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BGE Files Plan at PSC to Reduce, Spread Out Rate Hikes

April 24, 2006
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Constellation Energy subsidiary Baltimore Gas and Electric Co. (BGE) has filed a comprehensive rate stabilization plan with the Maryland Public Service Commission (PSC) that would allow BGE's residential electric customers to reduce and defer a pending July 1 rate increase.

BGE customers had been facing the prospect of power bill increases of more than 70%, placing significant pressure on state lawmakers, Gov. Bob Ehrlich and Constellation to take action to ease the pain of the rate increases. That pressure was no doubt ratcheted up significantly by the fact that Ehrlich and state lawmakers are up for re-election later this year.

At a press conference on Thursday, Ehrlich said "I stood on this lawn...not so long ago, early March, to talk about what would not stand -- 72% overnight -- and today I am here again to inform the citizens of Maryland it will not stand."

He said that after "almost two weeks of very intense negotiations...this press conference is being called to announce not just a framework, but an agreement with respect to rate stabilization in the state of Maryland."

Electric restructuring was passed by Maryland state lawmakers in 1999. "The bottom line...is what occurred in 1999 and 2000, the decisions that were made, the hoped-for competitive market forces that were supposed to develop, simply did not develop," the governor said. "It did not work. The grand experiment failed."

If approved by the PSC, the plan would allow BGE customers to select or opt in to a rate stabilization program that would reduce the initial increase and spread out the remainder. Those who opt in would see a rate increase of 19.4% July 1.

"Consumers will be able to opt in to a payment plan that will serve as a bridge until market-based energy rates kick in starting January 2008," Ehrlich noted.

While the dollar amount of the actual increase would vary depending on usage, a typical BGE residential customer (830 kilowatt hours monthly) who opts in to the plan would see an increase of about $13 per month. On June 1, 2007, opt in customers would receive a projected 25% increase and move to market rates on Jan. 1, 2008. The deferred amount of the rate increase would be repaid through May 2009; limited-income customers would have an additional year to repay the deferred amount, through May 2010.

"BGE residential customers have been paying rates 6.5% below those in 1993, and we've always been sensitive to the hardship our customers could face when the state-mandated rate caps expired," said Kenneth DeFontes, president of BGE.

"Like all utilities nationwide, we've been impacted by the realities of the global energy marketplace and we needed to develop a solution that preserved the financial integrity of BGE so we can respond to storms and invest in our network. The plan we filed with the PSC today achieves both goals -- customers have an option to initially lower their bills and we're also maintaining adequate levels of funding so we can continue providing our 1.2 million customers with safe and reliable service."

The rate stabilization plan will be subject to public review at the PSC. While details of the enrollment process are still being finalized, it is anticipated that the customer sign-up period to opt in would begin around May 15, pending PSC approval.

Constellation noted that BGE will conduct a comprehensive communications program to inform customers of the plan and payment options, including direct mail, extensive newspaper and radio advertising, in-person community meetings and enhanced online and customer service support.

"We will make every effort to educate and inform our customers and to make the sign-up process as simple as possible," said DeFontes. "Customers will have both the time and the factual information they need to decide if they want to opt in to the program."

Even after the price moves to market rate in July, BGE's total rate for electricity will be lower than those at many utilities serving the Mid-Atlantic and most of the Northeast, Constellation said.

It said that the plan filed with the PSC is not contingent upon Constellation Energy's proposed merger with FPL Group. "But the merger could still greatly benefit BGE customers," Constellation said.

In the final days of the 2006 Maryland General Assembly session, Constellation Energy reached an agreement with Ehrlich and legislative leaders that would have provided $600 million in benefits to BGE customers, spread over 10 years.

A bill including that proposal died on the Senate floor in the final moments of the session, but Constellation Energy said it is standing by this offer and will contribute $600 million over 10 years to help lower rates for all residential customers, including those who opt-in to the rate stabilization plan, subject to the close of its merger with FPL Group.

In related news, the PSC on Friday released a rate stabilization plan to help Potomac Electric Power Co. (Pepco) and Delmarva Power and Light Co. customers more gradually adjust to upcoming electric bill increases.

The plan released by the commission is for residential customers that will begin in June 2006. From June 1, 2006 to Feb. 28, 2007, customers who choose to participate in the stabilization plan will experience a bill increase of 15%. From March 1, 2007 to May 31, 2007 participating customers will experience an additional 15.7% increase. The deferred charges will then be recovered over an 18-month period. As of June 1, 2007 all customers will pay the full market rate.

The Maryland PSC in early March announced the results of the third year of the bidding process for the market-priced electric standard offer service (SOS). Through a competitive bidding process, electric suppliers compete to provide SOS for Maryland customers of investor-owned companies whose rate caps have expired.

What drew the most headlines was that for residential customers in the BGE service territory, a typical bill would have increased by a whopping 72%, or $743, annually.

The regular session of the Maryland General Assembly recently expired with lawmakers unable to advance a deal that would have eased, at least for the short term, some of the pain of the looming power rate hikes for BGE customers.

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