Rate relief redux

June 14, 2006

With the General Assembly set to reconvene today in special session, it is not just residential utility bills but the financial future of Baltimore Gas and Electric that may rest in the balance. This much looks certain: Consumers are likely to emerge with a 15 percent rate increase instead of a 72 percent rate increase as of July 1, and Maryland's unemployment numbers are about to be augmented by five. (Hint: Members of the Public Service Commission should start revising their rM-isumM-is.) Less clear is what the legislature's actions may mean for BGE and its corporate parent, Constellation Energy Group.

Gov. Robert L. Ehrlich Jr. may lambaste it, but the 58-page rate reduction bill that Democrats are likely to approve is not all that different from the measure lawmakers nearly passed in the waning hours of their regular session in April. It defers the rate increase by authorizing BGE to borrow money. The utility can then recover the costs from ratepayers by a modest monthly charge (estimated at less than $2.50). No opting in or opting out, just an automatic deferral. The benefit to consumers is irrefutable. (Think of it as a $600 million 10-year loan that costs less than $300 million to pay off.)

What happens to utility rates next is less certain. After 11 months of the 15 percent cap, it will be up to a reconstituted PSC (appointed by the governor but only from the legislature's list of nominees) to decide whether an additional rate cap is required - at least until market rates return in 2008. BGE representatives say too much uncertainty (and the potential for additional borrowing next year) could cause their credit rating to tank. If that happens, ratepayers will be left holding the bag. In this regard, legislators would be wise to take the utility's concerns seriously.

While the legislature's proposal has flaws yet to be addressed, it's the best solution available. Lawmakers have no faith in Mr. Ehrlich's PSC, and with good reason. The panel's inability to hold a fair hearing - and ask questions of company executives more probing than golf club selection - have left it without credibility as a regulator. What legislators want is a new PSC with a more critical eye to explore the impact of the proposed merger with FPL Group, stranded costs and other issues, from bilateral contracts to aggregate purchases of power by towns and counties to keep down prices. That's certainly better than having an inexpert General Assembly setting rates.

Even BGE officials said yesterday they found elements of the proposal "thoughtful" and "good." And as for its election-year ramifications, we'd have to say: no clear winners. One way or another, higher energy prices are coming. Deregulation and a compliant PSC have played their parts - but so has the law of supply and demand.

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