State ponders alternatives to new BG&E plant


November 10, 1991|By Kim Clark

It used to be so simple. When a city like Baltimore needed more electricity, the state would let the local utility build a new power plant and pass on its costs (plus a little profit) to customers.

No longer.

Here, as elsewhere, the handling of energy shortages is changing. For the first time, Maryland regulators are considering two alternatives to Baltimore Gas and Electric Co.'s proposal to build a new power plant.

Could someone else do a better job of building and running a power plant, as a competing company claims? Or, as the Sierra Club argues, would increased energy conservation eliminate the need for a new plant altogether?

The case is being watched closely as part of a national reassessment of our energy future. Next month, the Maryland Public Service Commission will begin to decide the fate of BG&E's proposal to add six new generators to its Perryman station. Also under consideration will be:

* How much electricity consumers will be asked to conserve.

* Who, if anyone, will get the hundreds of millions of dollars of profits from a new power plant.

* Who will dominate the local energy industry of the future -- BG&E or a new breed of independent, unregulated companies that specialize in building power plants and selling energy to utilities.

In the high-stakes battle, the claims on all sides have differed wildly. BG&E says its project will cost ratepayers a total of $2.3 billion over the next 35 years. But, the utility says, a competing offer by an independent power company called Cogen Technologies Inc. could cost ratepayers as much as $2.7 billion over the same period. Houston-based Cogen (pronounced "ko-jen") says its proposed South Baltimore power plant would cost about $2.2 billion.

The battle illustrates the changing role of utilities, amid heightened scrutiny by regulators, environmentalists and consumer advocates.

Since 1978, the federal government has required utilities to buy power from companies that could produce it cheaper -- even though that might mean utilities would shrink into an assemblage of power lines and billing services. State governments are insisting that utilities consider insulating homes otherwise reducing customers' energy usage -- though the companies complain that that means they sell less energy and therefore have lower profits.

Battle lines

The Perryman case has thrust Maryland in the lead of the movement to reform the nation's energy industry.

In the 20 years since BG&E last applied for permission to build a power plant, local demand for electricity has slowly eaten away at the 20 percent power surplus utilities like to keep for emergencies.

As more and more people plugged in more computers and microwave ovens, BG&E's surplus margin dropped below 13 percent last year. Even with conservation plans expected to be announced this year, BG&E expects local power demand to grow about 1 1/2 percent a year, said Ralph Bourquin, who heads the company's generation planning department.

So, in December 1989, BG&E applied for permission to add enough generators to churn out 880 megawatts of electrical energy -- enough to light a city of 200,000 -- to its Perryman station.

The company proposed spending a total of $660 million on the plant, but not all at once. Natural gas-fired generators would be added in stages to give the utility some flexibility.

BG&E figures it would collect $2.3 billion selling electricity generated by the new Perryman generators over the 35-year life of the addition. Charges added to customers' monthly bills would cover costs like fuel, labor and plant construction. And state law allows the company to add about 10 percent more for profit on its investment.

But BG&E's estimated $600 million profit isn't the reason the company believes building at Perryman is the best option, Mr. Bourquin said.

If conservation programs reduce demand more than expected, BG&E can delay part or all of the expensive construction, saving hundreds of millions of dollars, the company has argued. If conservation plans don't pan out, the new generators will ensure Baltimoreans can flip their light switches without worry, he said.

"When we look at these projects, we don't look at our investors. We look for the lowest cost to our customers," Mr. Bourquin said.

In 23 months of testimony, cross-examination and computer modeling, that and nearly every other BG&E claim has been challenged.

Cogen, which has built and run power plants in other states, insists it could provide power for hundreds of millions of dollars less than BG&E.

Cogen has asked the PSC to reject BG&E's construction application in favor of its plan to build a 430-megawatt "co-generation" plant in Fairfield for about $300 million. Cogen, an independent power producer whose profits and prices would not be regulated by the state, wants to add natural gas generators similar to the ones BG&E would buy.

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