By Lisa Rein
Washington Post Staff Writer
Thursday, March 27, 2008

Maryland Gov. Martin O'Malley and executives of Constellation Energy will announce today that the energy giant has agreed under a legal settlement to give 1.1 million electricity customers in the Washington-Baltimore area a one-time $170 credit on their bills, according to sources familiar with the negotiations.

The deal, stemming from a lawsuit Constellation filed against the state of Maryland this month, also would eliminate an estimated $5.2 billion that electricity customers were scheduled to pay the company to dismantle its Calvert Cliffs nuclear plant, which must be decommissioned starting in 2034, the sources said. They asked to remain anonymous because the plan had not been publicly announced.

The agreement needs approval from the General Assembly before its scheduled adjournment April 7. Sources said legislative leaders had been briefed on the deal. Lawmakers said they hoped customers could receive the credits this summer, when air conditioning would drive up electric bills.

The plan negotiated by the power company and the O'Malley administration is intended to calm two years of public recriminations over a 72 percent rate increase by Baltimore Gas and Electric, a utility owned by Constellation. It follows a long public relations war between Constellation and O'Malley (D), who campaigned on a promise to obtain electric rate relief.

Maryland customers of BGE and Pepco have seen electric bills soar since the end of rate caps imposed when the state opened its electricity markets to competition in 1999. But the increase to Pepco customers in Montgomery and Prince George's counties was phased in more gradually than the BGE increase, which hit customers last spring. BGE serves parts of Montgomery, Prince George's, Howard and Anne Arundel counties and Southern Maryland.

The average yearly residential bills for the two utilities are not far apart: $1,910 for Pepco and $1,855 for BGE, starting in June.

This most recent dispute began when Constellation announced in January that it planned to file suit in federal court to stop giving electricity customers credits that would have amounted to almost $400 million over 10 years. Those payments, which began last year, came to $2.83 a month. The state filed a countersuit to continue the credits.

Under the settlement, BGE customers would still pay about $18 a year for the next two years toward the Calvert Cliffs decommissioning fund. But after that, company shareholders would foot the bill.

Constellation spokesman Robert Gould said last night that the company "continues to work with the state" to resolve their differences.

The proposed deal appears to give Constellation shareholders more certainty in what Constellation's chief executive officer, Mayo A. Shattuck III, said in January was a "destabilized energy marketplace in Maryland."

Company officials were furious at a report by the state Public Service Commission that said some terms of the 1999 deregulation deal were unfair to customers. Commission Chairman Steven B. Larsen asked lawmakers to give regulators more authority over electric bills.

Shattuck told shareholders that tensions with the state had jeopardized the company's plans to break ground on a third reactor at Calvert Cliffs as early as this year, and he threatened to build the project at a location in New York.

Under the settlement, the company will continue to pursue financing and federal loan guarantees to expand nuclear power operations at its Southern Maryland site. Constellation also gains more leeway to sell stock to power plant investors without approval from state regulators.

Senate Finance Committee Chairman Thomas M. Middleton (D-Charles), one of the General Assembly's energy experts, said last night that Constellation "has made a big concession" to electric customers by assuming the eventual costs to decommission the nuclear plant.

"It's a very significant resolution to know that the ratepayers are no longer responsible for that," he said.

The agreement also phases in an increase in distribution charges that Constellation sought to cover the cost of maintaining the wires that deliver electricity to homes and businesses. The increase would not take effect until October 2009 and would be capped at 5 percent, adding about $1.60 a month to residential bills, sources said.

An advocate for residential customers called the $170 credit a short-term boon for customers. "But deregulation clearly was a boondoggle," said Johanna Neumann of the Maryland Public Interest Research Group. "The reality of the world we live in is that energy bills are going up."