PSC hearings tackle policy on power

Consumer advocates, utility officials to face off today on deregulation, rising rates and changes ahead

November 16, 2006|By Paul Adams | Paul Adams,Sun reporter

Consumer advocates who say electric deregulation should be revamped in the face of rising rates will face off against pro-competition utility officials today in the first of several regulatory hearings to examine the future structure of Maryland's power industry.

The Public Service Commission hearings will be the most sweeping probe of the industry since deregulation was passed in 1999, and could lead to changes that will influence consumer bills for decades to come.

The examination was first requested by the Maryland Office of the People's Counsel this past spring and subsequently mandated by lawmakers, who passed legislation in June to deal with a 72 percent rate increase for customers of Baltimore Gas and Electric.

At the heart of today's hearings is a philosophical debate between consumer groups who say deregulation has failed and utility officials who say the system that led to the BGE rate increase needs only minor tweaking to prevent future calamities for customers. Both sides offer alternatives that keep most elements of deregulation in place.

The People's Counsel wants the PSC to study whether it would be economical to scrap the current system utilities use for buying power in the wholesale market and replace it with a 10- to 15-year procurement plan that could include allowing the companies to own regulated power plants again.

"There's lots of options out there in the wholesale market and this could be put together in lots of different ways," said William Fields, senior assistant people's counsel.

"The point we're making is that in order to decide what's best for utilities to do takes some hard analysis [by the PSC]."

Utility officials say such long-range planning would undermine the wholesale market, expose consumers to bigger financial risks and deprive them of the benefits of competition. They point to studies showing competition in the wholesale market has lowered the operating costs of power plants, resulting in lower prices for consumers. Too broad changes might also scare away retail power suppliers, who are just starting to make inroads in the residential market by undercutting BGE's rates.

"We're concerned that those kind of ultra-long terms would undermine the competitive market to begin with," said Mark Case, BGE's vice president of regulatory services.

The utility commission will gather testimony and submit a report to the General Assembly by Dec. 31. What happens after that might be up to a new commission appointed by Gov.-elect Martin O'Malley, who has pledged to fire the current members over their handling of electric rates this year. It's unclear, however, how much legal authority O'Malley might have to replace the commission.

Much of the debate focuses on how BGE and other investor-owned utilities should buy the electricity they deliver to customers.

Under the old system, utilities owned power plants and passed the costs on to consumers, who bore the risk of cost overruns or unexpected shutdowns. Deregulation required the companies to give up their power plants, reasoning that unregulated owners would compete against one another and run the plants more efficiently.

BGE and others now must purchase electricity from these wholesale suppliers through a competitive bidding process. At the same time, deregulation was designed to allow retail suppliers to move in and try to offer customers cheaper rates than those secured by BGE.

Critics say the wholesale bidding process is flawed and retail competition is negligible, exposing consumers to rate jumps like the one that socked BGE customers this year. For example, utilities were required last winter to buy 100 percent of their power load in the midst of a wholesale energy price spike caused by last year's hurricanes in the Gulf Coast.

Most agree that the poor timing and design of the bidding system contributed to the rate increase. Last week the PSC moved to change that system, requiring utilities to break purchases into smaller chunks and spread them out over time with staggered two-year contracts. That change is designed to be an interim step to potentially bigger changes being contemplated by the commission.

Consumer advocates say the PSC doesn't go far enough in its reforms. They say the panel should require utilities to plan power purchases 10 to 15 years out, rather than in two-year chunks that expose customers to more frequent price changes. Under that scenario, utilities would buy a portfolio of short-, medium- and long-term contracts with individual power suppliers or, if it makes economic sense, consider leasing or building their own power plants. The result would be a hybrid system that includes elements of traditional regulation and free-market reforms.

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