State seeks electric rate deal

Wednesday, June 17, 2009

"It is important to protect the public interest in this proposed new arrangement," O'Malley (D) said as he maintained the state has a right to review the proposed deal.

A top concern for the state is how much influence Electricite de France, a largely government-owned operator of France's 58 nuclear power plants, will have over Constellation and its wholly-owned subsidiary Baltimore Gas and Electric, which has more than 1 million customers in Central Maryland.

State officials are concerned that EDF could narrow Constellation's profits, which could lead Constellation to demand a higher payout from BGE, ultimately leading to higher electricity rates for customers.

While BGE accounts for 25 percent of Constellation's profits, 50 percent of the dividends Constellation pays to stockholders come from BGE, O'Malley said. "BGE is used as a cash cow by Constellation Energy," O'Malley said.

To avoid such a scenario, the state has proposed a settlement with Constellation that would include a "ring-fencing" arrangement, under which BGE would be freed from the control over capital expenditures and strategic planning that Constellation holds over the subsidiary.

The arrangement would be a way of "cordoning off BGE from being squeezed at the expense of consumers," O'Malley said.

Under the arrangement, BGE would establish its own board of directors, develop its own strategic plans and set compensation for its executives. The settlement also would limit a potential $87 million payout that Constellation CEO Mayo A. Shattuck III could receive under a "change of control agreement or supplemental retirement plan."

The proposed settlement, which O'Malley administration officials said would be subject to PSC review, also would give Maryland residential customers a one-time credit of 10 percent of an average annual bill by the end of 2009. The credit would be "comparable, but not identical" to a $170 credit that ratepayers received under a rate-relief settlement last year.

On Thursday, the state's Public Service Commission ruled that it has the right to review and, if it deems necessary, block any deal. Constellation appealed the ruling in Baltimore City Circuit Court, arguing that the deal should be exempt from commission review.

On Friday, Chief Deputy Attorney General John B. Howard Jr. said that the state would file a motion early next week to dismiss the appeal, saying it was premature for Constellation to appeal before the PSC proceedings had run their course.

Constellation officials have said the deal is necessary to ensure that the company can avoid having to borrow at higher interest rates and can build a third nuclear reactor at Calvert Cliffs in Lusby.

By law, the PSC must sign-off on any deal giving an entity more than one-fifth of the utility's total holding or more than one-fifth of the seats on its board of directors. The deal would create a joint venture to oversee the company's nuclear assets, called Unistar. It would have a separate board where EDF would hold five of the 10 seats. In all, EDF would hold 9 percent of Constellation's stock and have 9 percent representation on the governing board.

In its order on Thursday, the commission argued that the law gives the PSC the right to step in on deals where a company could exert "substantial influence" over the utility and that "substantial influence is not the same thing as control."

O'Malley criticized Constellation for failing to respond to the state's settlement proposal.

"If they want to obfuscate and continue to focus on things that can advantage a narrow few at the expense of the public then we're in for more proceedings in order to get to whether or not this is in the public interest," he said.

The ratcheting up of rhetoric came as the House Economic Matters Committee was scheduled to meet on Tuesday in Annapolis to take a fresh look at utility markets.

The meeting, with PSC officials, electricity providers and consumer interests, will be the first time the committee has addressed the issue of electricity rates since April when, in the final days of the 2009 legislative session, the panel rejected an O'Malley plan to partially re-regulate Maryland utilities.

Delegates said this week that they are not yet sold on O'Malley's argument that re-regulation would be the best way to ensure rate relief and that they will be keeping an open mind as they look at the electricity market.

Earlier this month, O'Malley said re-regulation will be a priority for 2010, highlighting the importance for the governor to come through with a legislative victory on a 2006 campaign promise he made to get rate relief for utility customers.

Constellation's challenge of the PSC order "underscores the failure of deregulation to serve the best interests of consumers," O'Malley said on Friday.

"I hope that we can address whatever concerns the Economic Matters Committee members might have and hopefully we can start moving forward to a cleaner, greener and, yes, more predictable energy future," he said.

Staff writers Margie Hyslop and Alan Brody contributed to this report.