Look past BGE - to its parent

March 22, 2006|By JAY HANCOCK | JAY HANCOCK,SUN COLUMNIST

Dear General Assembly and Governor Ehrlich:

Great job getting Baltimore Gas and Electric bosses to discuss lowering their 72 percent electric rate increase set for July 1.

But with all due respect, even now the BGE guys seem to be blowing smoke down your chimney.

They talk about reducing the rate increase by making BGE pay the difference from its own pocket, as if that were the only way to do it.

They correctly note the danger of cutting BGE's revenue when the utility has contracted to buy wholesale electricity at very high cost. They trot out California, where the government froze household electricity rates as wholesale costs rocketed, bankrupting Pacific Gas and Electric.

"`You're going to bankrupt BGE.' That's their issue," notes Sen. Leo E. Green, a Prince George's County Democrat and a major kink in BGE's cord.

Hello! Bankrupting BGE is not the only choice.

There are other sources of money to soften a rate boost, including one with a fat wallet known very well to the BGE folks. If legislators don't look beyond the utility, they'll limit relief for ratepayers and set themselves up for blame when BGE gets in trouble.

BGE acts like a corporate orphan, a lost waif in a bad neighborhood. Legislated rate caps would have "disastrous consequences" for BGE and Maryland, says a PowerPoint thriller shown to the Senate Finance Committee last week by company President Ken DeFontes.

How?

"BGE forced to borrow huge sums of money," the slides predict. Ability to fix storm damage "severely compromised." Spending on power-line maintenance "curtailed as liquidity problems grow." And "reduced philanthropic and charitable contributions."

Give me a break.

DeFontes works for a person named Mayo Shattuck. Shattuck runs a company called Constellation Energy. Constellation owns 100 percent of BGE, has $800 million in cash and a BBB bond rating, has pulled millions in "stranded cost" money out of BGE and could put money back to ameliorate rate shock.

But BGE folks essentially say Constellation is "from another planet, and we haven't visited that planet," says Del. Patrick L. McDonough, a Republican from Baltimore and Harford counties who wants to block Constellation's pending merger with Florida's FPL Group.

It's time for some interstellar travel. DeFontes is an important person, but haggling over electric rates with him in this situation is like negotiating a nuclear treaty with the mayor of Moscow.

Even Governor Ehrlich seems to be swayed by BGE's arguments, cautioning The Sun on Monday that any deal must help ratepayers but also ensure BGE's financial health and protect "this very important company." That will be easy to do - with Shattuck's and Constellation's help. As noted in this space previously, Constellation took over BGE's profitable and valuable electricity plants in 2000 for a sweetheart price.

Constellation collected an additional $528 million in "stranded cost" from BGE commercial and residential ratepayers after arguing - incorrectly, it turned out - that the plants would drop in value. For some reason BGE customers also had to pay about $100 million to a trust fund in recent years to cover decommissioning costs for Constellation's highly profitable Calvert Cliffs nuclear plant, even though the expense won't be incurred until the 2030s.

We don't know for sure yet, but Constellation is probably one of the suppliers charging BGE high wholesale prices that caused the looming 72 percent rate increase in the first place.

Constellation and its bosses have benefited handsomely from BGE over the years, most notably in 2001, when they reversed a plan to spin BGE off as a separate company because stumbling Constellation needed revenue from the faithful ratepayers.

Now it's time to give something back. Constellation is booking record profits and is in a decent position to compensate BGE if the utility charges less than a 72 percent increase this summer. The legislature, which is threatening to interfere with the FPL merger, is in a good position to get it to agree.

It won't be pretty. It will evoke mutters of confiscation from Constellation bosses. But it will be a lot prettier than if BGE - or ratepayers - get stuck with the cost.

jay.hancock@baltsun.com

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