The PSC's original sin

May 21, 2006

In the plan to delay the onset of 72 percent higher electric bills this July for Baltimore Gas and Electric customers, there is only one direct link between the utility's rate relief and its parent company's plan to merge with a Florida power company. That's the $214 million in merger-related savings that Constellation Energy Group will kick back to BGE consumers over 10 years to lower their bills.

Let's be clear about this $21.4 million a year. It's Constellation's estimate of what can be directly saved as a result of its proposed merger with Florida's FPL Group. In working out separate deferral plans with Constellation, first the legislature and then Gov. Robert L. Ehrlich Jr. seem to have simply accepted that number as a given. And in approving the governor's plan last month with only a cursory review, the state Public Service Commission also bought the $200 million figure.

But why isn't it $400 million, saving BGE customers another $200 million? Or $600 million? After all, this is an $11 billion-plus merger; $21.4 million a year in merger savings is relatively infinitesimal.

We have to confess that we don't know what the figure should be. But it seems clear that neither do state officials. And that's because the PSC has made the critical, potentially costly error of accepting Constellation's assertion that its merger plans should be reviewed entirely in isolation from the impact of market deregulation on BGE rates.

We understand why Constellation wants that: It leaves protected Constellation resources that possibly could be used otherwise to further dampen BGE's rate increases - such as the big merger payouts to Constellation executives or the $528 million paid by the utility's customers so Constellation would take over BGE's now-valuable power plants, for starters.

So we have the very sad situation of the rate plan having been rubber-stamped by the PSC, and the state's top legislative leaders last week being reduced to sending a letter to Constellation asking for very basic merger-related information. Baltimore has wisely gone to court seeking the same.

If we're to accept that 72 percent more costly electricity as an unalterable result of the transition from low regulated rates to where the free market stands today, the only way to really know that is to examine solid data on BGE's and Constellation's margins, potential profits and past windfalls.

But the PSC wouldn't touch that, even though some consumer advocates from the start asked the regulatory body to do just that. This was the PSC's original sin. And as higher electric bills loom and Constellation is about to enter its final push for state and federal approval of the merger, that failure already is haunting BGE's customers.

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