PSC orders changes in power buys

Bidding system revisions could avert rate shocks

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

The Maryland Public Service Commission, which Gov.-elect Martin O'Malley has pledged to fire over its handling of electricity rates, ordered changes yesterday in the bidding system that utilities use to purchase power from wholesalers, in hopes of avoiding another rate shock like the one that slammed consumers this year.

The changes will require utilities to spread power purchases out over time and buy in smaller chunks, preventing a repeat of last winter's debacle of buying all at once in a volatile market. The revisions will do little to peel back electricity rates in the coming year, but the four-member panel says its order will lead to more stable rates in the future.

The action marks the PSC's first significant attempt to alter regulations that O'Malley and other critics say contributed to the average 72 percent rate increase that hit customers of Baltimore Gas and Electric Co. The matter sparked a fiery political debate over electricity deregulation that ensnared BGE's corporate parent, Constellation Energy Group, and ultimately doomed its $12 billion merger with FPL Group Inc. of Florida.

It comes one week before PSC hearings are to begin in a far-ranging examination of the future structure of Maryland's power industry, which some say should include discarding aspects of deregulation and allowing utilities to own power plants again. The case is linked to a series of investigations that state lawmakers ordered the PSC to conduct as a means of protecting consumers from similar rate spikes.

O'Malley has made it clear that whatever actions are taken as a result of those investigations will be decided by a PSC under new leadership. At a City Hall news conference yesterday to announce the beginnings of his transition team, O'Malley acknowledged that PSC Chairman Kenneth D. Schisler will no longer lead the panel. Schisler came under fire for being too cozy with utility executives and not sensitive enough to consumer concerns.

"I would like to press, consistent with what we said during the campaign, that we have a new Public Service Commission," O'Malley said. "There were few agencies that failed quite so badly as the Public Service Commission."

PSC staff members declined to comment on O'Malley's repeated pledge to fire the commission, and Schisler could not be reached yesterday. It is unclear, however, whether O'Malley can remove commission members, who in their order yesterday seemed to deflect blame for this year's rate increase. The panel was compelled to act on the bidding rules now because BGE was set to take preliminary steps in its power auction process next week.

Consumer groups and industry experts said the PSC's order is a significant improvement over the current system. But some said that it does not go far enough and should be viewed as a first step toward bigger changes.

"Certainly, anything you can do to reduce price risk is appreciated from our clients' perspective," said Theresa Czarski, the deputy People's Counsel, which represents consumers before the Public Service Commission. "Whether it's the be-all and end-all, I would hesitate to say that. It's really the next case up that we would hope to get the longer-term changes done."

In its order, the commission said the "misfortune of 2006" was the result of policy errors in the 1999 deregulation legislation and "an act of God" - a reference to hurricanes that devastated the Gulf Coast and sent energy prices soaring last winter.

The commission said the 1999 legislation and subsequent settlements with utilities imposed a six-year rate freeze for BGE customers, after which the utility was required to go into the wholesale energy market to buy 100 percent of its power at market prices. The wholesale bidding process was overseen by the PSC, which set the ground rules.

The regulations required BGE to solicit bids from wholesale suppliers at the worst possible time. Months earlier, hurricanes Katrina and Rita had devastated natural gas production in the Gulf, sending prices for that commodity soaring along with those for electricity. BGE locked in one- , two- and three-year contracts at peak prices, resulting in an increase in electricity rates that was much larger than expected. Ratepayers, who had enjoyed artificially low prices for six years, were hit with a 72 percent increase on average.

"The problem ... was the lack of a transition plan following the expiration of unrealistic frozen rates, thereby leaving 100 percent of residential and small commercial customer load in the BGE service territory exposed to much higher prices," the Public Service Commission said.

The PSC's order seeks to prevent a recurrence by spreading future power purchases out over time and requiring supply contracts to be two years in length.

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