Rigging electricity?

New allegation, user fee call out for probe

April 18, 2007|By Jay Hancock | Jay Hancock,Sun Columnist

The rigging of the electricity marketplace to enrich power companies and executives looks even worse than we thought.

Just as Maryland was getting shocked by higher kilowatt prices, grid managers have allowed extra profit for generation outfits such as Constellation Energy, parent of Baltimore Gas and Electric Co. The bonus, whose magnitude was revealed Friday, might eventually cost the typical BGE household $10 a month or more and add hundreds of millions of dollars to Constellation earnings.

At the same time, the Mid-Atlantic watchdog responsible for ensuring fair electricity auctions has stunned the industry by alleging that grid bosses pressured him to alter a key report and compromised his independence.

These events suggest a new level of shenanigans and demand investigation at the highest levels -- by the General Assembly and Public Service Commission in its electricity hearings this week, certainly. But also by Congress, which can revamp the incompetent Federal Energy Regulatory Commission (which governs interstate grid commerce) in ways states cannot.

Apparently, it wasn't enough that, after deregulation seven years ago, Constellation took over the BGE generation plants with no compensation to BGE customers. It wasn't enough that Constellation charged customers an additional $528 million in "stranded costs" by arguing that the valuable generators might be obsolete.

It wasn't enough that, after last year's expiration of deregulation-required price caps, the plants' cheap coal and nuclear fuel costs give Constellation supercharged profits in a market inflated by more-expensive natural gas generation.

Now grid managers will let generation companies such as Constellation levy a surcharge that Baltimore energy experts South River Consulting calculate could eventually cost BGE households about $200 a year. BGE says it's less -- maybe $120 a year. Either way it's too much.

The charge is being phased in, and customers won't see a separate line item on their bills. But this summer the "capacity" premium will add $5 to the "generation supply" portion of a typical BGE bill, which is set to rise 50 percent after June 1, and it may go higher later.

The capacity charge is a humdinger, destined for a Ripley's museum. It does not pay for coal, uranium, salaries or any other expense. It's basically a fee that BGE, Mittal Steel and other users pay to ensure access to potential megawatts at times of high use.

But as a practical matter it is pure profit for generation outfits, especially those with plants in areas such as Central Maryland, where demand exceeds supply. Based on auction prices announced Friday, the capacity charge could eventually net $200 million a year just for Constellation's Brandon Shores and Calvert Cliffs plants, says South River.

Why would federal regulators and PJM Interconnection, the regional grid manager, allow enormously profitable generation companies to charge rate-rattled customers even more?

The answer is that PJM claimed a surcharge would solve Central Maryland's generation shortage (which makes prices high in the first place). Maybe merely exorbitant prices aren't enough, PJM reasoned. Maybe truly obscene prices would induce Constellation, Exelon, Mirant or some other company to build a plant.

The results of last week's capacity auction "match the goals ... to send pricing signals that will attract investment in new capacity resources where they are most needed," PJM Vice President Andrew L. Ott said in a canned statement.

The results also match the goals of Constellation to reap mega-millions. Perhaps the Justice Department should solve Microsoft's monopoly on computer software by ordering Microsoft customers to pay more.

Why PJM decided existing generation plants -- and not just new ones -- should get the bonus, and how the whole thing was approved, should make for an interesting inquiry. Numerous parties objected, saying the scheme would only enrich generation companies, not prompt new capacity, but PJM and FERC signed off.

The idea "is without merit and has never proven to be successful," Marc Yacker, head of government relations for the Electricity Consumers Resource Council, which represents big industry, said in an interview Monday. There are numerous obstacles to new plants besides profitability -- environmental rules, for one, say opponents of the scheme.

"They're upping the ante on us, and we're just not clear it's going to work," Sue Kelly, general counsel for the American Public Power Association, a group of municipal utilities, said in an interview.

Constellation spokesman Lawrence McDonnell defended the setup and said capacity prices -- and related Constellation profits -- will fall after new plants are built. In any event, he said, Constellation's Maryland plants have sold most of their juice for the next couple of years and won't immediately reap a big capacity-price benefit.

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