A BGE shakedown?
The Maryland Public Service Commission's order Thursday concluding that it has the right to review Electricite de France's proposed purchase of part of Constellation Energy Group's nuclear business looks like nothing more than an attempt by the state to shake down the company for cash. That wouldn't be so bad, except that the state already shook Constellation down 18 months ago with the promise that it wouldn't do so again. But it seems that when it comes to Constellation and BGE, Gov. Martin O'Malley and his appointees on the Public Service Commission don't know when to leave well enough alone.
State law gives the PSC the authority to review any transaction Constellation engages in that would give a new partner "substantial influence" over BGE. In its order, the PSC concludes that the EDF deal would do that, even though EDF is buying slightly less than half of another, unrelated subsidiary, has pledged not to interfere and appears to have no incentive to do so.
The PSC's logic is that EDF could prevent the Constellation nuclear business from paying dividends to the parent company. If the parent company has less cash, it might have less to give to BGE to make investments in the electric grid and, therefore, EDF would have substantial influence over BGE. Apparently butterflies flapping their wings in the Amazon also have substantial influence over tornadoes in China.
But that logical runaround pales next to the commission's reading of a provision that, pretty expressly, says that the "substantial influence" bit only applies if a company is buying more than 20 percent of Constellation's stock. Here's what it says:
(1) Without prior authorization from the Commission, a person may not acquire, directly or indirectly, the power to exercise any substantial influence over the policies and actions of an electric company, gas and electric company, or gas company, if the person would become an affiliate of the electric company, gas and electric company, or gas company as a result of the acquisition.
(2) For the purposes of this subsection, a person may not be considered to have acquired, directly or indirectly, the power to exercise any substantial influence over the policies and actions of a gas and electric company if the person:
(i) after any acquisition of voting interests of a company that owns or controls a gas and electric company, directly or indirectly, owns, controls, or has the right to vote, or direct the voting of, not more than 20% of the outstanding voting interests of a company that owns or controls a gas and electric company; and
(ii) does not have the right to designate more than 20% of the board of directors or other governing body of a company that owns or controls a gas and electric company.
Got that? Essentially, the law says you can't acquire substantial influence over BGE without the commission's prior approval. But the commission can't consider you to have done so if you've acquired 20 percent or less of Constellation stock and the right to designate 20 percent or less of Constellation's board of directors.
The EDF deal meets neither condition, and the PSC doesn't claim that it does. Rather, the PSC claims that because "EDF will, in the proposed transaction, acquire rights and assets other than voting interest in [Constellation], the 'safe harbor' does not and cannot apply. Once a proposed transaction involves elements other than the acquisition of stock and board designation rights ... it is no longer eligible for the exemption."
So, by the PSC's logic, if EDF had simply bought 20 percent of the company and taken over 20 percent of the Constellation board -- a position in which it would clearly and directly influence BGE -- it would not be subject to review. But because EDF is proposing a different kind of transaction -- albeit one in which any potential influence on BGE would be far more indirect -- it is subject to PSC approval.
The PSC's decision goes to great lengths to aver that it has not prejudged the merits of the transaction, and O'Malley struck a similar tone in a statement he issued a short time later:
Although the State’s position on substantial influence is clear, it should in no way be interpreted as our opposition to the EDF deal. To the contrary, I believe that this partnership could help secure a more stable and cleaner energy future for our state and our nation. But the public interest must be addressed as part of any deal in order to ensure that ratepayers and the utility are protected.
That sounds like, "We'll let this deal go through, just as long as you scratch our backs first."
O'Malley was right in 2006 to decry a Public Service Commission that gleefully declared itself unable to do anything about a pending 72 percent rate increase. That commission failed to adjust its regulations to market conditions and failed to exercise meaningful oversight. But the new PSC may be heading too far in the opposite direction.
Comments
Andy,
Two very quick points.
1. Didn't BGE raise it's rates in 2006 even with consumer friendly psc. I believe it was a 20% followed by a 50% rate increase + a fee charged to the consumer for deferring increase even if you didn't ask for the deferral.
2. I am surprised by this editorial, it actually questions an O'Malley. What happened?
[We like to keep you guessing. //AAG]
Posted by: Waiting for the Sun to Set | June 11, 2009 3:59 PM
the boy governor won't be happy til he appoints himself pope. (in the interest of the country, of course)
Posted by: jay | June 12, 2009 3:06 AM
Andy,
You're evading the crux of the question. O'Malley's PSC admitted there was nothing that could be done about the increases and approved them. So if it was bad when Ehrlich's PSC approved it, why was it ok for O'Malley's PSC? Furthermore, what about the increased regulatory costs from the EmPower law? Conservation doesn't work when decoupling--approved by O'Malley's PSC--doesn't shield ratepayers from rate increases. You actually end up paying more to use less energy. Also, the GHG Reduciton Act--essentially paid for and by the environmental lobby--is going to bring cap and trade to Maryland further increasing our electricity rates, all for a climatically meaningless outcome.
[Ehrlich's PSC could have realized that it was ordering BGE to buy electricity at auction at, perhaps, the worst moment in history and changed the plan, but it didn't. And afterward, it could have made a serious effort to investigate ways to mitigate the problem, but it didn't. Would it have made a huge difference? We'll never know. They didn't even try. //AAG]
Posted by: Mark Newgent | June 12, 2009 7:26 AM
Waiting for the Sun to Set said:
"a fee charged to the consumer for deferring increase even if you didn't ask for the deferral".
