Baltimore Gas & Electric: Blame for rate hike unfairly placed on

Daily Record, The (Baltimore), May 15, 2008 by Danielle Ulman

Lawmakers and the media have incorrectly placed the blame for Baltimore Gas & Electric Co.'s 72 percent rate increase on the deregulation of Maryland's energy market, a company representative said Wednesday.

"Regardless of the hundreds of millions of dollars our customers saved throughout the price increase periods, such a significant increase in market prices has somewhat been twisted to concrete evidence that the deregulated market has become a failure," said William Pino, director of electric supply, demand response and forecasting for BGE.

Pino told members of the state's Public Service Commission that the global rise in fuel prices and materials needed to build new power plants caused BGE to hike prices, although he said the increase seemed to be the "impetus" behind the agency's look at re- regulating Maryland's energy market.

A law passed in 2007 mandated that the PSC release an interim report last December and a final report at the end of 2008 on providing residential and small business customers with reliable electricity at the best prices and any advisable re-regulation options in the aftermath of the BGE rate hike.

The PSC called Wednesday's hearing to hear critiques of its December report.

The interim report found that Maryland faces serious reliability issues that could produce rolling blackouts as early as 2011 because of an aging transmission system and an increase in demand, but not supply.

Daniel Allegretti, vice president and director of wholesale energy policy at BGE's parent company, Constellation Energy Group Inc., said other states in the area should help boost Maryland's reliability with more energy production.

"Reliability is a regional issue, and should be handled regionally," he said.

Allegretti said Maryland is not the best spot for new power plants because of its population density and the environmental sensitivity of being located on the Chesapeake Bay.

There was some dispute over whether the PSC should force providers to go into long-term contracts to procure energy, as it suggested it might in the interim report. Utilities purchase electricity through auctions under two-year contracts, bidding every six months.

William Fields, senior assistant people's counsel for the Office of People's Counsel, told the commission that extending long-term contracts could be more beneficial than the two-year contracts in place, which he said are the most risky.

"You'll hear a lot of rhetoric that doing long-term contracts is very risky for consumers," he said. "There's risk in everything. What you won't hear is the risk that consumers are dealing with today."

But BGE's Pino said the power industry is cyclical, and costs are at peak or near-peak. Forcing long-term contracts would disrupt the process, he said, because the cycle will correct itself.

"Locking in long-term deals at this point in time in the economic cycle is arguably not an ideal strategy from a consumer's perspective," Pino said. "The regulatory or political intervention in competitive markets to mitigate heightened prices, in our view, is detrimental to the long-term efficiency of marketplace."

Steven B. Larsen, chairman of the PSC, asked whether the utilities would be willing or able to produce long-term plans. A representative from Pepco Holdings Inc., parent company of Potomac Electric Power Co. and Delmarva Power & Light Co., said the company would comply with agency requests, but that those plans require months of work and carry risk for customers.

BGE would also agree to complete a plan, Pino said, but the company does not like the idea of exposing customers to long-term contracts.

Pino recommended that the PSC focus on facilitating transmission and new resources for reducing customer demand.