50% rise in BGE rates OK'd by PSC

Panel criticizes utility, past regulatory rulings

May 24, 2007|By Paul Adams | Paul Adams,SUN REPORTER

The state utility commission approved yesterday a 50 percent electricity rate increase for customers of Baltimore Gas and Electric Co. in a sweeping order that also takes the company and past regulators to task for decisions made in the run-up to electricity deregulation.

The five-member Public Service Commission said it had arrived at its conclusion "reluctantly," arguing that its hands were tied by past regulatory decisions, legislative action and the terms of state-approved contracts that the utility has signed with electricity suppliers.

Regulators gave BGE's 1.1 million customers the option of paying the full increase starting June 1 or phasing in the higher costs until January.

Customers who choose the deferral will pay a smaller rate increase in June, followed by two additional jumps ending Dec. 31, after which they will begin paying full market prices. BGE will not charge interest on the deferred amount, which must be paid back over nearly two years starting in April next year.

Yesterday's decision is certain to disappoint consumers who were hoping that a commission led by appointees of new Democratic Gov. Martin O'Malley would find a more immediate solution to higher electricity rates, which have soared since the expiration of rate limits that had been in effect for six years.

Steven B. Larsen, the PSC chairman, said the commission probed unanswered questions about the fairness of the rates, which O'Malley argued that previous regulators failed to do.

"I know that won't be satisfactory to the ratepayers, but hopefully it will remove some of the suspicion around the rates and show that whatever else you can say about it, they aren't contrary to the law," Larsen said.

The 106-page order completes a transition to deregulated electricity rates that was put on hold last year by lawmakers engaged in a fiery debate over a proposed 72 percent rate increase for BGE.

The General Assembly passed a bill temporarily limiting the increase to 15 percent, while ordering the PSC to examine utility rates and come up with a plan to phase in the rest of the rate increase by January.

The legislation also guaranteed BGE that it could recover its deferred costs, which the commission said left it little recourse but to approve the new rates yesterday.

Even without that provision, the PSC concluded, BGE followed the rules when it obtained electricity at higher market prices last year, and denying the utility full recovery would set off a legal battle that the state was sure to lose.

The commission's decision followed weeks of testimony and eight days of hearings on the rate increase, which became a central campaign issue during last year's gubernatorial race. As a candidate, O'Malley decried the previous commission's handling of the rate increase and pledged to appoint to the regulatory panel new members who would take a more critical look at whether it was justified.

O'Malley appointed Larsen, a former state insurance commissioner, PSC chairman in February. Additional appointments gave the governor four of the panel's five seats.

The revamped commission took up O'Malley's push for greater scrutiny by delving into what it determined were multiple flawed decisions and adverse market conditions leading to the largest electricity rate increase in state history.

The commission's order criticized BGE officials for sitting by idly as energy prices soared, rather than aggressively trying to manage the sizable rate increase they saw on the horizon in late 2005. A BGE spokesman declined to comment on the criticism.

While blaming most of the increase on rising fuel costs and other factors beyond the commission's control, the order also sharply criticized the previous PSC, which was led by Kenneth D. Schisler, a former Republican lawmaker appointed by Gov. Robert L. Ehrlich Jr. in 2003.

The PSC faulted past commission members for not taking steps that could have eased the BGE rate increase despite a legislative mandate that it do so and ample warning of an approaching crisis.

"At several junctures, had the commission taken different action to respond to emerging market conditions and later addressed concerns raised by the General Assembly ... it is possible that rates could have been lower than those we are asked to approve in this proceeding," the order says.

Schisler and Ehrlich could not be reached yesterday. James Pelura, chairman of the state Republican Party, issued a statement accusing O'Malley of breaking his campaign pledge to provide consumers relief if elected.

"O'Malley is all show and no substance," Pelura said.

The governor's office said in a statement that the commission's order provides a "road map" toward creating a fairer system than the one developed during the eight years since deregulation. A bipartisan group of lawmakers approved deregulation in 1999, when Democrats controlled the General Assembly and governor's office.

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