Decade of Deregulation Felt in Climbing Bills

'Stranded Costs'

Users paid millions to decommission Calvert Cliffs in 2034 before the owner was required to assume the costs. (1998 Photo By Mark Gail -- The Washington Post)
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Utility companies used to own the generation plants and the wires that deliver power to homes and businesses. In the deregulated system, outside buyers or unregulated affiliates of the utilities took the plants over.

Power companies said competition would cost them customers and the steady stream of revenue needed to recover their investments in plants.

In response, lawmakers and utility regulators allowed power companies to charge ratepayers for those "stranded costs." In Maryland, Constellation, the parent of BGE, billed customers $975 million from 2000 to 2006, even though BGE had merely transferred its 11 plants to Constellation.

Pepco ratepayers in the District and the Maryland suburbs fared better, getting a $72 credit on their bills from the utility's sale of its four largest generating plants to Atlanta-based Mirant for $2.9 billion.

In Virginia, Dominion customers, including 700,000 in the Washington suburbs, have paid the state's largest power company more than $1.5 billion since 1998 to cover the loss of potential customers, according to regulatory filings and the attorney general's office. But the utility didn't lose customers because retail competition never developed. Last year, the General Assembly returned the state to a new form of regulation, which will take effect in January.

The charges include $238 million for a new nuclear reactor at its plant outside Richmond. Dominion canceled plans to build the plant 26 years ago amid safety concerns about nuclear power. The last of the charges was set to expire in 1999. But when rates were frozen during the transition to deregulation, the charges stayed. They'll continue until at least next year.

Electricity charges in Virginia are the lowest in the region because of rate freezing that will be removed next year. But critics say they could be lower still. As Dominion's returns on equity have climbed since 1998 -- hitting 22 percent in a recent year -- and its stock price has almost doubled, the company has not been forced to reduce rates.

"The theory was that at the end of the transition period [to competition], we would have the opportunity to be compensated for costs on our plants," Dominion spokesman Jim Norvelle said. "That's what the agreement said: If you can operate more efficiently, you can keep the savings."

The State Corporation Commission, however, reported year after year that Dominion wasn't suffering any losses in customers from deregulation.

"The utilities never experienced any costs [from competition], but consumers are paying for them anyway," said Irene Leech, an advocate for Virginia electricity customers.

Constellation spokesman Robert Gould said the costs to Maryland customers to decommission Calvert Cliffs and pay off the mortgages on power plants were fair, were openly negotiated and came in exchange for a six-year rate freeze. He said the company is spending $1 billion on plant improvements, partly to meet new environmental mandates.

Even as they voted for the settlement with Constellation that removed the decommissioning costs for customers, Maryland lawmakers promised to come back next year with bills to return the state to regulation.