Stranded consumers

March 24, 2006

At Constellation Energy Group, business has been pretty darn good.

The company racked up 16 percent growth in its adjusted earnings per share in 2005, roughly its annual average since 2002.

Constellation's total return for shareholders from October 2001 to the end of last year was 193 percent - compared with just 22 percent for the Standard & Poor's 500 index.

An investment of $100 in Constellation's stock at the very end of 2001 - including dividends - was worth $244.15 at the end of last year, the company boasts.

We could go on, but, suffice to say, such returns don't jibe with Constellation's tight-fisted posture in opening negotiations this week with Gov. Robert L. Ehrlich Jr. and legislative leaders on protecting Maryland households from the planned 72 percent increase in their electricity bills this July.

Constellation reportedly has said it would phase in about half that whopping increase over the first 15 months, but wants consumers to pay it back over eight years.

Yes, the company has offered to kick in about $150 million to this plan - some of the projected savings in its merger with a Florida power group - but it would like us to believe that the financial stability of its utility, Baltimore Gas and Electric Co., might be threatened by giving more.

Hogwash. BGE isn't independent from Constellation, and a big chunk of Constellation's healthy earnings these days comes from the utility's former power plants, which were built with BGE customers' money and transferred to Constellation in 2000 as part of deregulation.

Since then, Constellation also has received $528 million from BGE customers for these plants' so-called stranded costs - the difference between the remaining costs of the plants and their appraised values.

It turns out, of course, that the former BGE plants were valued much too low. Shortly after, Potomac Electric Power Co., the Washington-area utility, sold its plants at higher valuations, netting more than $200 million for its customers. Moreover, having been paid a half-billion dollars to take the plants off BGE's hands, Constellation now makes tidy sums from peddling their lower-cost nuclear- and coal-fired electricity at prices set by much-higher-cost gas plants.

In other words, there are little or no stranded costs - leaving that $528 million as a legitimate target for the governor and the legislature in bargaining with Constellation for relief for BGE customers.

Constellation's offer this week of about $150 million for consumers was a good start. Let's now move on to adding in all of the $528 million - to buy a much more reasonable phase-in of higher electricity rates. Constellation surely will resist this. But anything less would leave Maryland consumers stranded by a bad deregulation deal.

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