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Power auctions cleared

The Baltimore Sun

Maryland's top utility watchdog said yesterday that regulators found no wrongdoing on the part of Constellation Energy Group during wholesale power auctions several years ago that caused household electricity bills in the state to skyrocket.

Steven B. Larsen, chairman of the Public Service Commission, told state lawmakers yesterday that the regulatory body found no evidence of collusion in the 2005-2006 wholesale power auctions that caused a 72 percent price increase for households buying power from Baltimore Gas and Electric Co., which is a subsidiary of Constellation.

There was no reason to believe that the rates weren't "just and reasonable," Larsen said.

Regulators began the inquiry at Gov. Martin O'Malley's request, but they dropped it as part of last week's settlement between the state and Constellation, which includes rebates to BGE's 1.1 million residential customers and resolves a range of long-standing issues.

O'Malley announced the settlement with Larsen on Thursday, but they did not say at the time whether the state would continue the auction inquiry.

"This puts it to rest," Larsen said, describing the settlement's impact on the inquiry during a legislative hearing in Annapolis. "I feel comfortable we're not leaving anything on the table."

Constellation spokesman Robert L. Gould said: "We're pleased that the commission after its review has found that there was no irregularity or wrongdoing on the part of Constellation Energy in relation to that auction."

O'Malley, a Democrat, asked Larsen to look into the auctions last year after the Illinois attorney general filed a complaint alleging price manipulation by energy suppliers that helped lead to a $1 billion rate rebate for customers there. O'Malley had campaigned on a pledge to roll back steep BGE rate increases.

But after O'Malley took office, the PSC concluded that it had no cause to deny rate increases sought by BGE, finding that Constellation followed the auction procedures set up by previous PSC members.

O'Malley then asked the PSC to examine whether the wholesale prices procured by BGE were just and reasonable - the heart of the Illinois complaint with the Federal Energy Regulatory Commission.

2005-2006 purchases

In the winter of 2005-2006, BGE was required to conduct its first free-market-based power purchases as part of the state's move to deregulate the industry. Most of the electricity that BGE bought was supplied by Constellation, leading critics to question whether the transactions were truly conducted at arm's length.

But the bidding took place just as electricity and other energy prices were gyrating in the wake of Hurricanes Katrina and Rita. Those storms damaged oil and natural gas production in the Gulf of Mexico, causing prices to soar.

Larsen said that while Constellation's decision to buy energy at a time when rates had risen substantially after Hurricane Katrina was "inadvisable," the commission did not find any wrongdoing.

He added that the settlement between Constellation and the state doesn't preclude the commission's continuing oversight of the auction process or its ability to change it.

The PSC had engaged the law firm Kaye Scholer to analyze whether the commission had any cause of action against Constellation related to their participation in the auctions.

In an executive summary of the report, the firm said the auctions were competitive, and that the prices reflected those for comparable products in the wholesale markets.

The law firm found that while Constellation and BGE share some key personnel, the dual role of these employees do not violate state regulations.

Risk officer

PSC members had raised questions about John Collins, Constellation's chief risk officer at the time of the auctions. Collins not only helped Constellation sell electricity to utilities; he advised BGE on buying electricity from Constellation and other wholesalers and got to see bids from Constellation's competitors.

Larsen said yesterday that the commission would continue to review regulations concerning whether there is appropriate separation between utilities and their affiliates, though he said that examination would be industrywide and not targeted at Constellation.

On settlement

Larsen appeared at a hearing yesterday before the Senate Finance Committee to testify on legislation that would implement the state's settlement with Constellation.

Sen. Rob Garagiola, a Montgomery County Democrat on the committee, said the settlement gives much-needed "closure" to a number of outstanding issues, including the auction inquiry.

"A lot of energy has been expended looking backward, and that needed to be done, but we need to start looking forward with respect to where Maryland goes from here," he said.

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