By Ann E. Marimow and Terence O'Hara
Washington Post Staff Writers
Thursday, March 16, 2006; B01
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.
"It's like reneging on a deal," Gould said of lawmakers' calls to take back the payments.
"Imagine I buy a house from you for $50,000 . . . in a borderline neighborhood. I put some money into it, fix the bathrooms, the neighborhood improves, and I sell it six years later for $250,000. Now you come to me and say the deal was bad, and you want some of that money. It's absurd."
But before the state signs off on the $11 billion planned merger or allows rates to rise, lawmakers said they want customers to get back the original $500 million investment in the plants.
"That money belongs to the ratepayer," said House Speaker Michael E. Busch (D-Anne Arundel).
Adding to the outrage in Annapolis yesterday was an article in the New York Times that suggested that many utility holding companies, including Pepco, are "pocketing" income taxes paid by customers.
From 2003 through last year, for instance, Pepco's three regulated utilities entered $506 million as an income tax expense in their books but didn't actually pay that. In fact, Pepco's holding company was granted a $119 million refund.
"It just keeps getting worse," Sen. Leo E. Green (D-Prince George's) said, reacting to the article. "That's why we've got to stop them."
Tony Kamerick, Pepco's treasurer, said that the scenario was a matter of timing and that the company will eventually have to pay all the taxes. Accounting rules require a company to book taxes as an expense in the year in which they were incurred, regardless of when they will be paid. "The bottom line is everybody has to pay their taxes, even Pepco," he said.
State leaders believe the electricity rate increases could become a consuming focus when bills start arriving in the mail this summer -- and fuel a voter backlash in November. All week, leaders from both parties have been trying to shift the blame and take the lead on a solution.
The Maryland Democratic Party began airing radio ads blaming Ehrlich and his appointees on the Public Service Commission. The governor also endured criticism from a Democratic ally, Comptroller William Donald Schaefer.
And Democratic lawmakers took the Ehrlich administration to task for excluding the only black member of the commission from a private meeting with top aides and said they would investigate a potential violation of the state's open meeting law.
Standing with Commissioner Harold D. Williams, the only appointee of then-Gov. Parris N. Glendening (D) left on the five-member commission, black legislators said dealing with the rate increases must be an inclusive effort.
"We cannot solve it with people getting left out of the room. That's ridiculous," Del. Curtis S. Anderson (D-Baltimore) said.
Ehrlich's chief of staff, Chip DiPaula Jr., said that Tuesday's meeting was intended as a briefing by the commission's chairman, Kenneth Schisler, and that three other commissioners just happened to be in Annapolis. "I look forward to meeting with Commissioner Williams," DiPaula said, adding that the two planned to get together yesterday. "I'm happy to meet with him anytime."
Sen. Thomas M. Middleton (D-Charles) said lawmakers are unnerved by the prospect of justifying the rate increases to constituents. He said he believes the lawmakers won't leave Annapolis without lashing back at the utilities.
For BGE especially, Middleton said, "this is the perfect storm, with lightning striking everywhere." If utilities do nothing to soften the blow on consumers, Middleton said, "they're going to see their biggest fear realized: We'll turn them back into a regulated industry."
Staff writers Matthew Mosk and John Wagner contributed to this report.