BG&E's return too high, says consumer advocate U.S. utility study puts it in top 25%

September 11, 1993|By Ross Hetrick | Ross Hetrick,Staff Writer

Shareholders of Baltimore Gas and Electric Co. have enjoyed a higher-than-average return on their investment over the past 21 years compared with other major utilities, prompting the state's top consumer advocate to complain the company's rates were too high.

The rate of return for BG&E was ranked in the top quarter of major electric and telephone companies and was significantly higher than the average return for industrial companies, according to a study released yesterday by the National Association of Regulatory Utility Commissioners.

Despite the charge that regulators were being too generous to BG&E, the head of the Public Service Commission, which regulates utilities in Maryland, said other factors might have been involved in the high rate of return.

The NARUC study found that BG&E had an annual average rate of return of 16.24 percent from 1972 through 1992 -- the 24th-highest of 97 electric and telephone utilities in the study. The average for the utilities studied was 14.46 percent.

That compared with a 12.95 percent return for the Standard & Poor's index of 400 industrial companies and 11.08 percent return for the Value Line Industrial Composite, which includes 900 unregulated businesses, the study said.

However, the figures used by the association were not compounded rates of return. Instead, the study took the increase in stock prices, with dividends reinvested, during 170 time periods ranging from three to 21 years and then averaged them, according to Michael D. Foley, director of financial analysis for NARUC.

This method, called Internal Rate BG&E, of Return, gave a better accounting for dividend payments, he said.

Potomac Electric Power Co., which provides electricity in Washington and its Maryland suburbs, had an even higher rate of return of 18.36 percent -- the fifth-highest of all the utilities surveyed.

Allegheny Power System Inc., the parent company of Potomac Edison Co. of Hagerstown, had a 15.84 percent return.

"It shows that utility regulation has been much too liberal," said People's Counsel John M. Glynn, the state official who represents ratepayers before the state Public Service Commission. "There has been a tilt toward the shareholders."

But Frank O. Heintz, chairman of the state Public Service Commission, said the study did "not necessarily" show that rates were too high.

He said the rates of return on equity, which compares profits to shareholders' investment in the company, set by the commission for BG&E are "in the middle of the road" compared with other states.

Mr. Heintz said the rise in BG&E stock may have been distorted by construction projects in the early 1970s and then falling interest rates in recent years.

But the chairman added that the NARUC study could be used "to muster evidence in future rate cases that the rate of return should not be as high."

A BG&E spokeswoman said the company would not comment on the report because officials have not read the study.

The utility with the highest rate, according to the NARUC study, was Consolidated Edison of New York (21.96 percent). The company with the lowest rate was PSI Resources Inc. of Plainfield, Ind. (5.28 percent).

Bell Atlantic Corp. of Philadelphia, the parent of the Chesapeake & Potomac Telephone Co. of Maryland, also has done well with a 19.53 percent return.

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