BGE figures called wrong

Hearing casts doubt on major costs used in local deregulation here

Circuit Court

August 24, 2000|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

The Mid-Atlantic Power Supply Association urged a Circuit Court judge yesterday to block electricity deregulation in metropolitan Baltimore because the current plan unfairly benefits the Baltimore Gas and Electric Co.

In a hearing before Baltimore Circuit Judge Albert J. Matricciani that lasted almost four hours, the trade group of power producers asked the court to force the Public Service Commission to revise the deregulation plan now in effect. The group said the PSC provided "no substantial evidence or analysis" in calculating the price of electricity or amount of money that Baltimore Gas and Electric Co. will be allowed to collect during the plan's six-year transition period.

MAPSA attorneys argued that as a result of the PSC's flawed settlement agreement, competitors will not be able to enter the Baltimore market or offer a comparable price for electricity that will allow them to make a profit because BGE was allowed rates that are too low.

"BGE continues to have 100 percent of the market," said Kenneth L. Wiseman, a Washington attorney representing MAPSA. "The legislature's goal was to create a competitive market. ... Alternate suppliers trying to enter this market will not be successful."

Deregulation started Aug. 5 after Matricciani lifted a last-minute stay - one of several MAPSA attempts to block the plan - that delayed its start in Baltimore and five surrounding counties.

BGE immediately gave its 1.1 million customers a 6.5 percent reduction in their electricity costs, a discount that will remain in force for six years.

At the heart of the issue is the amount of money BGE will be allowed to recover in "stranded costs," or compensation for money the utility spent on power plants that have subsequently declined in value. MAPSA argues that the $528 million BGE's customers will pay is 100 percent too high.

MAPSA also contends that the high stranded cost awarded to BGE allows it to set an artificially low price for electricity at 4.224 cents per kilowatt-hour - a level that competitors can't match without losing money.

MAPSA is accusing the PSC of adopting a deregulation plan drafted by BGE that heavily favors the Baltimore utility. Pointing to evidence recorded in PSC hearings and meetings, MAPSA introduced numbers that BGE filed to the commission vs. internal numbers that BGE used for stranded cost estimates.

The evidence showed that an internal analysis by BGE in January 1999 estimated the market value of its generating plants at just under $2.8 billion and the amount it should collect for stranded costs at $94 million.

But in a filing with the PSC three months later, BGE claimed the market value of its generating plants was $2 billion. It also estimated that, as a result of the lower value, it was owed $897 million in stranded costs.

`BGE is owed nothing'

"The numbers speak for themselves," Wiseman said. "The commission said we're going to reject this evidence in its hearings. Given the disconnect between what BGE tells the public, and what BGE used for its own business planning purposes, our question is, why? We believe BGE is owed nothing at all in stranded costs because their market value estimates are very conservative."

But Robert S. Fleishman, vice president of corporate affairs and general counsel for Constellation Energy Group, which owns BGE, said MAPSA misinterpreted numbers that changed because of state tax laws. He also said those figures were derived from unrelated studies conducted for BGE.

"Things aren't always what they appear to be," Fleishman said after the hearing. "They're misinterpreting those numbers."

"MAPSA has repeatedly been given its day in court and its accusations have been disproved each time," he said. "Their figures don't add up and their arguments don't hold water. All they've done is throw up temporary legal roadblocks on the highway to electric competition."

Attorneys representing BGE, the PSC and the people's counsel called MAPSA's lawsuit a case of sour grapes.

They also criticized the association for waiting too long to challenge the expert testimony used to come up with the figures agreed upon in the settlement. They also accused MAPSA of trying to relitigate the settlement in court, which does not have the authority to revise the commission's order.

"MAPSA says they are here to lower rates for ratepayers, who are already getting that 6.5 percent rate reduction," argued Deborah E. Jennings of Piper Marbury Rudnick & Wolfe, which is representing BGE. "What they're actually here to argue is that the deal was not as favorable as they had hoped."

Small benefit to residents

"The evidentiary base is substantial. ... There is a two-year accumulation of records, studies and testimony," Jennings said.

In urging the court to affirm the PSC's order, People's Counsel Michael J. Travieso argued, "The legislature understood that small customers - residential users - might not benefit from deregulation. In their wisdom, they mandated a rate reduction and price cap. Thank God they did that."

Travieso, whose agency represents residential consumers before the PSC, noted that utility prices in San Diego have more than doubled since the start of deregulation. "My point is that the [Maryland] legislature had the wisdom to understand that the transition to a competitive market will take some time. ... Competition doesn't automatically determine that prices will go down."

Matricciani is expected to issue a ruling within a few weeks.

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