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PSC bid to undo rip-off is too late

The Baltimore Sun

No one would be happier than me if authorities found a way to reclaim money consumers were forced to give away in Maryland's big fat electric-deregulation rip-off of 1999.

Baltimore Gas and Electric power plants got transferred to affiliates of BGE parent Constellation Energy. BGE customers had to pay Constellation almost $1 billion to take ownership of valuable plants they had financed. These days Constellation charges BGE customers way more for power than what a regulated system would have allowed, and makes a lot more money, too.

But a deal is a deal. It's hard to see how Public Service Commission Chairman Steven B. Larsen's attempt to revisit what happened nine years ago will make much difference.

Larsen is firing multiple barrels at the electricity industry, and some will hit home. But this one looks like a dud.

That's not to say the PSC's analysis, disclosed yesterday, isn't enlightening and maddening. In new detail and plain language, it shows how dumb then-Gov. Parris N. Glendening, the 1999 General Assembly and the reigning PSC were to approve deregulation.

The transfer of BGE's generating plants to an unregulated affiliate "should never have been found to be in the public interest at the time it was approved," says the report, based on a review by law firm Kaye Scholer. "We cannot escape the conclusion that the settlement appears to have been seriously imbalanced in favor of BGE and Constellation and against Maryland ratepayers."

Much ink and breath have been spent on the $528 million "stranded cost" money that BGE customers were forced to pay Constellation after deregulation.

Constellation argued that that BGE's generation plants would plunge in value and that it deserved to be compensated for taking them off BGE's hands.

That this was a crock has been obvious for years. Scholer's analysis of documents subpoenaed from Constellation and BGE, however, shows what an amazing, drum-pounding bonanza it turned out to be for the energy company.

Constellation and affiliates raked in $975 million in stranded cost payments, it turns out, not $528 million.

In the 1999 deregulation settlement, the $528 million was in "present value," after-tax dollars, which policymakers apparently didn't realize entitled the company to collect almost twice as much after other factors were applied.

And get this: The power plants, which were valued at about $1 billion in 2000 and which Constellation said would depreciate, are now worth between $9.7 billion and $12.5 billion, the report said.

There's more. Constellation took possession of the power plants without assuming one of their biggest liabilities: financing a fund to decommission the Calvert Cliffs nuclear units. BGE customers got stuck with that, even though they have no stake in the huge profits Calvert Cliffs is reaping by selling power on the open market.

Not only was this ridiculous on its face, the liability to BGE customers was expressed in 1993 dollars, which made it look smaller ($520 million) than it really was ($779 million). Worse, the decommissioning pool is under funded and could cost BGE customers billions before the Calvert Cliffs units shut down in the 2030s, the report said.

So Constellation got a $10 billion (paper) capital gain on the plants and collected $1.8 billion in stranded-cost and decommissioning payments. Ratepayers, on the other hand, got a six-year, $316 million rate freeze and were stuck with potentially billions in long-term liabilities. How's that for fair and balanced?

But if realizing later that you made a stupid deal were grounds for getting money back, the Wall Street CEOs who just lost their jobs for losing billions on subprime mortgages would still be employed.

Larsen may seek customer rebates on the grounds that some of the stranded-cost dough landed in affiliates other than where the settlement said it was headed, a possible technical variance that I can't imagine a judge would find very disturbing.

It also looks like he'll try to increase Constellation's contribution to the decommissioning fund. That's very much worth doing, but it also may tough to get satisfaction.

Larsen is pushing to help electricity consumers on several other fronts. He may seek rebates from unidentified generation companies that seem to have recently overcharged Maryland customers via the regional grid. He's looking for irregularities in the wholesale electricity auction that led to BGE's 70 percent price increase in 2006. And he promises to be much more active in pursuing the public's interest before Washington regulators.

Those efforts are likely to be more productive than revisiting a signed contract from almost a decade ago.

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