State Mulls Return to Energy Regulation

Increase in Electricity Prices Has Raised Suspicions of Gouging

Maryland's top utility regulators, facing a backlash from consumers over high electricity rates, are exploring ways for the state to roll back its experiment with competitive electricity pricing and to possibly return money to ratepayers.

Maryland, one of more than two dozen states in which prices rose after electricity regulation was ended, might find its best model in a new law in Illinois that provides a $1 billion rebate from the industry to customers, regulators say.

A team of energy experts hired last month by the Public Service Commission is considering whether Maryland could bring a similar case against the wholesale power companies it thinks may be charging excessive prices.

"The first major steps have been taken to determine what options Maryland has to . . . control its own destiny when it comes to electricity supply," said Steven B. Larsen, whom Gov. Martin O'Malley (D) appointed chairman of the commission this year.

The $1.6 million contract with Kaye Scholer, a Washington law firm specializing in energy litigation, comes as the governor tries to address spiking electricity bills for millions of customers across the state.

Lawmakers hoped competition would bring down prices when they deregulated the market for wholesale power in 1999 and capped rates for several years. But when those caps were lifted -- for Pepco customers in 2004 and last year for Baltimore Gas and Electric ratepayers -- the competitive system brought steep increases: a 72 percent jump for BGE that was phased in this spring and smaller increases for Pepco payers.

The industry has blamed the increases on higher fuel costs, but state regulators say those are not the only factor.

Under the new system, utilities sold their generating plants, leaving the wholesale companies that provide power to set electricity prices based on the market. State regulators have raised concerns that the wholesale industry is overcharging utilities, which pass the cost to ratepayers.

In BGE's case, consultants will investigate a possible conflict of interest between the utility and its parent company, Constellation Energy Group, which supplied much of its power last year.

"The price increase was so high that it's led to obvious questions about whether the results were fair and competitive," Larsen said.

Robert L. Gould, Constellation's vice president for corporate communication, would not discuss specifics but said, "We continue to engage in a meaningful dialogue with the Public Service Commission as it goes about its review process."

Illinois leaders had similar complaints of unreasonable profits after record rate increases last year under a newly competitive industry. The state attorney general alleged that the wholesale companies that set electricity prices rigged the system. Under political pressure, the industry settled the case, and the state is deciding how to refund ratepayers.