Utilities seek to recover billions Md. power companies want customers to pay for past investments

Part of deregulation

July 01, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Baltimore Gas and Electric Co. and Maryland's other utility companies will seek permission today to recover billions of dollars in costs from consumers as part of a plan to revamp the state's electrical power industry.

The issue of so-called "stranded costs" -- money that utilities believe they are owed from investments in generating plants and fuel -- is expected to be the thorniest hurdle to transforming Maryland's regulated, monopolistic electricity suppliers into full competitors by July 2002.

Under filings being submitted to the state's Public Service Commission today, BGE and the state's three other investor-owned power companies are expected to address price protection for electricity and how to separate power generation and distribution rates.

"We feel that due to the principals we've had to live by that these costs need to be reimbursed," said Robert E. Denton, BGE's executive vice president in charge of power generation. "If someone built a plant tomorrow next door to one of our plants, they wouldn't have the same constraints. They would have a running start."

But BGE and the other power concerns are expected to face stiff opposition from businesses and advocates for residential customers. They claim that regulators have already allowed the utilities to recoup significant returns on their investments, and that stranded costs represent little more than a public subsidy.

"We don't believe utilities are entitled to stranded costs," said Michael J. Travieso, head of the state's Office of People's Counsel, a state agency that represents citizen interests before the PSC.

"They've had an obligation from the beginning to operate competitively. If the utilities believe their assets were out of line with market values, they should have done something, rather than wait for regulators to bail them out," Travieso added. "We're going to litigate the hell out of this."

If that occurs, Maryland would become the latest state to do battle over stranded costs. So far, in 18 states legislators have enacted legislation to introduce competition or regulators have issued orders to bring about deregulation.

In Pennsylvania, regulators trimmed the utilities' stranded cost recovery markedly, to about 60 percent of what they had sought. Still, utilities such as Peco Energy Inc. are expected to collect roughly $12 billion in stranded costs.

Nationwide, utilities face the possibility of being forced to absorb nearly $200 billion in stranded costs, according to the Federal Energy Regulatory Commission.

BGE, whose plants carry a book value of roughly $3 billion, contends that recovery of stranded costs is necessary because of pending competition, and because past profits have been limited by regulation.

"It's true we don't have the risks of other industries like the auto industry, but we haven't had the upside either," said L. Wayne Harbaugh, executive director of the company's pricing strategy section. "Basically, we've been a business of base hits, and we haven't had the opportunity for the home run."

Utility analysts predict power companies in Maryland will seek total stranded costs amounting to more than $3 billion.

That figure could be considerably higher, though, if Hagerstown-based Allegheny Power Co. files to recoup costs associated with its $3.3 billion contract to purchase power from a new Cumberland power plant owned by the AES Corp.

Allegheny is being forced to buy power from AES' Warrior Run plant for the next 30 years thanks to a 1978 federal law that ordered utilities to seek alternative sources of energy.

Officials from Allegheny Power, which bitterly opposed the $450 million Warrior Run plant before abandoning a campaign to terminate its contract in February 1997, did not return several telephone calls for comment about the filing.

If Maryland follows the lead of other states, customers can expect to see a "transition" charge attached to their monthly bill for five to nine years.

"This has been one of the most difficult analyses we've ever done, because we're essentially taking an industry that has been regulated for 100 years and opening it up and changing its fundamental economics," said Nancy Moses, a spokeswoman for the Potomac Electric Power Co., which supplies power to Montgomery and Prince George's counties.

Pub Date: 7/01/98

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