PSC asked to OK cost recovery BGE, three others want customers to pay 'transition charge'

Power companies

July 02, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Maryland's four major power utilities asked for permission yesterday to recover more than $2 billion in "stranded costs" from consumers, as part of a transition to a competitive electric system in the state.

Baltimore Gas and Electric Co.'s $1.1 billion accounts for the majority of the stranded costs, which the utilities claim they are owed for investments in power plants and fuel under the regulated electric system. BGE's 10 power plants serve 2.6 million residents in central Maryland.

But BGE says the $1.1 billion is not a fixed figure; it might change, depending on the utility's cost of power.

"The beauty of our plan is that it allows the market to decide the price of electricity going forward, which in turn will decide what our total stranded costs will be," said L. Wayne Harbaugh, executive director of BGE's pricing strategy section.

The bulk of BGE's claimed stranded costs -- $911 million -- stems from its Calvert Cliffs nuclear power plant in Lusby. Even with the filing with state regulators yesterday, the utility, which has $8.8 billion in assets, is seeking a license extension for the plant -- from the federal Nuclear Regulatory Commission. The extension would keep the plant running well into the next century.

Delmarva Power & Light is asking the PSC for $69 million in stranded costs. Delmarva has one plant serving 170,000 customers on the Eastern Shore.

Under plans filed with the state's Public Service Commission, all four investor-owned power companies in the state -- BGE, Delmarva, Potomac Electric Power Co. and Allegheny Energy -- would collect "transition charge" fees from consumers to pay for the stranded generating costs. The fees would range from $5 to $10 per month per customer.

BGE says its transition charge period could last roughly through 2008. Pepco's transition period would last until 2010 and Delmarva's recovery schedule would last only three years.

Pepco is asking for $642 million in stranded costs. Its three Maryland plants provide power to 467,000 customers in Montgomery and Prince George's counties.

All four companies stressed that the transition charges for power generation would not raise electric rates, since the charges are blended into customers' bills, and would apply only if a customer switched to a competitive electric supplier.

Both BGE and Pepco would freeze electric rates through 2004 and give consumers a "shopping credit" of an undetermined amount if they elected to switch to a competitor. The shopping credit would essentially represent the amount of a bill devoted to providing power from generating plants.

A plan by Allegheny Energy, which has one plant serving nearly 200,000 customers in the state, calls for recovery of $241 million in stranded costs from customers. That would add $4.50 per month to the average customer's residential electric bill.

Allegheny's figure could rise considerably, though, because the company failed to include a $3.3 billion contract to purchase power from a new Cumberland plant in its stranded costs. It plans to make a separate PSC filing regarding the Warrior Run plant in the near future.

"We believe competition will ultimately lead to lower electricity rates, and new and enhanced services," said Michael P. Morrell, Allegheny Energy's chief financial officer.

But the stranded cost plans were blasted by critics as excessive and unnecessary.

"Utilities have been protected from competition by state law," said Michael J. Travieso, head of the state's Office of People's Counsel, which represents residential customers. "Part of their obligation was to provide the least costly service to their customers. If they have failed to do this and now can't compete, their captive customers should not be required to pay them for choices they made in the past which may not have worked out the way they hoped or expected."

Travieso was especially critical of BGE's request regarding Calvert Cliffs.

"Nobody ordered BGE to build a nuclear power plant," he said.

Other critics attack stranded costs by saying that shareholders in investor-owned utilities have enjoyed significant returns on their stock investments and shouldn't receive further windfalls from consumers. They also say utilities typically have considerable retained earnings that can offset stranded costs.

Despite such criticism, the utilities adamantly claim that they need to recover stranded costs to compete in a deregulated system.

"As we transition to competition, we must do so in a way that best serves our customers and our investors -- those who provide the financing to meet the demand for electricity," said BGE Chairman and Chief Executive Christian H. Poindexter.

Ultimately, the PSC must decide the question of stranded costs. It plans to rule on the issue in October 1999, after a series of hearings next spring, said Chrys Wilson, a PSC spokeswoman.

Pub Date: 7/02/98

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