

Carmody said she will push for changes in how utilities acquire power contracts to try to prevent a repeat of this rate spike. She said the state should consider encouraging utilities to build their own power plants or creating a state power authority to build them.

But she said conservation will be the key to controlling prices. If consumers can reduce their use of electricity during times of peak demand, it could reduce rates overall, she said.

"We believe this is absolutely necessary for our residential customers, and not only on an individual basis," Carmody said. "When you aggregate efficiency measures, it can have a real impact on pricing."

andy.green@baltsun.com

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