For PSC, complex issues, little time

September 10, 2006|By Paul Adams | Paul Adams,Sun reporter

While a panel of judges continues to deliberate the fate of the Public Service Commission, the clock is ticking on the agency's mandate to study ways to revamp Maryland's electric regulations to make power cheaper for the state's residents.

Industry experts say potential fixes range from having utilities buy long-term power contracts through competitive energy auctions to building power plants that would fall under old-style state regulation.

Though opinions are as varied as the potential solutions, consumer advocates say everything should be on the table as regulators look for ways to undo mistakes that may have contributed to a 72 percent rate increase for customers of Baltimore Gas and Electric Co. this year. The results could be the most sweeping examination of the power industry since lawmakers voted for deregulation in 1999, setting up the current debate.

But time is running short for regulators, who still are waiting to find out whether they get to keep their jobs. Legislation passed in June fired the utility commission and demanded that a new panel reconsider the structure of Maryland's power industry and report back to lawmakers within a year. Gathering testimony, holding hearings and agreeing on final recommendations could take months to accomplish, and the commission already has its hands full with a number of complex cases.

The firings were challenged by commission Chairman Kenneth D. Schisler, who won a temporary injunction from the Maryland Court of Appeals. A final ruling on the matter is expected soon.

In the interest of staying on schedule, the existing commission, led by Schisler, has opened a case that calls for the kind of broad examination requested by lawmakers. The state's major utilities, consumer advocates and other parties with a stake in the process were preparing their testimony last week, and several declined to reveal their recommendations before submitting them to the commissioners. The stakes are high for consumers and utilities, which carry billions of dollars in debt and must struggle to reassure skittish investors as regulators debate their futures.

"These are extremely complex cases and it becomes even more complex because there is some question as to whether or not the commission carefully studied, or was careful in its deliberations, in the first instance," said H. Russell Frisby Jr., a Washington attorney who was chairman of the Maryland PSC from 1995 to 1998.

Schisler and others have pointed out that the current regulations were adopted by a previous commission and are not the work of current members. The commission declined to comment in keeping with its policy of not discussing open cases.

However, industry experts familiar with Maryland's utility regulations say there are several changes the commission should consider. At the top of the list are suggestions to change the way BGE and other investor-owned utilities in Maryland buy electricity - something experts say could be accomplished quickly and cheaply.

As part of the move toward deregulation, utilities were required to buy all of their power from generators in the competitive wholesale market beginning this year.

State regulators set up a process by which power-generation companies were to submit bids to supply utilities in what was called a type of reverse auction. Sealed bids were opened last winter, and the lowest bidders won contracts.

Critics say the Maryland system is flawed because utilities were required to buy 100 percent of their anticipated load in the first year of transition to competitive markets, rather than spread the purchases over several years to avoid potential market blips. Barring some sort of change, half the load will be rebid this winter, and three-quarters will go up for auction again in two years.

The dangers of such a system were on display last winter, when the aftermath of Hurricanes Katrina and Rita sent energy prices soaring just as Maryland utilities went into the market to buy power for the year ahead. Had the bidding been pushed back even a few months, BGE customers might have faced a smaller rate increase, some argue.

"That was the critical mistake that Maryland made," said Peter Cramton, professor of economics at the University of Maryland, College Park, and an expert on electricity auctions and market design.

Cramton and others say Maryland should take a page from New Jersey's playbook. In that state, which has been buying power through auctions since 2002, utilities spread power purchases over three years, with no more than a third of the load up for bid each year.

In New Jersey's last auction, bids received were more than 50 percent higher than the previous year's prices and close to what BGE received. But New Jersey customers were hit with just a roughly 15 percent increase in their bills because the rotating contracts prevented a temporary surge in energy prices from hitting customers all at once.

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