PSC finds no consensus on lower rates for customers

May 15, 2008|By Paul Adams | Paul Adams,SUN REPORTER

The state's largest utility told regulators yesterday that competition is Maryland's best hope to deal with rising energy rates, while consumer advocates countered that electric deregulation is a failure and needs to be reformed.

The two sides presented their divergent views at a Public Service Commission hearing to consider options for re-regulating the state's power industry - part of a continuing review of the 1999 legislation opening the market to competition.

Lawyers representing industry and consumers each declared the other's proposals would result in higher electric rates, which in the case of Baltimore Gas and Electric Co. have climbed 85 percent since deregulation became law in 1999.

The latest hearings are a follow-up to the PSC's preliminary report on re-regulation, which concluded in December that competitive power markets can't be trusted to deliver low costs or to build enough power plants to keep the lights on. The commission indicated it stands ready to impose some form of re-regulation.

The state People's Counsel argued that the current system should be replaced with one giving partial control back to the state. William Fields, an attorney for the agency, argued that utilities could lower prices by buying power through long-term supply contracts, or by building new power plants that would have their profits regulated by the state.

BGE and its corporate parent, Constellation Energy Group, countered that soaring fuel costs - not deregulation - are to blame for higher electricity rates. They contend things would be worse were it not for competition, and that unfettered markets will produce the best result if regulators and politicians give it time.

"We don't believe it's in the best interest of our customers to enter into long-term contracts," said William B. Pino, director of electric supply for BGE.

"It's just a gamble that you're going to, quote, 'beat' the market," Pino said.

The PSC has until December to report its findings and recommendations to lawmakers. The report was mandated in legislation passed last year.

Much of yesterday's debate centered on plans to revamp how utilities buy electricity. As part of deregulation, utilities either sold or transferred ownership of their power plants. They now purchase power by soliciting bids from wholesale energy suppliers, who enter into rolling two-year contracts with the utilities.

Critics say the system is flawed because it subjects consumers to the whims of the market, which some contend is insufficiently competitive and results in high prices. Consultants for the PSC studied the possibility of having utilities buy back their power plants. But they concluded that option would cost $18 billion to $24 billion - an impossibly high price for consumers to bear.

The People's Counsel says the state should instead require utilities to buy power through a portfolio of short-, medium- and long- term contracts that would be actively managed - much like a stock portfolio - to achieve the lowest price. The agency hired consultants who concluded such an approach will deliver the best price. By contrast, their models show that sticking with the current method puts consumers in a worse position.

"We can do better," Fields said.

BGE's Pino was skeptical of the underlying assumptions in the People's Counsel's analysis. He said buying power under 15-year or longer terms would shift more risk to consumers, potentially supplying them with high-priced power if the market price for electricity goes down before the pact expires.

"So in the big picture of re-regulation, it sounds like BGE's position at this point is 'stay the course?'" said Steven B. Larsen, PSC chairman.

Pino responded 'yes,' though the utility has suggested a variety of tweaks, such as switching to three-year power contracts. .

Barbara Alexander, consumer affairs consultant for AARP, agrees changes need to be made. She believes utilities don't like the People's Counsel approach because they don't want to be back in the business of owning power plants or managing their power supply. "The utilities want no active responsibility," she said. "They want to say to people, 'it's not our fault,' and you have to change that culture."

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