BGE rate cut of 6.5% proposed

State panel to decide implementation of electric deregulation

'Reasonable compromise'

June 30, 1999|By Timothy B. Wheeler and Shanon D. Murray | Timothy B. Wheeler and Shanon D. Murray,SUN STAFF

Baltimore Gas and Electric Co.'s residential customers would save money on their electric bills while the utility would pocket more than a half-billion dollars under an agreement announced yesterday that would let users pick their power company by next July.

Just how much choice residential consumers will have remains an open question, though, as the terms of the deal appear likely to discourage competition for Maryland's largest utility, at least for the next few years.

BGE and at least a dozen parties involved in closed-door talks submitted a proposal yesterday to the Public Service Commission guaranteeing a 6.5 percent rate reduction beginning July 1, 2000, for BGE's residential customers.

The accord, subject to approval by the PSC, could mean savings of $65 to $70 a year for the average residential user who stays with BGE rather than switch electricity suppliers. The rate cut would remain in effect for six years.

But BGE would be allowed to collect $528 million over the same period from all customers as partial repayment for what the utility spent building power plants to furnish electricity to its 1.1 million customers in the region.

The pact was described by most involved in the negotiations as "a reasonable compromise" that clears the way for introducing competition into the state's regulated electric power industry.

It comes less than three months after the General Assembly approved legislation laying out the ground rules for the process.

"This proposed settlement should come as welcome news that we're on course to bring customer choice to Maryland," said Robert S. Fleishman, vice president of corporate affairs and general counsel for Constellation Energy Group, BGE's parent corporation.

Spokesmen for the state's retail businesses and manufacturers, who lobbied for deregulation legislation this year, likewise hailed the deal as an opportunity for big electric customers to realize major savings by shopping around.

"I think it's the beginning of a new era," said Allan J. Malester, lawyer for 25 of BGE's biggest industrial customers, including General Motors, Domino Sugar and W. R. Grace.

Michael J. Travieso, the state-appointed People's Counsel representing consumers, was more muted. He said he was satisfied that the deal he helped negotiate with BGE "will guarantee that the little guy actually receives some tangible benefits from electric utility deregulation."

Travieso noted that the 6.5 percent rate reduction provided for residential customers is close to the maximum 7.5 percent allowed under deregulation legislation enacted this year, and the six-year duration of the rate cut exceeds the four-year transition called for in the law.

Gov. Parris N. Glendening, who had argued unsuccessfully to require a 7.5 percent rate cut for all utilities' residential customers, hailed the BGE settlement yesterday as in line with his concerns to protect consumers from being harmed by deregulation of electric rates.

But some critics -- including one consumer activist and the spokeswoman for out-of-state power companies -- complained that the pact helps BGE stave off competition by guaranteeing that all electric customers will pay the utility for its power plants, even if they switch to another company.

"Residential consumers start out paying almost 10 percent of their bill bailing out BGE," said Dan Pontious, director of the Maryland Public Interest Research Group.

And the Mid-Atlantic Power Supply Association, which represents companies that would like to compete with BGE, vowed to oppose the settlement. The fees levied on residential customers to repay BGE for its power plants could wipe out any savings consumers might get by switching companies, warned Suzanne Daycock, the association's executive director.

"This is truly a lopsided deal if customers do not get a competitive market in the bargain," Daycock said.

BGE had sought at one time to collect as much as $1.1 billion from its customers for what it spent on building power plants.

Some of BGE's business customers and consumer advocates opposed compensating the company, arguing that the plants have appreciated in value and represent a windfall for BGE. The General Assembly, however, authorized utilities to seek recovery of such so-called transition or stranded costs in opening the industry to competition.

"We did get a sizable portion of our stranded costs as a result of the settlement," said BGE's Fleishman.

Under the proposed settlement, BGE will transfer its 10 Maryland power plants, including Calvert Cliffs nuclear generating station, as well as three plants in Pennsylvania, to an unregulated subsidiary.

All of BGE's customers will be able to choose an electricity supplier July 1, 2000, instead of the three-year phase-in envisioned under the state law. BGE will continue to distribute electricity over its wires throughout Central Maryland for all customers, regardless of the source of the power.

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