Utilities urge cautious deregulation

January 18, 1995|By John E. Woodruff | John E. Woodruff,Sun Staff Writer

Maryland power companies and some of their biggest customers say the state's economy has a lot to gain from more competition in the electricity business.

But almost all sides want the Public Service Commission to move very cautiously if it deregulates power prices, and most say Maryland should not go it alone but instead should join neighboring states in a regional deregulation plan.

"Let others blaze trails. There are bound to be constructive lessons to be learned from their mistakes," the Potomac Edison Co. urged in a 117-page paper that added up to an essay on the need for caution in changing familiar arrangements that have provided Marylanders with electric power for decades.

That much consensus became clear yesterday as power companies -- and big customers ranging from factories to the U.S. Army -- made their first responses to a list of PSC questions on fundamental price issues. The intent is to ignite a debate on whether and how to reshape regulations applied to utilities.

Homeowners and apartment-dwellers, retailers and manufacturers, government agencies and landlords -- virtually anyone who uses electricity in Maryland -- will find that their electric power rates are open for rethinking.

Residential customers would be the biggest potential losers, according to the written responses released yesterday.

That is because one key regulation now open to question has long required that prices be "averaged" in a way that means big industrial and commercial customers pay more than the true cost of delivering the bulk supplies they purchase.

By that same rule, each household pays less than the cost of distributing smaller supplies to millions of individual homes. If deregulation ended this price "averaging," the rates paid by home customers would likely go up, perhaps substantially, many of the responses said.

The Maryland PSC is one of about 20 state utility commissions that are reopening regulatory issues that have long been taken for granted.

The fundamentals of the electric industry came up for a new national debate after Congress passed the Energy Policy Act of 1992, which opened the door to let any power supplier compete for many of the biggest and best customers of the traditional electric utilities.

Since then, the prospect of competition has caused frequent gyration in utility stocks that once were the symbols of stability amid turbulent stock markets.

So far, California's is the only utility commission to embrace a new plan. It has laid out a schedule that would eventually let big electricity users buy from any supplier and require existing utilities to transmit the power over their lines for a fee.

The Maryland PSC's next step will be four days of hearings in March, at which it will take testimony on possible ways to reorganize the state's electricity market.

a parallel proceeding, the PSC has thrown open a similar range of questions about natural gas prices, which it also regulates.

Baltimore Gas & Electric Co., the state's biggest power supplier, could live with either of the two most likely shapes the new electric-power competition is likely to take, Christian A. Poindexter, the firm's chief executive officer, said in a letter accompanying a 51-page submission.

One of those would be competition at the wholesale level, under which a company like BGE would be free either to buy and resell power from outside suppliers or to distribute power generated at its own plants.

The other would be "retail wheeling," a much-discussed but not-yet-practiced form of competition in which big customers would buy power from any supplier and the traditional utility would be required to transmit it through existing lines.

"We do not prefer this alternative," Mr. Poindexter wrote, but BGE could live with it -- possibly by "separating its generation function from the remainder of the company" and becoming, in effect, one of the outside competitors.

Among those urging a regional approach was the U.S. Department of Energy, which has been active in promoting the national debate but argued yesterday that electrical power is already organized into multi-state regional "grids."

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