Power Industry Holds Firm on Rate Jumps
As Hearings Begin on Md. Proposals, Lawmakers Are Told Not to Intervene

By Ann E. Marimow and Matthew Mosk
Washington Post Staff Writers
Wednesday, March 15, 2006

Power industry officials warned Maryland lawmakers yesterday against meddling with planned electricity rate increases of as much as 72 percent, saying such efforts could result in less reliable service for customers, financial risk for companies and, at worst, California-style rolling blackouts.

Meanwhile, Republican Gov. Robert L. Ehrlich Jr.'s chief of staff met privately with four of the five members of the state's utilities commission to discuss options for lessening the sting for consumers, a meeting that drew criticism from Democrats who pointed out that the panel is both independent and subject to the state's open meetings law.

In the opening round of debate on a topic destined to dominate the last month of the General Assembly session, legislators considered measures to give consumers more time to pay rising rates, change the way companies buy power and embolden state officials in a pending merger that involves Baltimore Gas and Electric Co.

"Somewhere within all these bills there is a solution," Sen. Edward J. Kasemeyer (D-Baltimore County) said.

The Public Service Commission announced last week that the average household electricity bill for BGE's 1.1 million customers would rise $743 a year when rate caps expire in July. In June, the typical residential bill for Pepco's 500,000 residential customers is expected to increase 38.5 percent, or $468, a year.

Pepco offered its own proposal yesterday, saying it would allow customers to defer increases of more than 21 percent and spread out payments over 15 months.

The delicate negotiations that officially began yesterday with hearings in the House and Senate carry consequences for consumers and political implications in an election year.

On the same day, Ehrlich Chief of Staff Chip DiPaula Jr. met with the governor's four appointees on the commission in what DiPaula described as a "presentation of the facts" that are part of the governor's "aggressive pursuit of solutions."

Two former members of the commission called the meeting highly unorthodox and questioned whether it could legally be held without violating the Open Meetings Act.

"That's totally out of bounds for a regulatory agency," said Gail McDonald, a Democratic appointee who served on the commission until 2004.

Current commissioner Charles Boutin said there was no conflict with the public meeting law because the commission has already acted to approve rate increases. "We can discuss that order now with everyone," he said.

The discussion also raised questions about Ehrlich's business-friendly approach to governing and the hiring decisions his appointees oversaw at the Public Service Commission.

Appearing before the Senate Finance Committee, Baltimore Mayor Martin O'Malley blamed Ehrlich's appointees on what he called the "much weakened" commission for not cracking down on the proposed hikes.

"The regulated are now the regulators," said O'Malley, who is seeking the Democratic nomination for governor. "Governor Ehrlich fired the watchdogs and put the foxes in charge of guarding the henhouse."

Chairman Kenneth D. Schisler, who was appointed by Ehrlich in 2003, unilaterally fired five of the agency's top employees two years ago. Two former BGE employees and two former Allegheny Power employees are now in charge of four divisions at the commission.

Schisler, a former Eastern Shore delegate, dismissed such criticism as "demagoguery."

"I understand the need to create a scapegoat," Schisler said. But the commission has "done nothing but implement flawlessly" the system created by his Democratic predecessors to implement the deregulation plan approved by the General Assembly in 1999.

The massive rate increases, he said, are the result of artificially low prices combined with higher energy costs from events beyond Maryland's borders, such as Hurricane Katrina.

Skeptical lawmakers used yesterday's hearings to vent their frustrations with rising rates for customers in light of what they said was a "sweetheart deal" for BGE and its parent company, Constellation Energy Group Inc.

The company's revenue has nearly doubled in two years, to $17.1 billion in 2005, and shareholders would benefit from the pending $11 billion merger deal with the Florida-based FPL Group.

"Can you help me explain that to my constituents?" asked Sen. John C. Astle (D-Anne Arundel).

"I think I can," said Mary Dempsey, Constellation's managing director of public affairs.

"I'm not so sure," Astle added before Dempsey could answer.

Dempsey went on to explain that the company's shareholders, not BGE ratepayers, would compensate executives working on the deal.

Kenneth DeFontes Jr., BGE's president, said legislation to limit rate increases to 5 or 20 percent would put his company at "substantial financial risk."

If the company were forced to borrow to make up the difference, DeFontes said, its bond rating would deteriorate, making it more difficult to buy power and respond to customers.

DeFontes was joined in his opposition by former Federal Energy and Regulatory Commissioner William Massey, who was on the commission during California's energy crisis, which brought rolling blackouts to the state.

"It's an unfortunate series of events," Massey said. "We've watched this happen."

Del. Dereck E. Davis (D-Prince George's), the lead lawmaker on energy issues in the House, has introduced legislation to slow down what he called the revolving door between utility companies and the Public Service Commission. O. Ray Bourland and Bryan Moorhouse, for instance, spent two decades at the utility commission before joining Allegheny Power's government affairs office. Bourland is back at the commission as executive secretary, and Moorhouse has returned as chief hearing examiner, as reported yesterday in the Baltimore Sun.

"Our job is to represent the interests of consumers and companies that use electricity and the utilities themselves. We have to weigh all those interests," Bourland said. "Having people on staff and the commission that have experience with all those constituencies is useful."

Davis praised Bourland and said the legislation was not intended to impugn anyone's character but to create a "separation from one career to the next" and ensure "the lines aren't blurred about who works for who."