Baltimore Gas and Electric Co. agreed yesterday to negotiate changes in the way it does business, setting the stage for a regulatory revolution that could reward the state's largest utility for selling less natural gas and electricity.
The announcement of the start of negotiations among environmentalists, company officials, regulators and consumers comes eight months after another electric utility, Potomac Electric Power Co., finished similar negotiations and agreed to a plan that rewards conservation.
Last October, Pepco reached an agreement in principle with the Maryland Public Service Commission and consumer representatives that for the first time gave a utility operating in Maryland the chance to make money when it promotes conservation.
Pepco provides electric service in a compact area that includes the District of Columbia and major portions of Montgomery and Prince George's counties.
This summer, Pepco is trying out several pilot conservation PTC programs -- ranging from discounts on energy-saving light bulbs to free pickup and disposal of second refrigerators -- to begin its new conservation push.
For each dollar that Pepco spends in this way, the utility can add a little more than a dollar to its rates.
S. Edward Hargest, BG&E's economic research manager, said yesterday that his company hopes to draft a compromise similar to Pepco's in the next few months.
He said Baltimore-area customers may start seeing new conservation programs, such as low-cost energy audits of homes, next year.
But those involved in the negotiations say BG&E has only recently accepted the state's push for aggressive conservation.
BG&E was hesitant, these sources say, because company officials didn't think year-round conservation paid and because some of BG&E's biggest clients have said they don't think the utility company ought to have to subsidize customers' conservation.
Although he has been critical of the utility's slowness to pursue conservation, People's Counsel John Glynn said yesterday that BG&E's negotiations have been more complex because some Baltimore-area industrial plants and building managers "don't want to pay the bill for something they don't think benefits them. . . . There is a lot of skepticism."
Mr. Hargest said that while BG&E has been improving its conservation programs recently, it hasn't yet followed Pepco's aggressive program because under current utility laws, BG&E loses money when it spends on conservation.
Though the PSC lets the company charge customers enough to recoup their expenses on conservation, BG&E loses money because it usually takes at least a year to gather the money, and the company isn't allowed to collect either interest or a profit on the expense, he said. Besides, he noted, cutting customers' bills cuts into BG&E's revenues and profits.
"Conservation can produce significant loss of sales and revenues," Mr. Hargest said. "That's one of the reasons we have kind of held back in aggressive pursuit of" conservation.
But he said BG&E, which is an investor-owned utility, will be much more eager to conserve electricity if it is rewarded for doing so.
PSC Chairman Frank Heintz, who has been one of the principle backers of the reform, called yesterday's announcement "an important first step," but he said that there was no guarantee of what would emerge from the negotiations. In the end, he said, BG&E's plan would probably differ from Pepco's in some ways.
Mr. Heintz, who has vowed to reform the way all of Maryland's utilities earn profits in order to encourage conservation, said he expected to bring the Potomac Edison Co., which serves Western Maryland, into similar reform negotiations in the next several weeks.
He said he expects to draft rate reform proposals affecting the rest of the state's 22 utilities by the end of the year.