BGE rate cut, freeze sought People's Counsel wants drop in 2000 to continue for 5 years

December 23, 1998|By Sean Somerville | Sean Somerville,SUN STAFF

The state's consumer advocate proposed cuts yesterday in Baltimore Gas and Electric Co.'s rates during deregulation of Maryland's electric utility industry, but BGE said such cuts are unjustified.

In a proposal filed with the state Public Service Commission, the Office of the People's Counsel called for BGE rates to "drop by 10 percent in 2000 and remain stable for the next five years."

But BGE stood by its plans to freeze electric rates at year-end 1998 levels until July 2002, when all Marylanders are expected to have a choice of electricity providers. Then, the utility said, the rates would be adjusted for inflation for "a transition period" that could last until 2008. BGE said the counsel's proposal amounted to a rate reduction of $110 million.

The decision by the PSC will influence the rates paid by more than a million customers in Baltimore City and all or part of 10 counties. The PSC, which consolidated its rate review into the deregulation process at BGE's request, is scheduled to hear the case in April and issue a decision in October.

The Office of the People's Counsel said it wants to make sure all customers share in the benefits of the electric power restructuring -- a process that will give one-third of Marylanders access to retail competition in July 2000, another third in July 2001 and the final third in July 2002.

"Deregulation is a complex issue that takes into account many different economic factors," People's Counsel Michael J. Travieso said. "If done improperly it could prove to be of little benefit or unfair to residential rate payers."

Under Travieso's proposal, BGE customers would get "price protection guarantees -- an immediate rate reduction followed by a five-year period of stable rates." Consumers who choose to buy power from an another supplier would get a "shopping credit."

That credit would be equal to the projected retail market price of electricity. If customers beat the price by getting their power from a competitor, they would save money.

The OPC also said BGE would not have "stranded costs" as a result of the transition.

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

The OPC estimates a net gain for BGE of $1.6 billion under deregulation -- a figure that contrasts sharply with the company's projection of $1.1 billion in stranded costs.

"We believe BGE will be very successful in the competitive marketplace," Travieso said.

Robert Fleishman, BGE vice president of corporate affairs and general counsel, defended the utility's plans to keep rates flat for almost four years -- until July 2002 -- and then to raise rates to adjust for inflation.

"We haven't had a rate increase since 1993," he said.

The utility also outlined terms of a transition agreement that would help it deal with its anticipated stranded costs.

Under its proposal, BGE would use savings from cost reductions to mitigate "stranded costs" by accelerating the depreciation of generating assets.

The transition period that begins in July 2002 would end when the book value of generating assets is within 10 percent of their market value, but no later than 2008.

Pub Date: 12/23/98

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