BG&E to create subsidiary for merchandise, service

December 15, 1993|By Ross Hetrick | Ross Hetrick,Staff Writer

With its merchandise operation under fire for being subsidized by ratepayers, Baltimore Gas and Electric Co. yesterday announced that it will establish a separate subsidiary for its merchandise and service businesses.

"We've reached the conclusion that this is the best way to go," said BG&E spokesman Arthur J. Slusark.

However, BG&E has made no decisions about when the subsidiary will be set up or how it will work. "It's very preliminary," Mr. Slusark said. "We don't know what it will look like or what it will be called."

Mr. Slusark said he does not expect the company will discontinue the practice of allowing customers to pay for appliances and electronic equipment on their utility bills.

The announcement was included in responses to motions made nTC in a Public Service Commission case about whether BG&E is subsidizing nonregulated businesses with money from regulated operations supported by ratepayers.

BG&E's merchandise and service operations are part of its utility business, even though they are accounted for separately. With a separate subsidiary, they would be more like BG&E's Constellation subsidiaries, which have their own management and boards of directors.

While BG&E's opponents in the case agree that a subsidiary would solve problems of allocating costs, they are skeptical about its structure and whether it should use the BG&E name.

The PSC hearing was prompted by a study by the accounting firm of Ernst & Young that found that BG&E's regulated business -- which is supported by ratepayers -- provided a net $555,000 worth of services in 1992 to BG&E's nonregulated merchandise operation.

BG&E's service operation, which repairs heating and cooling systems, is now counted as part of BG&E's regulated operation and contributes about $8.5 million in profits to the utility.

People's Counsel John M. Glynn, the state official who represents ratepayers, questioned whether the profitable service operation should be moved from the regulated area, which would hurt ratepayers in future rate cases.

"The real motive is to deprive the utility customer of the most profitable of these ventures," he said.

Larry L. LeDoyen, chairman of the Maryland Alliance for Fair Competition, a business group that pressed for the PSC hearing, said he approved of the separate subsidiary but called BG&E "arrogant" for not waiting until the end of the hearing.

"We think it's great they are setting up a separate subsidiary, they're finally taking some of our advice," he said. Yet, he said the utility should have waited for a PSC decision. "They [BG&E] won't even wait for the hearing examiner to give his review of the case," he said.

Both Mr. Glynn and Mr. LeDoyen agreed that the new subsidiary should not be able to use the BG&E name without paying the utility.

On another front, BG&E this week started distributing fliers that warn its merchandise and service customers about "anti-consumer and anti-competitive" opposition. The fliers urge the customers to send in a card for more information.

Mr. Slusark said the effort is educational now, but the company might use the names for a letter writing campaign in the future.

"It's pretty insulting," Mr. LeDoyen said about the fliers. "We're definitely not against BG&E being in the heating and air conditioning business," he said. "As long as it's a separate subsidiary and is not cross-subsidized."

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