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Correction to This Article
An information box with a Metro article in some May 2 editions incorrectly said that the deferred payment period for Pepco customers who choose to phase in a rate increase will end in December 2009. It will end in December 2008.
Price Increases Leave Md. Officials and Utilities Tongue-Tied
Executives, Politicians Wonder How to Explain Choices

By Ann E. Marimow
Washington Post Staff Writer
Tuesday, May 2, 2006

As utility company executives sought to explain the choices facing households throughout Maryland this month, federal government worker Brenda Latney-Lee shook her head and muttered, "Seniors are never going to understand this plan -- or afford it."

Even the state's chief utility regulator, Kenneth D. Schisler, wrinkled his brow at the prospect of easily explaining how customers could stretch out, but not reduce, looming rate increases.

"I'm concerned that it becomes so cumbersome and complex that it becomes difficult to understand," Schisler, chairman of the Public Service Commission, said last week before signing off on Baltimore Gas and Electric Co.'s plan to phase in a 72 percent increase that is to begin in July.

Starting this month, Pepco and BGE electric customers will have a choice: confront sharp rate increases head-on, or put off the pain until next year and in some cases pay more later.

Lt. Gov. Michael S. Steele (R), a Prince George's County resident, said he is delaying his 38.5 percent Pepco increase. House Speaker Michael E. Busch (D-Anne Arundel) said he is telling his 78-year-old mother in Glen Burnie to pay BGE's increase upfront. Gov. Robert L. Ehrlich Jr. (R) -- who brokered the BGE deal with parent company Constellation Energy Group -- has offered advice to his parents, who live in the Arbutus home where he grew up.

"But we'll invoke the 'parent-son privilege' and decline to disclose their discussions," said Ehrlich spokesman Henry Fawell.

As Maryland ratepayers decide how to cope with their hefty bills this summer, investment advisers and financial planners are divided on whether it makes sense to "opt in" to the deferral plans.

In general, the advisers favored the interest-free feature of Pepco's plan, which allows customers in Montgomery and Prince George's counties to ease into the 38.5 percent increase over a year. BGE's plan initially included 5 percent interest on deferred payments, but the commission struck that provision last week. The company appealed the commission's decision yesterday, but Constellation spokesman Robert Gould said BGE would allow the plan to take effect.

Overall, the financial advisers cautioned against borrowing to pay household expenses and encouraged customers to think ahead to June 2007, when the deferred balance starts coming due.

"With the time value of money, you'd rather pay something you owe later than today," said Chris Brown, president of Ivy League Advisors in Rockville. "If the interest rate is zero, this ends up being a no-brainer."

Pepco customers who choose to defer the rate jump would see a 15 percent increase next month. A customer with a $100 monthly bill, for instance, would pay $115 instead of $138.50. Rates would rise again in March by 15.7 percent. Customers would begin to pay the company back in June 2007, without interest, over 18 months.

Before making a decision, ratepayers should weigh their financial obligations, said Mary Malgoire of the Family Firm in Bethesda. If no major expenses are on the horizon, she said, and "it doesn't cost anything, I think it's a good approach."

But Ted Toal of Annapolis said he would tell clients to bite the bullet and start adjusting household budgets to accommodate higher prices. "You're going to feel the pinch whether or not you defer," said Toal, whose firm, Toal & Associates, offers accounting and planning services. "If you have to catch up with deferrals, even without the interest, it makes sense to take it all upfront."

The decision for customers is complicated by the unpredictable price of electricity. Rates could change next month depending on how much electric companies pay to buy power.

Pepco regional president Thomas Graham urged customers to factor in additional increases in their decision. He worries that ratepayers will look at the offer and say: "Oh, there's no interest. What a great idea," without realizing that in June 2007, if prices rise again, electricity bills would include a higher rate on top of the monthly repayment amount. "You have to understand the ramifications of your decision," he said. "The price of energy has gone up, and you have to pay for it at some time."

In response to concerns last week from Baltimore residents such as Latney-Lee and consumer advocates at the Office of the People's Counsel, the Public Service Commission approved a modified deferral plan for BGE's 1.1 million customers. In its decision Friday, the commission eliminated a 5 percent interest charge that was included in the initial deal Ehrlich negotiated with Constellation.

Customers who choose to ease into the 72 percent increase would pay 19.4 percent more in July, an additional 5 percent in January and an estimated 25 percent more in June 2007, when they also start paying back the loan. The commission also said BGE customers, like those served by Pepco, who move out of the area before repaying the company would be charged the full deferral in their final bill.

Questions remain, though, about whether BGE could recoup its borrowing costs and what affect that would have on rates. BGE's appeal yesterday seeks to reserve the company's ability to collect those costs later. "To force even more debt on BGE's shoulders will put an additional strain on the utility's finances, potentially raising costs for all customers," according to a statement released by the company.

Harold D. Williams, the lone Democrat on the commission and the only member not appointed by Ehrlich, declined to support the commission's decision because of such "confusion and lack of clarity."

Attorney General J. Joseph Curran Jr. (D) had similar concerns and took issue with how BGE represented its plan in newspaper ads, which were at odds with how it was portrayed by the Ehrlich administration.

"The consumer should know upfront that there are not going to be any real savings," Curran said.

In a letter to BGE's president, Curran said the company must make clear that the deferral plan does not reduce the cost of electricity. He compared the plan to using a credit card to pay for a big-ticket item. There might be smaller monthly payments, he said, "but in the long run, you pay."

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