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Rising Power Rates Prompt Legislative Plans in Multiple States

A new report by Merrill Lynch highlights the wave of legislative proposals in Illinois, Maryland, Delaware and Connecticut prompted by rising utility rates due to the expiration of rate caps and higher power prices. Several proposals call for utility reregulation, while others would extend rate caps or place new limits on how much rates could rise in a year.

"Although it is early in the legislative season, 2006 is an election year in many states, which has heightened political focus on higher energy bills," noted analysts Steve Fleishman, Alex Kania and Jonathan Arnold.

In Illinois, HB 5766 would extend the rate freeze by three years through 2009. "Although there has been some support for the bill, the proposal failed to move out of the House Rules Committee by the deadline late last week," the analysts noted. "The House is not in session again until March 13.

"There is still the chance of legislative intervention, although the appetite for this in the House appears to have waned and we have long believed the Senate would block any such move. Recent comments by Senate President Emil Jones appear to support our hypothesis: Senator Jones said the legislature should not interfere with the ICC's decision to authorize power supply auctions in 2007."

In Maryland, HP 1334 would limit residential rate increases to 5% per year, although it would allow utilities to recover rate increases above 5% through a five-year transition charge. The measure, which was prompted by a letter from Gov. Robert Ehrlich to Maryland regulators, has gained the support of about 50 state representatives. The House Economic Matters Committee will hold a hearing on the bill on March 14.

The Merrill Lynch analysts said HP 1334 could have a negative impact on Baltimore Gas & Electric, whose rate caps will be lifted in July. Pepco and Delmarva Power (DP) have been off rate caps for all customers since July 2004, and Maryland residential customers of Potomac Edison Co., doing business as Allegheny Power (AP), will continue to have frozen electric supply prices until January 2009.

"For BG&E the bill could create a need for very large cost deferrals," they said. State regulators have estimated that following the results of an annual power supply auction March 15, BG&E's residential customers could face a rate increase of 40-80% over capped levels. As a result, state regulators released a rate stabilization plan last week that will defer a portion of the power costs over a two-year period.

Another legislative proposal in Maryland, SB 972, would reregulate the state's utilities and force them to return to owning their own power generation. "We would note that this proposal has few supporters and is not currently scheduled for hearing," the Merrill Lynch analysts said.

A group of Maryland state senators also has directed the state attorney general to intervene in regulatory proceedings concerning the FPL Group-Constellation Energy merger because of concerns about the merger's impact on state power consumers.

In Delaware, an executive order by the governor directed state regulators to look into possible electric rate mitigation, including possibly forcing the state's utilities to sign long-term power supply agreements. Delmarva Power's recent power supply auction suggest a rate increase of 59% in May and the utility company is the provider of last resort. Delmarva Power has proposed a phase-in of higher power costs over a one-year period.

A report submitted to Delaware Gov. Ruth Ann Minner last week concluded that legislation should immediately be introduced that would authorize the state to require Delmarva Power to sign long-term contracts, own and operate generation facilities and diversify its fuel sources in order to meet a percentage of its retail load.

Meanwhile, Delaware House Speaker Terry Spence and House Majority Leader Wayne Smith are looking into crafting a reregulation bill and state Treasurer Jack Markell is behind efforts to maintain the existing rate freeze while an investigation can be completed into why competition has failed to develop in the state.

Perhaps the most radical of all the state plans is the effort of Connecticut Attorney General Richard Blumenthal to set up a new public power authority to buy all of the state's power and own some of its power generation. Blumenthal's bill, HB 5521, was introduced late last month. The attorney general also is asking for a windfall profits tax on power generators.

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