BGE rate relief promised

Deal still possible without Assembly, governor says

General Assembly

April 12, 2006|By ANDREW A. GREEN | ANDREW A. GREEN,SUN REPORTER

Top leaders in Annapolis promised yesterday to find a way to soften the 72 percent rate increase coming for BGE customers, despite the failure of a compromise plan in the final minutes of the General Assembly session.

Gov. Robert L. Ehrlich Jr. edged away from his call for an immediate special session to handle utility issues and said an agreement with officials of BGE's parent company, Constellation Energy Group, is possible without General Assembly authorization.

"In a sense, we now have a more clear path to what we need to do," the governor said. "Those hours of negotiations weren't wasted. We now have a framework to go forward."

While a special session is still possible, Ehrlich has said for weeks that if the General Assembly failed to craft a deal, he could handle the situation on his own.

Now, with the session over and legislators leaving town, he might get the chance to prove it: a high-risk, high-reward situation with the praise or scorn of more than 1 million state utility customers hanging in the balance - just months before an election.

If the governor succeeds, he could be viewed as a leader who solved a problem the Assembly couldn't. But if customers don't like the result, he could receive much of the blame.

"He has to succeed," said Matthew Crenson, a professor of political science at the Johns Hopkins University. "Things don't look good for him now. He's behind in the polls. ... He can't afford to fail."

Under the final version of the legislative plan, the power company would have committed $600 million toward rate relief over 10 years. A strong push for more concessions from the company killed the legislation just before midnight Monday.

The rate increase is coming when rate caps instituted as part of Maryland's 1999 electricity deregulation plan expire June 30.

Constellation Energy spokesman Robert L. Gould said the only certain option at the moment is the plan approved by the Public Service Commission in March that would reduce the initial rate increase to 21 percent, add the additional 51 percent in 2007 and charge customers 5 percent interest on the deferred payments.

"We're looking at various potential options, but our main focus remains on the PSC plan," Gould said. "We're looking at that plan as a very workable solution with potential fine tuning."

A better proposal for consumers was on the table just hours earlier.

After weeks of negotiations, Constellation agreed to a plan that would have limited the initial rate increase to 15 percent. An additional increase of 29 percent would come a year later, with a transition to market rates completed after three years.

Constellation would have issued debt to cover the deferred payments. The company agreed to cover the interest on the debt and charge customers a monthly fee to recoup the principal over 10 years.

It's unclear, though, whether Constellation will agree to so generous a deal without the threat of three punishing bills hanging over it.

The legislature passed several bills in the past few weeks to strengthen its bargaining position with the power company, including measures that would have brought its pending merger with FPL Group Inc. of Florida into doubt and disbanded the current PSC.

Ehrlich vetoed the bills, and the legislature used the threat of overrides to win hundreds of millions of dollars in concessions from Constellation - the company quadrupled its initial offer - but that threat expired with the end of the session.

"The pressure is not on them," said Sen. George W. Della Jr., a Baltimore Democrat who pushed in the final minutes of Monday's session for a vote on the overrides. "Those pieces of legislation, that was the hammer over their head. If something was going to happen, it was going to happen because of that."

Also unclear is whether the state can hold up its end of the deal without the legislature's approval.

BGE would have to borrow about $725 million to make up for the deferred rate payments, a prospect the state would have made more affordable by guaranteeing the company's right to collect a fee that would go toward retiring the debt. Analysts expected that action by the legislature would have helped BGE secure lower interest rates for its bonds.

Ehrlich said he met into the early hours of the morning yesterday with Public Service Commission Chairman Kenneth D. Schisler and his advisers to explore legal options for having the Public Service Commission instead of the legislature set up a legal structure for the debt.

Aides said Ehrlich would meet with the PSC and BGE officials in the coming days to develop a plan.

But Constellation officials said throughout the negotiations that creating certainty for the company is crucial to any deal. Because of the instability in Maryland, two credit rating agencies downgraded BGE's debt during the legislative session, and a third, Fitch Ratings, announced downgrades for both Constellation and BGE yesterday.

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