The battle over your energy bill

Customers' costs are rising amid profits

February 12, 2006|By PAUL ADAMS | PAUL ADAMS,SUN REPORTER

On Wall Street, the proposed merger between utility owners Constellation Energy Group and Florida-based FPL Group Inc. is an easy sell.

Together, the two energy companies stand to dominate unregulated power sales to Fortune 100 companies and municipalities nationwide, while still reaping the guaranteed earnings of two high-performing regulated utilities in their respective home states. Big profits are sure to follow for the parent of Baltimore Gas and Electric Co., analysts say.

But the view is different from Main Street.

While shareholders and executives stand to gain millions in the merger, power customers in both states see their energy bills skyrocketing even as their home-state utilities report soaring profits.

And while the reasons have much to do with gyrating world energy markets and hurricanes, the disconnect has caught the attention of some consumer advocates and lawmakers.

They hope to pressure regulators into forcing the companies to pass on some of the benefits of their success to customers after the merger.

"The big winners in this are the utility executives and the stockholders," said Sen. Leo E. Green, a Democrat from Prince George's County who serves on a special Senate commission looking at electricity deregulation. "All we can do is call on them to have a full evidentiary hearing, put them under oath and make them come out with their plans."

Part of the difficulty for the utilities is that the merger suffers from bad timing, occurring in what promises to be a heated election year when soaring energy prices and power plant pollution are sure to find their way into stump speeches.

In Maryland, merger hearings and electioneering will take place just as caps on residential electricity rates are about to expire, potentially resulting in increases of 60 percent or more starting in July.

Although the change was approved years ago, the public has yet to feel the effects. Meanwhile in Florida, FPL is taking heat for a recent 19 percent rate increase on top of customer surcharges to recover nearly $1 billion the utility spent on hurricane recovery from recent storms.

"Energy has become the new wedge issue," said Mitch Klein, an organizer for the Association of Community Organizations for Reform Now, or ACORN. The community activist group opposes the merger on the grounds that it will hurt consumers.

The Maryland rate caps are the product of a 1999 law deregulating the state's power market, a measure lawmakers hoped would lead to lower prices as energy companies competed for business.

To ease the transition, residential rates were capped at below-1993 levels for six years, after which they will be subject to the free market.

But competition hasn't arrived, and the cost of producing power has soared along with the cost of natural gas and other fuels that are burned to make electricity.

"Our customers have benefited by this artificially low price for six years, and now we're going to have to go into the market to buy energy at the prevailing price," said Kenneth W. DeFontes, president of BGE.

The utility has remained profitable despite the caps but largely because it was able to sign a three-year electricity supply contract in 2003, when prices were low. That contract expires this year.

Company executives and utility regulators point out that the merger and rising energy prices are separate issues that just happen to be making headlines at the same time.

But some lawmakers and consumer groups are seeking to link the two as part of a broader dissatisfaction with the way unpredictable energy markets are wreaking havoc with family budgets.

The debate is likely to play out across the country after the repeal that took effect this month of a New Deal-era federal law that curbed utility mergers. Some of the proposed mergers will come before regulators just as the early, and sometimes unfavorable, effects of deregulation are felt. Lawmakers in Maryland, Delaware, New Jersey, Illinois and elsewhere are rethinking the timetable for deregulation in the face of consumer outrage over price increases.

"You have to ask the question, `What is the ratepayer getting?'" said Mike Bedley, a partner with Davie, Fla.-based energy consultant APEX Power Services Corp. "Because in some cases, they get nothing in the merger."

Company officials disagree, saying the merger and laws deregulating the industry will lead to efficiencies that will eventually benefit utility customers.

But the gathering anti-merger sentiment worried Constellation Chief Executive Mayo A. Shattuck III enough that he set up a private meeting last Thursday with members of ACORN, which has been joined by a coalition of labor and community groups opposing the merger.

The company is also stepping up its contact with lawmakers in Annapolis.

Florida Power & Light Chief Executive Lewis Hay III, who will lead the merged company, met with some of the company's lobbyists during a visit to Maryland last week.

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