Lapse by Md. regulators means higher electric bills

October 03, 2001|By Jay Hancock

MARYLAND regulators are spending millions to educate people about electricity deregulation, but a few key parts of the process haven't been covered in the government brochures.

"Sorry, Baltimore consumers, we blew it," is what the brochures would say if you put sodium pentothal in the Public Service Commission water coolers. "Our motto is, `You use it. Now choose it,' but in Central Maryland you may not get electricity choice for years.

"What's worse, it's costing you some money," the pamphlets would say. "We here at the commission should have paid more attention when Baltimore Gas & Electric was shifting its assets around last year. And if we don't do something quickly, we're going to increase the risk of some California-style energy madness in Maryland."

The most important aspect of this pressing public issue is, of course, your wallet.

Do you live in metropolitan Baltimore?

If so, plan on paying an average extra charge on your electricity bill of about $4.60 per month until 2006, by my calculation, to compensate Baltimore Gas & Electric's parent company for the massive capital loss it took on its Calvert Cliffs nuclear plant.

Trouble is, the parent, Constellation Energy, didn't take a loss on the Calvert Cliffs plant. It has made a big paper profit. The national electricity shortage this year did for nuclear plant values what Chernobyl did for Geiger counters. At Calvert Cliffs, which is the only U.S. nuclear plant to have been re-licensed, deregulation has transmuted uranium into gold.

Too bad about your $4.60. By the time anybody realized Constellation was sitting on a big gain instead of a loss, poor-mouthing by company executives had persuaded regulators to approve the so-called "stranded cost" compensation, mainly for the nuclear plant.

The $4.60 and similar charges for commercial customers will add up to about $528 million over five years. Most is earmarked to accrue to Constellation - a nice bon voyage gift from ratepayers as the company sails away from the clutches of regulators.

If only the Public Service Commission had seen that electricity plants like Calvert Cliffs were rising in value. If only the commission had hit on the idea of rebates for ratepayers if plants turned out to be worth more than utilities said.

Wait - the PSC knew all about soaring generator valuations. It even had a rebate plan.

Shortly after it approved Constellation's deregulation plan, the PSC reached a deal with Potomac Electric Power Co. allowing ratepayers in Washington's Maryland suburbs to share in the capital gains on Pepco's power plants.

Pepco's plants subsequently sold for so much that customers not only escaped paying stranded-cost charges; residential customers got a rebate equal to seven weeks' free electric service.

For BGE customers, that's the insult.

Here's the injury: The monthly $4.60 stranded-cost charge appears to have smothered competition in BGE/Constellation's service area.

The fee, which actually starts out higher than $4.60 and declines over time, is built into every Baltimore-area electric bill - even those of would-be BGE rivals. Then it is transferred back to Constellation to cover its supposed loss over Calvert Cliffs.

With what amounts to a surcharge on their bills, other electricity companies complain that they can't lower rates enough to compete in the region.

So we're stuck with Constellation, selling power through BGE.

Meanwhile, Washington Gas Energy Services has offered to sell electricity to Pepco households at 3 percent off Pepco's winter generation rates and 6 percent off summer rates. Thousands of customers in Montgomery and Prince George's counties have switched.

As regulatory mishaps go, the Constellation/BGE settlement doesn't approach the California chaos. And the deal did include a 6.5 percent rate cut from previous levels for Baltimore-area households and a six-year rate freeze.

But if the state had played better poker, local ratepayers could have saved even more money.

Why Maryland made different rules for BGE and Pepco is a puzzle. It probably had to do with Pepco's outright sale of its generators to a separate company, which promised to produce a hard price and a ton of cash that the commission couldn't ignore.

By contrast, BGE/Constel- lation hasn't sold its plants. It transferred them between affiliates in a low-profile paper shuffle. In the end, though, both transactions will have the same effect: stripping the generation plants from the utility customers who paid for them. That's because Constellation plans to split from BGE this year and become a free-lance power seller, cranking kilowatts from Calvert Cliffs and nine other former BGE plants.

In the Pepco deal, the ratepayers will be fairly compensated for their investment in generation capacity. In the other, they won't.

It's probably too late to recover lost money for BGE customers - although soaring generator values have moved Texas to try to revisit stranded-cost settlements.

But it's not too late for the PSC to ensure the financial health of the post-split BGE.

Thanks to the power plant transfers and related moves, the new BGE will be so debt-saddled that regulators fear for the utility's financial health in the event of some California-style emergency.

The PSC should block the corporate separation until the companies firmly commit to shoring up the utility. That should include letting BGE keep the stranded-cost money instead of paying most of it to Constellation.

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