BGE rate talks down to the wire

72% increase, other tough issues unresolved on session's final day

General Assembly

April 10, 2006|By ANDREW A. GREEN AND KELLY BREWINGTON | ANDREW A. GREEN AND KELLY BREWINGTON,SUN REPORTERS

With just hours to go before they adjourn for the year, pressure is on legislators to find a solution to the pending 72 percent rate increases for BGE customers, promising an intense finish to this year's 90-day General Assembly session.

Before the traditional confetti falls at midnight and exhausted legislators go home, the House and Senate will work through the day on an agreement to phase in rate increases for more than 1 million utility customers, starting with a 7:30 a.m. meeting today of the governor, top lawmakers and utility company executives.

Legislators will also decide on a host of other difficult issues, including whether to override several of Gov. Robert L. Ehrlich Jr.'s vetoes.

The Senate still has to vote on whether to override vetoes of bills temporarily blocking the state's takeover of 11 Baltimore schools and instituting plans for early voting. Also unresolved are restrictions on sex offenders and tax breaks to veterans.

But most of the focus today is likely to be on efforts to strike a deal between lawmakers and Constellation Energy on the rate increases.

"If we don't get it done, we're in uncharted territory, and that's a scary place to be in an election year," said Ehrlich.

Whatever compromise is struck today will be a short-term solution.

Many delegates and senators from both parties say that even if the state's leaders work out a compromise to soften this year's rate increase, Maryland will still be in an unpalatable position. The planned rate increase, they say, was a symptom of the flaws in Maryland's effort to deregulate the electric industry, which dates to legislation passed in 1999.

"It may sound good to the public, but from my perspective it is an election-year fix with no long-term solution to the problem," said Sen. George W. Della Jr., a Baltimore Democrat.

About half the states deregulated their electric industries in the late 1990s amid promises from utility companies that competition would lead to lower prices for consumers.

But the trend stopped abruptly early this decade when market manipulation by Enron Corp. and other companies led to rolling blackouts in California. Since then, industry analysts say, no states have deregulated, and a few have halted or partially reversed their deregulation plans.

Maryland was one of the last states to deregulate. The move was championed by Senate President Thomas V. Mike Miller and others, and won the support of a majority of Democrats and all the Republicans in the General Assembly.

But seven years later, a broad coalition of Democrats and Republicans say the decision was a mistake.

"I believe in the free market, and I believe in competition, but ... we never should have deregulated a public service utility monopoly," said Del. Herbert H. McMillan, an Anne Arundel County Republican who introduced a bill to reregulate the industry.

Ehrlich said a week ago that he thinks the state should create a task force to study long-term reforms, including the possibility of reregulation. But he said reforms could be a tough sell nine months from now, after a general election.

"Obviously, you're going to have different folks walking around down here," Ehrlich said. "When it's not a crisis, people tend to not want to discuss it."

Utility industry watchers say there are few precedents for reregulation, and any move to return to the old system would be complicated, if not impossible.

The main problem, said Steven Agresta, a Washington attorney who handles utility issues, is that deregulation stripped the local power company - in this case, BGE - of ownership of its power plants.

BGE transferred them to its corporate parent, Constellation Energy, which then began selling the energy they produce on the open market. BGE, meanwhile, has bought electricity from the lowest bidder, not necessarily Constellation.

Reregulation would require somehow returning the plants to BGE and disrupting all the contracts Constellation has entered into for their output.

"Constellation has taken the market risks [of the plants], and they are reaping the consequences, good or bad," Agresta said. "The state would have to order Baltimore Gas and Electric to buy the plants, and that might or might not be a good deal, and in the short run likely would not reduce rates."

Jim Owen, a spokesman for the Edison Electric Institute, an industry group, said the legalities of such a scenario are unclear.

"This is literally uncharted territory," he said. "It's certainly not anything we would encourage."

Del. Brian K. McHale, a Baltimore Democrat who has been a strong critic of deregulation, said the complexity and short-term costs mean there's no way the process can be reversed soon. But he said he thinks Maryland may be one of the first hot spots in a nationwide citizen revolt against deregulation.

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