Total subsidy from BG&E to stores disputed

March 09, 1994|By Ross Hetrick | Ross Hetrick,Sun Staff Writer

A hearing on Baltimore Gas and Electric Co.'s appliance subsidiary raised questions yesterday about whether the utility's subsidy of the nonregulated operation is greater than the $555,000 reported in a recent study.

The amount of support provided to the appliance business is a key question in the Maryland Public Service Commission investigation into the financial relationship between the regulated utility -- which is supported by ratepayers -- and its unregulated appliance and service businesses.

Business owners, particularly appliance retailers and heating and cooling service companies, have accused BG&E of unfair competition because of the subsidy.

The PSC investigation, which is in its fourth month, stems from a study released in October by the national accounting firm of Ernst & Young, which found that BG&E's utility operation provided a net $555,000 worth of services in 1992 to BG&E's merchandise operation, which has 11 stores.

But critics of the Ernst & Young study, including the business owners, said that it only "scratched the surface," and that intangible services such as the BG&E trade name and its mailing list of 1 million names are not included.

Most of yesterday's questioning was done by Sandra M. Guthorn, assistant people's counsel, which represents ratepayers before the PSC.

Besides questions about the trade name and the mailing list, Ms. Guthorn pursued whether the Ernst & Young study included all indirect costs and how various expenses were calculated.

"We really don't know," Ms. Guthorn said about what the total amount of the subsidy might be. "We are trying to find out."

John M. Little, a partner in the utilities and telecommunications consulting practice at Ernst & Young, said most companies would charge for the use of their name, as in a franchise operation. But the BG&E situation may be different, he said at the hearing, because the 90-year-old appliance operation "may have a reputation of its own that has contributed to whatever value the corporate name may have, and it shouldn't be charged for it twice."

He said indirect, or overhead, costs from 10 to 12 departments were not included in the study because those departments did not contribute $75,000 or more in direct costs for each department. But Mr. Little said these extra overhead costs were probably only $2,000 to $3,000 for each department.

Another question involved an expense of $10,947 for 700 hours' worth of legal work, or $15.64 hour -- far below normal costs for legal work.

After the hearing, BG&E spokesman Arthur J. Slusark said the expense was for secretarial and paralegal assistance. Attorney expenses were contained in other costs, which were already allocated to the appliance stores before the study, he said.

Richard M. Bange Jr., BG&E's controller, confirmed that the company does not charge the appliance operation for the use of its mailing list, which is used for direct-mail solicitations by the subsidiary.

"I'm not sure how you would put a value on that," he said, noting BG&E does not sell the list to other companies. He said the subsidiary adds to the list's value by providing credit information.

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