Md. Weighs Remedies for Rate Hikes

By Ann E. Marimow and Terence O'Hara
Washington Post Staff Writers
Thursday, March 16, 2006

Responding to a growing backlash against rising electricity rates, Maryland lawmakers floated several options yesterday to extract concessions from the state's largest utility company to lower costs for customers.

In the mix is a proposal to force Baltimore Gas and Electric Co.'s parent company to return $500 million its customers have paid over six years and another to allow cities and counties to buy power in bulk, something the utility industry has successfully fought for years.

Most dramatic is the possibility of regulating the industry again, an idea embraced by Democrats, including the Senate's leader on energy issues, and some Republicans.

The timing of the planned rate increases, which could be as much as 72 percent, could not be worse for the industry. It comes as BGE's parent company, Constellation Energy, awaits approval of a merger with a Florida-based company -- and it is an election year. Legislators are linking the issues in the final month of the General Assembly session.

"It's a question of how badly they want their merger," Senate President Thomas V. Mike Miller Jr. (D-Calvert) said yesterday. "There have to be significant concessions."

The tough talk from the General Assembly and public outcry follow the Public Service Commission's announcement last week that electricity bills would soar this summer. For BGE's 1.1 million customers, the typical household bill would increase $743 a year. For the 500,000 Maryland customers served by Pepco, the average increase would be $468 or 38.5 percent.

Gov. Robert L. Ehrlich Jr. (R) said behind-the-scenes negotiations are underway to trim the increases. "Seventy-two percent will not stand," he said yesterday.

Robert Gould, a Constellation spokesman, said the legislature's attempt to link the proposed merger to the rate increases is "totally inappropriate and has not allowed a fair hearing for the merger."

When Maryland ended electric regulation in 1999, the utility companies moved from being power generators to suppliers. Pepco sold its power plants; Constellation retained its plants, but separately from BGE.

At the time, Constellation said its shareholders would have to bear the risks associated with owning power plants because many of its old-line coal-fired plants -- and its Calvert Cliffs nuclear facility -- were considered unstable assets. Newer, natural gas plants were more valuable back then.

As part of the deal, Constellation and the state agreed that ratepayers should pay the company $500 million over six years for taking on ownership of those power plants.

Since then, Gould said, Constellation has invested more than $1 billion in its plants. The improvements, as well as the soaring price of natural gas, made BGE's old power plants more valuable. Constellation has insured Calvert Cliffs for a little more than $2.7 billion. When the plant was transferred to Constellation from BGE in 2000, it was valued at $1 billion.

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