Electrical charge

June 16, 2006

With the dust settled and the General Assembly's utility rate-reduction plan approved with overwhelming and bipartisan support, Baltimore Gas and Electric customers have one question on their minds: Am I better off today? The answer is yes, indisputably. But what lawmakers passed in the wee hours of the night is far from a miracle cure. It does not do the impossible: It does not roll back the cost of power to 1990s prices. In short, it's a reprieve that may, depending on a variety of factors, either postpone the inevitable or soften its blow.

Assuming Gov. Robert L. Ehrlich Jr. either allows the bill to go into effect or vetoes it and the legislature promptly overrides it (one or the other being almost certain), BGE residential customers can expect a 15 percent cap on rates beginning July 1. To offset its costs, the utility will have to borrow money. It will be repaid over 10 years. But because of rebates of certain fees, ratepayers won't be stuck with any interest charge (and only about half the equity cost). The result: The average customer will get $517 worth of benefit immediately at a cost of $262.80 spread out over a decade.

Unlike some previous reform proposals, this arrangement is not contingent on Constellation Energy Group's planned merger with a Florida utility. But a merger could lead to even greater benefits for consumers - the bill gives the reconstituted Maryland Public Service Commission clear authority over the merger and the opportunity to negotiate a better deal for ratepayers.

After 11 months, the 15 percent cap will be removed and any additional rate reduction will be up to the PSC and consumers who may want an additional deferral until January 2008. What kind of rate increase will BGE customers face next summer? It's impossible to say. Part of the reason BGE was about to charge 72 percent more this year, for instance, was bad timing in a post-Katrina energy market. Certainly, it's likely to be substantially more than 15 percent, but there are reasons for long-term optimism.

That's because the law provides for a more skeptical, consumer-oriented PSC that can more carefully scrutinize future rate increases. There are a host of other reforms, most notably a change in the way BGE and other utilities purchase power that ought to allow them to secure cheaper prices and make that process more transparent. Regulators will also be required to take a closer look at aggregation - the purchase of power in cheaper bulk rates - for possible future relief.

Consumers may find some of this confusing. Mr. Ehrlich's rants yesterday to the obsequious talk-radio crowd have not helped (his complaints about interest charges are particularly misleading). And it's disappointing that the governor and his staff spent the special session missing in action. (Remarkably, not one administration official offered comment during the bill's public hearing.) But at least it's a relief to know the substance of the debate is settled - even if the politicking lives on.

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