Steven B. Larsen, who took over the Maryland Public Service Commission with a mandate to lower utility bills, is leaving the panel before finishing a yearlong quest to reregulate the industry, a source close to the O'Malley administration said yesterday.
Gov. Martin O'Malley is expected to announce today that Larsen will be replaced by Douglas R.M. Nazarian, a former litigator who joined the PSC as general counsel last June, said the source, who requested anonymity to avoid pre-empting the governor's announcement today.
Larsen, who before joining the PSC was executive vice president of health insurer Amerigroup Corp., declined to comment about his departure yesterday. Amerigroup, which has operations in Maryland, confirmed last night that Larsen is returning to the company as senior vice president of government affairs.
Larsen's departure comes as the commission is fighting to challenge state and federal regulations that it says are contributing to higher utility bills. He was appointed by O'Malley a year ago and charged with bringing credibility back to the PSC, which was criticized for being too pro-business under his predecessor, Kenneth D. Schisler.
O'Malley, a Democrat who took office last year, campaigned on a pledge to roll back utility rates. Those costs are 85 percent higher for customers of Baltimore Gas and Electric Co. since Maryland's power market was deregulated in 1999.
The panel's inquiry into reregulating the industry and lowering power costs is not complete. That leaves many perplexed by the sudden leadership change.
"There's still plenty on the plate," said Paula Carmody, Maryland People's Counsel, who represents utility customers before the commission. "I'm very surprised to hear this, that there would be such a change in the middle of the discussion of these issues, and with cases pending. It just doesn't compute."
Under Larsen, the PSC hired consultants and experts, conducted numerous studies and opened a series of inquiries aimed at winning lower rates for consumers. The five-member panel's work helped drive a roughly $2 billion settlement between the state and BGE parent Constellation Energy Group in a dispute over terms of deregulation. That settlement includes $170 credits in September for BGE's 1.1 million customers.
Regulators also recently joined a federal complaint seeking up to $2 billion in rebates for Maryland consumers. That complaint is part of a broader campaign by the state to challenge federal regulations governing the wholesale energy market and one driving force behind rising rates.
Sources said Larsen wanted to return to private practice, where he made more money than in public service despite O'Malley's decision to boost pay for commission members. Larsen made $187,000 a year as chairman while Schisler earned $117,000.
Larsen was tapped by O'Malley based on his reputation as a fearless regulator. As a former Maryland insurance commissioner, Larsen earned lawmakers' praise for stopping the for-profit conversion of CareFirst BlueCross BlueShield in 2003, a deal he determined would have enriched the health insurer's executives at the expense of consumers.
Power industry officials and consumer advocates described Larsen as a quick study, who became an expert in the complexities of the competitive wholesale energy market despite no background in the industry. His appointment last year signaled a shift in direction for the commission, which had previously been packed with appointees of former Republican Gov. Robert L. Ehrlich Jr.
Larsen's panel began second-guessing the former commission's decisions, opening inquiries into the 72 percent rate increase for BGE. After a series of hearings, the commission sharply criticized utilities and past commission decisions, but it concluded there was nothing it could do to stop the full rate increase.
The PSC's decision fueled criticism of the new governor for not fulfilling a central campaign promise. Since then, rates rose further as wholesale energy prices continue to increase throughout the Mid-Atlantic.
"It's awful hard to be in that position and have a governor who wants you to reduce rates - and then energy prices keep going up and make that impossible," said Mike Powell, a lawyer for Maryland Energy Group, which represents factories, hospitals and other large energy users.
Both Democrats and Republicans in the General Assembly said Larsen did a good job leading the PSC.
"He certainly worked to be nonpartisan, and with both sides of the aisle," said Del. James King, an Anne Arundel County Republican on the Economic Matters Committee, whic handles many of the energy issues. "Unfortunately for me and every other resident in the state of Maryland, I don't think we solved a lot of the issues that we face with the energy situation, but I don't think that's from any lack of effort."
Del. Dereck E. Davis, a Prince George's County Democrat and chairman of the Economic Matters Committee, said that Larsen brought a pro-consumer bent to the commission and restored confidence in the agency's ability to give consumers a "fair shake."
"It was a very short tenure, but I think a lot was accomplished," Davis said. "Obviously we still have a long way to go, but I think Steve has put us on the right path."
An Amerigroup official said the company is "delighted" that Larsen is rejoining the company.
"Steve has spent much of his adult life in public service and has had a very distinguished career," said Kent Jenkins Jr., a spokesman for the company.
Nazarian, who will take over from Larsen, joined the PSC from the Baltimore law office of Hogan & Hartson, where he handled complex business litigation and took part in some high-profile cases. His work before utility commissions was primarily on behalf of telecommunications companies as that industry was transforming under deregulation. Nazarian couldn't be reached for comment yesterday.
Nazarian graduated from Yale and went on to Duke University School of Law, where he graduated in 1991. He then was a clerk for Judge James B. Loken of the U.S. Court of Appeals for the 8th Circuit.
Though little known in Annapolis, Nazarian handled numerous high-profile cases before Maryland courts. Among them was a 1998 case where he successfully challenged the arrest of paroled inmate Vincent Henderson. Henderson was among dozens who were re-arrested after the state concluded it had incorrectly calculated the amount of good behavior time due some inmates, and prematurely released them. The case resulted in the release of nearly 50 inmates.
Nazarian also represented the state in a series of lawsuits against the law firm of Orioles owner Peter G. Angelos. The case related to attorney's fees Angelos was due in connection with national tobacco litigation.
"His experience doing litigation and preparing cases is exceedingly good training for now trying to set policy and decide issues in the regulatory context," said Ralph S. Tyler, Maryland's insurance commissioner.
Tyler worked with Nazarian at Hogan & Hartson and was part of the legal team defending Henderson on the parole case.
He said Nazarian was "deeply involved" in the PSC's recent cases challenging federal regulations.
"I expect that [Nazarian] will lead the commission in a way where it will be fair, but it will be fair in looking out for the public interest," he said.
Sun reporters Laura Smitherman
and Jay Hancock contributed to