A new business for City Hall

August 24, 1996|By Antero Pietila

TWELVE YEARS AFTER the AT&T spin-off unleashed a free-for-all in telephone competition, electrical utilities are on the brink of similar deregulation. When it is implemented -- probably some time after the turn of the century -- commercial and residential customers will be able to select from among several rival power suppliers and may realize savings in their bills.

The exact form of this deregulation is still to be decided. But Housing Commissioner Daniel P. Henson III is not waiting for the federal and state politicians to get their act together. He is talking about establishing a Baltimore City municipal utility to purchase electricity at wholesale from the cheapest sources he can find.

''I look at anything that saves the city money,'' says Mr. Henson, estimating that the municipal government's annual electric bill to Baltimore Gas and Electric Co. totals $40 million. The share of the Housing Authority of Baltimore City, which pays for the electricity of families in the city's 18,000 public housing units, is $11 million.

Eight months ago, Mr. Henson quietly hired the law firm of Venable, Baetjer and Howard and the electric utility consulting firm of Whitfield Russell Associates to study the city's options. They rejected a municipal power generating plant as too expensive but said that the Housing Authority, by spending $25 million, could create a distribution system of its own and start buying electricity from sources other than BGE.

''Our preliminary estimate is that it would save $11 million to $17 million in . . . electric costs over 10 years,'' the counsels wrote. ''If Baltimore City municipal buildings were included, based on some rough assumptions we have made regarding the city's electric costs, the 10-year savings for [the Housing Authority] and the city combined would be in the range of over $50 million.''

BGE officials dismiss those projections as unrealistic and based on false assumptions.

When seemingly huge savings are predicted, ''I'm always suspicious,'' says Stephen F. Wood, a BGE vice president. ''What I normally find is that the people who put [a proposal] together use a blue-sky approach. Some of the savings vaporize.''

Comprehensive calculation

BGE officials say their experience is that if calculations are done on a 20-year or lifetime basis, considering infrastructure and equipment replacement costs, various interconnect charges, tolls and financing charges, numbers between various power-purchase options get very close.

''The bottom-line is: Can you buy power as cheap as some consultants say and with the degree of reliability you require?'' .. says Gary H. Fuhrman, a BGE executive.

Easton, Berlin and Thurmont operate municipal utilities to purchase and distribute electricity. Hagerstown is selling its system to a unit of Allegheny Power System Inc. for $20 million in cash and a promise that customers' rates will be frozen through 2001.

Baltimore has had a legal right to establish a power company for decades but has never exercised that option. Although the municipal government does not rank with such major BGE customers as the National Security Agency, Johns Hopkins Hospital and Bethlehem Steel, it still is among the top 20 clients of the utility whose merger with Potomac Electric Power Co. is pending.

Mr. Henson says the city's next step is to advertise a request for proposals from alternate electricity providers. ''The question we ask is: Will that result in savings and will those savings justify building a separate system?'' he explained.

As for Mr. Wood, the BGE vice president wonders: ''Does the city of Baltimore really want to be running its own energy system with the amount of problems it has with its schools and housing?''

Antero Pietila writes editorials for The Sun.

Pub Date: 8/24/96

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