PSC starts to dig for real answers on rates

The Baltimore Sun

Exactly how much profit is Constellation Energy making on the generation plants it got from Baltimore Gas and Electric seven years ago in the move to deregulate electricity?

How much lower would electricity rates be if the plants were still owned by BGE and regulated by the state instead of being able to charge what the market bears?

What are those plants worth, anyway, now that electricity prices have zoomed up?

We're about to find out. The Public Service Commission and its chairman, Steven B. Larsen, are days away from hiring experts to analyze Maryland's deregulated system in the greatest detail ever.

Which suggests the game is not over in seeking relief from the 70 percent increase in electricity prices seen by BGE customers. Which ought to make Constellation more than a little squirmy.

Larsen doesn't mess around. When he was Maryland's insurance commissioner, his hired guns ferreted out the fact that CareFirst BlueCross BlueShield chief executive William L. Jews would make up to $39 million from the nonprofit organization's merger with WellPoint Health Networks. The revelation effectively killed the deal.

Expect interesting headlines in October, when Larsen's latest posse of consultants delivers findings on electricity just in time for a General Assembly session. The smoking gun may not be as hot as in the CareFirst case, but it's well worth uncovering.

The PSC, authorized by legislation by Eastern Shore Republican Sen. E.J. Pipkin and others, is asking all the right questions in very pointed ways. It's looking forward - at whether re-regulation makes sense for Maryland, at what other states are doing to cope with high electricity prices, and at whether BGE and other utilities should get back in the business of generating megawatts. But it's also looking back.

For one thing, it revives the issue of "stranded cost" compensation - the $528 million that Constellation demanded and got from BGE ratepayers when it took over Calvert Cliffs, Brandon Shores and other generation plants previously financed by BGE ratepayers.

Constellation argued that the loss of a guaranteed income from BGE customers (since BGE had the option to buy elsewhere) would cause the generators to plunge in value. The opposite happened.

The economy grew and so did demand for juice. Nobody built new generators, and Constellation's efficient coal and nuclear plants can now charge BGE customers what the market bears instead of passing along the lower costs.

The PSC study, which will attempt to measure profits from the former BGE plants, should smother once and for all the idea that higher fuel costs alone are to blame for soaring electricity prices.

(It's unclear how much access to Constellation's financial records consultants will have. The same deregulation that lets Constellation charge whatever it can get for electricity also supposedly limits Larsen's subpoena power to BGE, not Constellation. But expect him to be aggressive.)

At the same time, the study should bury the notion that Calvert Cliffs and the other plants were risky white elephants.

Whoever gets the job will appraise the gigantic present value of all Maryland generators, explore whether giving stranded-cost compensation to Constellation was legal and examine whether the company can be forced to pay it back.

Consultants will also dissect a pricing system, implemented recently by managers of the Mid-Atlantic wholesale electricity market, that piles profits even higher for Constellation and other Maryland generation companies.

These "capacity" payments are supposed to encourage grid reliability and construction of new generators, but so far they're only enriching the incumbents.

Before deregulation, regulators set household electricity prices based on generation and delivery costs, but now prices are determined by wholesale auctions conducted by utilities. Constellation's stock price has nearly doubled since BGE rate caps were lifted last year and market forces unleashed.

Getting money for rate relief out of Constellation or any other unregulated generation company is far from guaranteed. These studies should have been done a year ago, when outrage over price increases was fresher and Constellation's pending - and since-abandoned - merger with FPL Group gave regulators more leverage.

But it's not impossible. In Illinois, generation companies accused of improprieties in wholesale auctions are about to agree to up to $1 billion in customer rebates, says David Kolata, director of the Illinois Citizens Utility Board, which represents the state's residential users.

Larsen is examining whether similar irregularities took place here. "We are still pursuing the issue of whether our market is competitive and whether the auction results were competitive back in 2006," he says.

If he finds problems, and armed with the startling results the consultants are sure to produce, genuine rate relief may yet happen in Maryland.

jay.hancock@baltsun.com

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