Elements remain for decent rate relief deal

April 12, 2006|By JAY HANCOCK | JAY HANCOCK,SUN COLUMNIST

The smoke is still clearing from Monday night's legislative finale in Annapolis, but it seems as though Constellation Energy and the General Assembly should have been able to reach a deal on electric rate relief.

From all appearances, Constellation was putting decent money on the table.

Nominally, this was $600 million to pay electric generation costs that otherwise would have been borne by BGE customers.

The money would have mitigated 72 percent price increases due in July.

For customers, the deal would have translated into only a 15 percent rate increase in July, a 29 percent increase in June 2007 and market rates a year later.

The value of Constellation's offer wasn't really $600 million; that is deceptively large. But a substantial sum - something over $200 million - remained even after discounting for funny money.

That sum could have been the core of a legislative settlement - and still can be, depending on what policymakers do next.

Nearly a third of the alleged $600 million would have come from what Constellation says it is owed by BGE customers for future decommissioning of its Calvert Cliffs nuclear plants in the 2030s.

That's nonsense.

Constellation, which took over Calvert Cliffs from BGE in 2000, needs regulatory permission to collect this money from BGE customers, and under no circumstance would or should Constellation get it.

In the wake of deregulation, Constellation can charge big markups for Calvert Cliffs' cheap nuclear kilowatts, and it ought to pay the rest of the decommissioning costs itself. Agreeing not to charge a fee that it wasn't going to get anyway is not a big concession.

What was real was Constellation's offer to credit BGE customers with $21.4 million in annual savings over 10 years from its planned merger with Florida's FPL Group. I prefer to think of it not as merger savings but as a rebate of "stranded cost" money BGE customers paid after Constellation argued - incorrectly, as it turned out - that Calvert Cliffs would lose value and that the company needed to be reimbursed for it.

That amounts to $214 million over 10 years. (The residential component of the $528 million stranded-cost bonanza collected by Constellation was $194 million.)

Also apparently genuine was BGE's agreement to forgo $20 million a year in profit it is allowed to make for acting as the electric seller of last resort in Central Maryland. Over 10 years, that's another $200 million.

However, from these benefits we must subtract what was being called the "net deferral charge" to BGE customers - a way for Constellation/BGE to recoup some costs for putting off price increases. The charge was a moving target up to the end, but it was said to be in the $1.50-per-month-per-household range, which adds up to almost $20 million a year or $200 million over 10 years.

So another piece of the alleged $600 million is whacked away. What's left is $200 million and change, which amounts to a $200, one-time, net benefit for a typical BGE household - spread over several years. That doesn't sound like much, but households would get most of the benefit in the first year or two.

Is that enough for a deal? It seems close.

Another $100 million giveback by Constellation - rebating the Calvert Cliffs decommissioning costs that customers have already paid, for example - should have clinched it.

True, that would still amount to only a $300 net benefit per household - far less than the prospective $743 annual increase in a typical bill for the period starting July 1.

But there never was a chance that ratepayers would get off with zero or tiny increases. And one part of the Constellation equation should be brought back into the spotlight.

A few days ago, Gov. Robert L. Ehrlich Jr. signed the Healthy Air Act, which will cut three major pollutants, including poisonous mercury, as well as carbon dioxide at Maryland power plants. Constellation says the law will cause it to spend between $600 million and $800 million on anti-pollution equipment - equipment that will bring a major benefit to the state.

Three months ago, legislators were talking about pollution abatement as a requirement for approval of the Constellation/FPL merger. Now they've got it.

There are numerous other issues to be considered. Most important is making sure BGE is adequately protected from outside mauling if the FPL merger goes through.

But that's work for the future and doesn't necessarily require revamping the Public Service Commission, which is what some legislators want and which reportedly was Monday's deal breaker.

Meanwhile, a major pollution bill and getting back "stranded cost" money for residential ratepayers wouldn't be a bad piece of work for state leaders. They just have to close the deal.

jay.hancock@baltsun.com

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