PSC opens hearing on rate reform today

October 03, 2007|By Paul Adams | Paul Adams,Sun reporter

State utility regulators begin debate today on proposals to scrap the way Maryland utilities buy electricity in favor of a more flexible system that some argue will eliminate price shocks like the one that hit consumers this past summer.

The Public Service Commission hearings are the latest phase in a multipronged review of the state's deregulation laws that consumer advocates hope will lead to lower electricity prices.

Gov. Martin O'Malley and lawmakers ordered the studies in response to outrage over a more than 70 percent rate increase for customers of Baltimore Gas and Electric Co. over the past two years.

The panel is contemplating various reforms that could undo portions of the law and potentially allow utilities to again own power plants, much as they did under traditional regulation.

Critics want to change to a system in which utilities or an outside consultant actively manage a portfolio of power supply contracts that would vary in length and terms to take advantage of market trends.

The portfolio manager would act much like the manager of a mutual fund, who seeks a diversified portfolio of stocks and bonds to achieve high returns without subjecting investors to unnecessary risk.

Currently, utilities buy power through a rigid wholesale bidding process that requires them to lock into revolving two-year contracts. The contracts are awarded to the lowest bidder in a process overseen by the PSC.

The procurement process is similar to those that have been under scrutiny in several other states that deregulated their energy markets.

Illinois is to replace its wholesale bidding system with a "managed portfolio" approach similar to one the PSC is contemplating.

Critics of the current system say it doesn't allow utilities to alter strategy in response to changes in the wholesale energy market.

For example, BGE and other investor-owned utilities in Maryland were required to buy 100 percent of their power supply in winter 2005-2006, when energy markets were roiled by the after-effects of hurricanes Katrina and Rita. Some contend the resulting rate increase could have been lessened had utilities been allowed to delay their purchases or employ other tactics.

"One of the objectives of a managed portfolio is allowing some discretion to be exercised regarding when the electricity is purchased and for what length of time," said PSC Chairman Steven B. Larsen.

The hearings will be held in the PSC's offices in the William Donald Schaefer building in Baltimore beginning at 10 a.m. Testimony will continue tomorrow and Friday, with the commission expected to issue a decision this fall.

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