Restructuring of electric systems stalls Lawsuits, uncertainty slow customer-choice efforts in many states

'Extremely complicated'

Md. lawmakers listen, postpone revamping here until July 2002


August 30, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

When political leaders and regulators began working to revamp the state's electric supply system more than two years ago, they did so in part out of fear that Pennsylvania and other states were light years ahead of Maryland's efforts.

But today, those fears have largely been unrealized. In fact, a raft of states that had once surpassed Maryland's electric restructuring endeavors in the hope of trimming rates have either seen their work stall or have been forced to pull back because of complications, disagreements, lawsuits, consumer uproar or legislative uncertainty.

In Maryland, full customer choice of electric suppliers statewide is scheduled to be introduced by July 2002. California, by comparison, fully opened up its electric markets five months ago, providing customers with a mandated 10 percent rate cut.

The delays in states such as New Hampshire and New York mark not only a psychological victory for those who urged a slower, more cautious approach to altering Maryland's electric system, but they also point out just how difficult changing a century-old system rife with regulation can be.

"What they're finding, I think, is that the transition to a competitive model is an extremely complicated process," said Glenn F. Ivey, chairman of Maryland's Public Service Commission.

"It's a lesson the commission and the General Assembly are paying attention to, and hopefully we can benefit from their mistakes," Ivey said.

It's a lesson lawmakers and the PSC have already taken to heart. Originally, the PSC planned to fully deregulate Maryland's electric system in April 2001, and start a pilot program next April.

But when lawmakers objected, claiming the 2001 timetable wouldn't give the legislature enough time to draft bills related to deregulation, the PSC tacked on an additional 15 months to evaluate and prepare for competition, citing "the magnitude and complexity of the issues" that would require "additional guidance and changes in policies."

In many ways, though, Maryland's decision to postpone restructuring work was a fortuitous one, in light of the tribulations other states have weathered.

"Maryland's timetable appears to be a good one, because it will allow time for systems to be put in place and for consumer education, which is going to be critical," said Bob Fleishman, a Baltimore Gas and Electric Co. vice president and the utility's general counsel.

While New Hampshire's experience is often described as the most extreme, it is hardly atypical, according to industry analysts.

New Hampshire had been plugged in to become the first state to offer its residents a choice in electric suppliers when its lawmakers passed a comprehensive restructuring plan in May 1996.

If all had gone according to plan, competition would have been in place at the start of this year, along with a 20 percent reduction in the highest electric rates in the nation.

But in March 1997, several of the state's five electric providers filed a lawsuit against regulators in federal court, challenging a state plan that would limit the amount of money utilities could collect in so-called "stranded costs."

Stranded costs

Utilities nationwide contend they are entitled to recover billions of dollars in stranded cost investments in power plants, energy contracts and other equipment spent under regulated systems, as the only way to have a level playing field for competition.

Critics of the controversial plans, however, claim giving utilities the ability to recover their investments for periods of years will eliminate potential electric rate savings, at least in the near term.

In some cases, the stranded cost debate even threatens to derail deregulation efforts.

"We found ourselves stayed from implementing restructuring by a federal judge," said George McCluskey, director of New Hampshire's Public Utility Commission's restructuring efforts. "So it definitely had a significant impact."

Impact continues

That impact continues to this day. Although trial has been set for November, negotiations with the power concerns are continuing, and New Hampshire hopes to settle the case and introduce deregulation before the end of the year, McCluskey said.

"The utilities recognize that we're going to have competition," he added. "But there are a lot of policy changes that have to be broken down and tackled one by one."

New Hampshire isn't the only state to run into a wall over stranded costs, though.

Vermont's restructuring plan, ordered into effect by that state's regulators, sits on ice while utilities battle the government over // the reimbursements. The same holds true in Pennsylvania, where billions of dollars in stranded costs are at stake.

"There's a realization now that a lot of issues in other states were not worked out in proper detail," said Wayne Harbaugh, BGE's executive director of electric restructuring.

Hearing planned

In Maryland, BGE and four other utilities are seeking nearly $2 billion in stranded costs. Regulators plan to hold hearings on the matter next spring.

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