With deal goes $1.62 credit on BGE customers' bills

What It Means

Merger Unplugged

October 26, 2006|By Tricia Bishop | Tricia Bishop,Sun reporter

The death of the Constellation merger and the savings it was supposed to provide will cost Baltimore Gas and Electric customers - but not much.

A Sun analysis shows that average consumers, already facing a 72 percent increase in rates, will lose monthly credits to their electricity bills of at least $1.62 and as much as $4.54.

The savings, which were set to begin in January and vary by electricity use, would have come over 10 years from a total of $600 million in rate relief that Constellation says it tied to the merger with FPL Group Inc. But the state legislature says all but $214 million of those credits are not merger related and still must be applied to BGE bills.

Company executives said yesterday that the details and the dollar amounts will be discussed soon with "key stakeholders," who probably will include lawmakers, regulators and other state representatives.

But whatever the loss in savings, market forces are likely to offset it next year. Though BGE is locked into its rates through May, market prices for electricity have dropped since this past summer, which should help lower bills beginning in June.

Still, a couple of bucks a month can make a big difference in many households, and spread over 10 years - the period over which the savings would have been implemented - the figures add up to hundreds of millions of dollars.

"I'm not poo-pooing that," said Theresa Czarski, an attorney in the office of the people's counsel, which represents the state's residential utility customers. "It's a shame if it goes away - it really is."

Czarski said she was disappointed the merger was called off before her office could explore squeezing additional "monetary compensation" for consumers from Constellation.

Such potential pressure in part helped jeopardize the deal. Both companies had expressed concern about being asked to make further concessions.

Lost opportunities troubled economists and consumer representatives yesterday as they tried to make sense of what the end of the deal meant for Marylanders.

Unless new ways of saving money are found, prices will be higher than they would have under the merger, said economist Anirban Basu. As chairman and chief executive of Baltimore's Sage Policy Group Inc., Basu has analyzed and advocated the merger, claiming it would mean more jobs, more wages, more sales and more savings.

The merger "would have reduced people's monthly energy bills," Basu said, bemoaning the confusion that he said led some to believe it was causing the increase in electricity rates.

Another economist wasn't so sure.

"I don't think there's going to be a huge rate impact either way," said Richard P. Clinch, director of economic research at the University of Baltimore's Jacob France Institute.

When the deal died, $214 million in merger-related savings were immediately wiped from the table. That's the amount Constellation promised to pass on to BGE's 1.1 million residential customers over 10 years, which averages to about $1.62 in savings per month, if the deal were approved.

"Those certainly are no longer available," said Constellation spokesman Robert Gould.

But less clear is what will now become of $386 million in credits meant to offset the full increase of electric rates brought on by deregulating the industry. Under a law passed by the General Assembly in June, Constellation agreed to apply the credits to BGE bills over the next 10 years beginning in January. Broken down by household, the amount averages to about $2.93 per month.

But weeks after the law took effect, Constellation questioned the "legal efficacy" of the provision in a filing with the Maryland Public Service, suggesting it was contingent upon a successful partnership with FPL.

Now, the General Assembly, the Public Service Commission and the office of the people's counsel are waiting to see what Constellation will do next.

"I don't know what they're thinking," said Warren G. Deschenaux, the legislature's chief fiscal analyst. And, he added, that's probably by design.

The uncertainty has turned the figure into a bargaining chip for Constellation - one that Chief Executive Mayo A. Shattuck III hopes will encompass everything from pricing to industry regulation.

"We expect that we will over the near future be having discussions with key stakeholders about developing a solution that would be beneficial to the BGE customer, while at the same time assuring BGE remains financially strong," Gould said. "We have to be very deliberate about this."


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