A major battle is shaping in Maryland over how electric utility companies pass through rising fuel costs to customers. Its outcome will affect the monthly electric bills of hundreds of thousands of people, and the case is being closely watched by utilities and regulators in the Washington area and all over the country.
In a two-week-long series of hearings that began yesterday, the Maryland Public Service Commission will listen to attorneys from the state's four big electric utilities - Potomac Electric Power, Baltimore Gas and Electric. Potomac Edison and Delmarva Power and Light - as they try to soften the impact of stringent new state legislation that restricts the ability of the utilities to pass on fuel costs to their customers.
"The legislation is designed so the utilities will go out and bargain harder for fuel and utilize their plants more efficiently," said Gary Alexander, an attorney under contract to the state People's Counsel's Office to argue the cases on behalf of consumers. "It's to keep [the utilities] on their toes."
For the consumer, Alexander said, the new legislation and the hearings will add "credibility to the process of regulatory review" of the utilities, and may result in lower fuel charges on monthly electric bills.
However, Potomac Electric Power Co. spokesman John Grasser said that if there is any time lag in collecting fuel costs caused by the new law, or if there are any uncollected fuel costs, the utility will have to pay for them - which might even mean that customers' bills would go up rather than down.
"The money's got to coem from somewhere," said Grasser.
Pepco, with 276,000 Maryland customers in the Washington area, burns an average of $640,000 a day in coal and oil in its eight power plants that serve Maryland, the District and a small portion of Virginia in Rosslyn.
The "fuel charge" portion of electric bills became controversial both here and nationally after the 1973 Arab oil embargo, the 1977 coal strike, new environmental laws and other factors drove up steeply the prices that utilities pay for the oil and coal they use.
The cost of power purchasers from other companies are also passed through in the fuel clause. In Pepco's case, this tends to work to the customer's advantage, since the utility has so much spare generating capacity that it usually sells millions of dollars worth of electricity to other utilities monthly. These earnings are passed through the fuel clause as savings to customers.
But the public began to protest when these almost automatic fuel cost pass-throughs grew to represent a third or even more of monthly bills in recent years.
In 1975, for example, $1 billion in electricity was sold to Maryland customers, $280 million of it billed through the automatic fuel adjustment clause, according to PSC figures. Nationally, utility customers paid $12.7 billion more for electricity and gas in 1976 than in 1975, and fuel adjustment clauses accounted for $9.6 billion of this increase.
As a result, many state legislatures and public service commissions are scrambling to set new controls on these pass-throuhs, and Maryland appears to be in the forefront of this effort. In the District and Virginia, the pass-throughs are reviewed by the regulatory commissions - sometimes routinely, sometimes intensely.
In Virginia recently, the starr of the State Corporation Commission that regulates utility rates called for Virginia Electric and Power Co. to refund $4.7 million to its customers. The staff report said that company inefficiency led to a shutdown of the utility's Surry Nuclear Unit No. 2, forcing the utility to generate replacement power with more expensive coal and oil - a cost that was passed through to customers in the fuel adjustment clause.
The case is pending before the 3-member commission.
The new Maryland law, which goes into effect Sept. 1, prohibits the utilities from raising the monthly fuel costs to their customers unless those costs rise more than 5 percent over the previous month's level.
Even when the costs rise more than 5 percent, the utilities must apply to the commission and prove their case in a hearing in order to receive per-that controls were even looser.
In the past, the companies passed through fuel increases automatically, subject to review every six months by the commission under a law that went into effect just a year ago. Before that controls were even losser.
Under the new law, the companies must prove that they are passing through only actual, not estimated, fuel costs. They must prove that they are using "the most economical mix of all types of generation and purchase," that they have made 'every reasonable effort to minimize fuel costs and followed competitive procurement practices," and that they have maintained the productivity of their generating plants at "a reasonable level."
These provisions, observers say, contain the key to whether the new law will save customers money or cost them more. The company is always in as efficiently as it claims, then the through its costs to customers, even if it must for a rate increase to do so.
But if the company can be forced to increase its efficiency by the more intense regulatory scrutiny contemplated in the new law, then there can be a real saving reflected in monthly electric bills.
If, on the other hard, it turns out that the company is already operating as efficiently as it claims, then the law could - as spokesman Grasser said - end up costing customers more.
According to the Electricity Consumers Resources Council, electric utilities in Maryland pay 32 per cent more than the national average for their coal and oil purchases.
Conceivably, the new legislation could lead to protracted hearings as often as every month. In the hearings this week and next, the commission will consider suggestions from the companies, the people's counsel and the public on how the process should work. Metro, which uses large amounts of electricity, and other interested parties will also testify.
Then, according to a scenario that may or may not be exactly followed, the commission plans to issue guidelines on how the process should work. On Sept. 1 the companies will file proposed fuel rates for their customers' October bills - and the result will probably be the first substantive hearing on plant efficiency and the other proofs required by the legislation.