PSC hearings open with no easy fixes

Panel reviewing BGE rate rise scheduled for June

April 18, 2007|By Andrew A. Green | Andrew A. Green,Sun reporter

The new Public Service Commission members began yesterday their first examination of the sharp rise in BGE electric rates they were appointed to challenge. But after eight hours of testimony, they uncovered no easy fixes for the 50 percent increase the utility's customers face this spring.

Gov. Martin O'Malley made the previous PSC's refusal to hold similar hearings last year a defining issue in the 2006 election. After unseating Gov. Robert L. Ehrlich Jr., he named a new majority on the commission within weeks of taking office in January.

"Our purpose is to hold a whole and fair hearing on the proposed BGE rate increase of 50 percent and for this newly constituted PSC to determine whether that rate increase ... is based on fair and prudently incurred costs," PSC Chairman Steven B. Larsen said yesterday as a week of hearings began. "We want to accomplish a lot."

The change in tone from last year's debate over Baltimore Gas and Electric Co. rate increases was palpable in the PSC's 17th-floor hearing room in the William Donald Schaefer office tower yesterday.

Then, a PSC selected by Ehrlich to be more favorable to business, decided there was no legal reason to hold a hearing on the proposed 72 percent increase that BGE was pursuing.

Later, it held a hearing on a rate mitigation plan that Ehrlich negotiated, and the chairman at the time, Kenneth D. Schisler, spent most of an afternoon stopping angry citizens, lawmakers and advocates from testifying on the rate increase itself, saying it was settled and unchangeable.

The General Assembly later convened in a special session and deferred all but 15 percent of the increase. The remainder is to begin coming due June 1.

Yesterday, Larsen led the questioning of witnesses, zeroing in on the process by which BGE buys its power on the wholesale market.

"There seems to be an awful lot of subjective judgment in what a layman might view as a process that would involve more data-driven decisions," Larsen said. "I'm not convinced that has to be the case."

Larsen has no experience in utilities, but he made a name for himself during his stint as Maryland insurance commissioner, when he used a similar series of hearings to derail a plan to convert CareFirst BlueCross BlueShield to a for-profit company.

A turning point in those hearings came when he elicited information from witnesses about the lucrative packages the company's executives would have received had the deal gone through.

Yesterday's hearing didn't prove Larsen to be the Perry Mason of Maryland's utility regulators; there were no witness stand confessions or shocking twists.

The closest he came to that was when he got Mark Case, BGE's head of regulatory services, to acknowledge that the company has only an indirect stake in making sure prices don't go up.

Or when another new commissioner, Susanne Brogan, got Case to acknowledge that the plan for BGE to buy all of its power load at one time for the calendar year that began last July was, in hindsight, a bad idea. The process has since changed so that the company buys no more than a quarter of its load at once, and BGE wants to spread its purchases out even further.

Larsen and the other commissioners were largely cordial in their treatment of the utility industry witnesses. At times, the examination of witnesses turned into a freewheeling negotiating session.

While questioning Case, Larsen spun out hypotheticals about actions the commission could take to gauge his reaction.

That's what happened when Larsen began asking questions about how the utility determined that the prices it pays for electricity -then passes on to its 1.1 million customers in central Maryland - are prudently incurred, as the law requires.

He quoted from Case's written testimony, in which the utility executive said that as long as the company follows the process the PSC sets out for buying energy contracts, it considers the costs to be prudent.

"If the commission, for example hired a consultant and determined if a different set of conditions would have yielded a lower price for BGE customers starting June 1, it's your view we could not have done anything about it because we set up a process?" Larsen asked.

"Yes, that's my view," Case said.

"We don't have discretion to change anything once the process has been set up?" Larsen said.

"Yes," Case said.

"You would object if it were a hindsight exercise?" Larsen asked.

"Very much," Case replied.

At another point, Larsen floated the idea that BGE's parent, Constellation Energy Group, could pick up the tab for interest charges associated with a rate deferral plan the utility proposed to help customers deal with the 50 percent increase. Case didn't think much of that, either.

In an interview later, Case said the company would be concerned about any moves the commission might make to destabilize Maryland's regulatory environment.

The political turmoil over the last year has hurt the company because credit rating firms have downgraded BGE's bond rating to near junk status, a development that will ultimately hurt consumers because the increased costs of borrowing will be passed on, he said.

"Every single witness has concluded the process was followed," Case said, referring to written testimony that has been submitted in advance of the hearings. "What people don't like is not the process. What they don't like is that prices have gone up."

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