- The Washington Times - Friday, January 18, 2008

ANNAPOLIS (AP) — Lawmakers should consider laws giving regulators more authority over hundreds of millions of dollars collected from customers of Baltimore Gas & Electric Co. (BGE) to pay for business expenses stemming from deregulation, according to a report released yesterday.

The Maryland Public Service Commission (PSC) issued a variety of findings that were critical of a 1999 settlement on stranded costs, which are expenses incurred by the company during the transition to deregulation.

The report found that liabilities assumed by consumers under the BGE settlement “were expressed in terms that, although accurate, understated their true magnitude.”

“The 1999 order approving the settlement does not reflect the actual costs of the settlement to ratepayers, nor the huge imbalance of costs and benefits,” the report concluded.

The ratepayer liability for stranded costs of BGE were stated at the time as $528 million after taxes. However, the after-tax cost paid by customers ended up being $975 million, according to the report.

“We found no evidence that the true magnitude of these obligations were in the record before the commission,” the report stated.

What’s more, of the $975 million paid by customers for stranded costs, $527 million was diverted to pay for BGE’s purchase of electricity from its affiliate, Constellation Power Source, to supply BGE’s price-capped services for consumers.

The report also examined decommissioning costs of nuclear power plants at Calvert Cliffs, which was transferred to Constellation Energy under the 1999 settlement. Ratepayers have been hit by “significant, continuing, and escalating liability associated with those assets,” the report found.

The PSC in 1999 thought the liability was capped at $520 million in 1993 dollars. But the report found there was “a lack of transparency regarding the actual magnitude of the liability,” which was subject to inflation and ballooned to $778 million at the time of the settlement in 1999. The number grew to $920 million in 2006.

“It does not appear there was any sensitivity analysis presented to the commission on analyzing the potential growth in the liability, which could rise to as much as $5 billion when the plants are decommissioned in 2036,” the report said.

The report also indicates that the current level of underfunding is likely to increase because contributions to the fund to decommission the plants are not high enough. The state’s deregulation law is worsening the level of underfunding, because it caps BGE’s contribution at $18.6 million a year until 2016.

“In 2016, ratepayer contributions may need to increase to $33 million,” the report found.

The report also points out that more than $135 million of decommissioning money paid by consumers is held in an unregulated internal reserve fund by Calvert Cliffs.

PSC Chairman Steven Larsen, who discussed the report with lawmakers in the House Economic Matters Committee, said he thought there was “shared responsibility among all parties” for the problems in the settlement. Mr. Larsen said the commission in 1999 thought it was facing an all-or-nothing proposal.

“You had to look at all the pieces and either take the whole thing or leave it,” Mr. Larsen said. “And my sense was that the commission didn’t necessarily probe sufficiently into the underlying factors because it risked dissolving the settlement.”

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