$12 Billion in Payments Challenged In Complaint Joined by 4 Other States
By Lisa Rein
Washington Post Staff Writer
Tuesday, June 3, 2008
Electricity customers in Maryland and the District will overpay for power by more than $1.9 billion through mid-2011 as new federal rules intended to stimulate construction of plants instead enrich power companies, officials alleged yesterday.
In a complaint filed with federal energy regulators, the Maryland Public Service Commission and the District's consumer advocate for utility customers joined with state regulators, advocates and electricity buyers in the mid-Atlantic region and Ohio to demand $12 billion in rate relief. The complaint says power companies in the 13-state grid operated by Pennsylvania-based PJM Interconnection used their market influence to constrain electricity supplies, causing price increases that are being passed on to customers as of last Sunday.
The federally authorized payments to the power industry to stimulate new megawatts "are merely code for a massive wealth transfer from buyers and suppliers," according to the complaint, also joined by Pennsylvania, New Jersey, Delaware and Ohio officials.
"Our customers are being asked to pay a substantial premium for electricity and getting virtually no benefit from it," PSC Chairman Steven B. Larsen said yesterday,
At issue in the complaint are "capacity payments," which are intended to encourage investment in power production and are passed through to customers after utility companies buy future supplies in electricity auctions. The payments are part of the region's switch in the past decade to a deregulated, competitive market for electricity.
As a result of population growth, development and advances in technology, demand for power is soaring in the Washington region, far outstripping supply. Energy experts predict that the region will be vulnerable to brownouts as soon as 2011.
The Maryland Office of the People's Counsel estimated the average "excess" charges at $570 over three years for residential customers of Pepco, Baltimore Gas and Electric and SMECO, an electric cooperative that serves Southern Maryland -- or about $15.85 a month. The effect on District customers, who also are served by Pepco, would be about the same, officials said.
Federal Energy Regulatory Commission spokeswoman Mary O'Driscoll said the agency does not comment on pending complaints.
An official for Constellation Energy Group, the region's largest energy producer and the corporate parent of BGE, said the capacity payments were not necessarily designed to finance new power plants. They also allow the company to invest in existing plants that might otherwise shut down, said Daniel Allegretti, a vice president for energy policy for Baltimore-based Constellation.
"Does new investment qualify as a new megawatt?" Allegretti asked. "The least-cost solution isn't in every case a brand-new plant on a brand-new site. Maybe it's capacity that was going to go away."
State regulators blame federal policy for allowing Constellation, Mirant and other power companies to reap big profits as customers' bills have gone up under deregulation. BGE customers are paying 85 percent more for power than they did before the switch to competition, and Pepco's customers in the District and its suburbs have been squeezed almost as much.
The region's increasing demand for power has resulted in very few megawatts of new capacity. Power industry officials say environmental costs and public opposition have made construction of new plants prohibitive, especially in competition with existing plants, which generally have lower costs. So, FERC agreed last year to allow mid-Atlantic generators to collect a surcharge to spur new supply.
Capacity charges would account for 20 percent of Maryland customers' electricity bills, regulators say. They say the burden would be cut in half by the rate relief sought by regulators and consumer advocates.
A spokesman for PJM Interconnection said improvements at plants in other states in the mid-Atlantic grid could improve supply to the Washington region. "The auctions have sent a long-term price signal that will result in more investment in generation," Ray Dotter said.
Yesterday's complaint is one of a series of efforts by Maryland regulators to fight federal rules that they contend are hurting customers. Last month, the Public Service Commission won a victory when FERC agreed with Maryland that power companies overcharged customers by $87.5 million during peak-demand periods two years ago. FERC declined to order refunds, but customers will save hundreds of millions of dollars on future electric bills.
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