General Assembly's less flashy BGE reforms are the ones with real teeth

June 14, 2006|By JAY HANCOCK | JAY HANCOCK,SUN COLUMNIST

Believe it or not, a time will come when electricity is not on the front page, the legislature winds up its business in April and "72 percent" signifies nothing except perhaps the Orioles' loss ratio.

It's then that the more obscure pieces of the electricity bill being considered by the General Assembly will come into play.

Ignore, if you can, flashy, short-term fixes such as temporarily limiting Baltimore Gas and Electric's July rate increase to 15 percent rather than 72 percent -- which doesn't look much different from what was offered in earlier plans. Look past the theater of firing the Public Service Commission and the people's counsel.

The legislature is starting to address long-term problems and risks in Maryland's power markets, and those may be the most important remedies.

Among other things, the bill would block BGE and other utilities from lending at sweetheart rates to unregulated affiliates without PSC permission.

I chronicled this practice, which can force ratepayers to subsidize unrelated businesses, on May 17. PSC documents from a gas-rate case last year showed that BGE was lending to an affiliated cash pool at a cost of 6 percent or so while being repaid at rates as low as 1.5 percent.

Perhaps most significantly, the measure would reform the process by which BGE and other utilities buy electricity and pass the cost to ratepayers.

One reason for the looming, 72 percent rate shock is that BGE was required to shop for juice and lock in prices in very short order last year, when energy costs were at record highs thanks to Hurricane Katrina, big demand and instability in the Middle East.

The new bill would give the BGE and other utilities much more leeway to dip into the market when the time looks right. Utilities could lock in long-term prices when costs are low. They could spread purchases over longer periods. They could even make deals without going through the auction process -- with PSC permission.

In other words, they could diversify their juice portfolios. Diversification means lower risk in almost any market. Even BGE officials had nice things to say about such flexibility yesterday.

The legislation would also make the process more transparent, requiring utilities to disclose the identities of electricity suppliers within three months of an auction's completion.

Another important piece would give the PSC greater power to review corporate mergers involving Maryland utilities, including an agreement by BGE parent Constellation Energy to marry Florida's FPL Group. Now that federal rules allow almost anybody to buy an electric utility, stronger state safeguards are essential.

At the same time, the legislature looks ready at least to take another look at what's called "aggregation" -- letting cities and counties buy electricity for families at cheaper, bulk rates. Right now they can't.

Wal-Mart can buy power in bulk for its stores. Maryland buys bulk power for multiple agencies, saving millions. But municipalities have a hard time bundling residential ratepayers into similar buying pools.

They should at least be given the option. As of yesterday the General Assembly's bill required a commission to study aggregation and report back later. But some delegates were talking about going further, and enabling residential aggregation in the special session.

There are other good components. Like previous rate-relief plans, one would apply all deferral and credit adjustments to the BGE "distribution" part of the bill. This would enable customers to shop for cheaper juice if other generators can undercut the electric supply "price-to-compare" portion of BGE's standard product.

Even if you switch to Pepco Energy Services from BGE's default product, in other words, you'd still get the 11-month, 15 percent increase limit that is being proposed, and you'd still get your portion of millions in credits that the legislature is trying to get from BGE and Constellation.

Only by giving outside vendors such incentives to sell to Maryland customers -- and customers the motive to buy -- can policymakers create the potential for deregulation to start paying dividends for anybody but the power companies.

The bill would also allow BGE and other utilities to build or buy their own generation plants -- undoing the deregulatory requirement for them to separate, effectively rolling back deregulation.

The economics of this are dubious: It's hard to see how BGE could acquire a plant without paying for it through rates that are even higher than the ones about to hit us.

But it's good to allow the flexibility. Splitting BGE from its economical coal- and nuclear-fired generators helped bring Maryland to this moment. The Assembly is making a good, first move toward preventing more of these moments down the line.

jay.hancock@baltsun.com

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