You got that right Hon.
I pay $7.50 a month for nothing, nil, not an ounce of energy.
It shows up on the back of your BGE bill as a customer service charge and there is NOTHING you can do about it but pay the dang amount.
Posted by: Carole | June 12, 2009 9:04 AM
JESUS! This is an under current that is about to explode. NO one can pay their electric bills because of what they are doing.
Posted by: Anonymous | June 12, 2009 10:27 AM
Andy,
I am reading your response to Mark Newgent correct? Are you saying it was Ehrlich's fault rates increased?
[Ehrlich's fault? No, I wouldn't say that. It was a complex situation that I think was not handled well by his appointees. //AAG]
Posted by: Waiting for the Sun to Set | June 12, 2009 12:08 PM
A page right out of the OMalley playbook Andy-
blame Ehrlich!
Once again your bias towards our current governor shines through!
Posted by: jay | June 12, 2009 1:04 PM
Mark,
In your desperate attempt to defend a politician, aren't you comparing apples and oranges; The folks who solicited and approved the energy purchase contracts (Gov. Ehrlich's People) vs. the folks left to handle the mess those contracts gave to the consumers?
As I recall, weren't 85% of those energy contracts approved by the PSC in 2006, selling power at bloated costs from Constellation to it's "child" BGE?
Isn't that really what happened before O'Malley was even sworn in?
Or did you just want or need to ignore those facts?
Posted by: Simone | June 12, 2009 1:44 PM
Andy,
You make it sound far fetched that Constellation/EdF's practices could impact BGE with your coy reference to Amazonian butterflies and tornadoes in China.
But, I don't think it's far-fetched at all, especially if Edf/Constellation pursues Calvert Cliffs III.
For argument's sake, let's assume the company gets their loan guarantees for the third reactor and the project moves forward. And let's say it goes the road of the prototype reactor in Finland - now a whopping 3.5 years behind schedule and at least 60 percent over budget. Similar cost overruns are occuring at Flamanville, the only other place in the world where this reactor design is currently being constructed.
In Finland, this failed project has dragged Areva into court and it's proving disastrous for the industry conglomerate that was counting on that power coming online.
BGE and BGE customers would absolutely be affected by that, either through reduced credit ratings, supply shortfalls and definitely through higher utility rates.
Constellation is putting all their eggs in the nuclear basket, whereas if they pursued a diversified energy portfolio with a focus on efficiency, conservation, clean renewable power and distributed generation they would be doing the citizens of the state a much greater service than trying to marry their fates with EdF.
Posted by: Johanna | June 12, 2009 1:49 PM
I can pay my bill.
$110 a month for a 4 bedroom House of 2200 sq ft.
If you don't do as much as you logically can to save energy, you'll probably pay more.
That would be your fault and nobody else's.
Posted by: Simone | June 12, 2009 1:49 PM
Andy,
Thank you for the reply, for the record I don't believe it was O'Malley's fault rates increased. That honor belongs to Mike Miller and Mike Busch, the real villains in this play.
I do fault O'Malley for the demagoguery during the campaign claiming he could halt the increase when he knew there was little he could do.
Posted by: Waiting for the Sun to set | June 12, 2009 1:58 PM
Simone,
I'm not ingnoring anything. Due to the 1999 regulatory restructuring (it wasn't deregulation by any proper understanding of the term) that's what we were left with in 2006. You also have to factor in the rise in costs of electricity production that figured into those contracts. There was not much of anything that could be done. O'Malley knew this yet demogogued the issue in the campaign.
In fact, he has pursued policies EmPower/GHG Reduction act that have and will further significantly increase rates.
And Andy, why is one shake down not "so bad" but beyond the pale 18 months later?
[That one involved some legitimate and reasonably well vetted issues, such as nuclear decommissioning costs. Wth this one, I can see a desire to insulate BGE's finances from CEG/EDF, but I'm not sure why that entitles us to cash and prizes. //AAG]
Posted by: Mark Newgent | June 12, 2009 11:29 PM
Andy,
Thanks for your responses. I appreciate the back and forth. Also I really wish the Sun would take a deeper look at the GHG Reduction Act--the way it is set up it will be a Waxman-Markey like boondoggle in Maryland for rent-seekers and the environmental lobby. All economic pain for no climate gain.
[I suspect that Maryland's GHG Reduction Act is going to be moot because of federal action. If it served no other purpose, state level legislative action like Maryland's has set the stage for the federal government to get involved in a way that I think we all can agree will be more meaningful (though some may argue "meaningful" in a bad way...) //AAG]
Posted by: Mark Newgent | June 15, 2009 8:01 AM
Outstanding editorial. The only thing this is about is politics and taking care of the ratepayers in the BGE territory. At the end of the day, squeezing this company again does nothing for ALL the ratepayers in the state. We should be asking why this is going on, why the rest of the state is being ignored (BECAUSE WE ALL HAVE SEEN THE SAME RATE INCREASES NOT JUST BALTIMORE), and why we are not looking for solutions rather than fights.
Remember it was the state that set the rates AND THE RATE FREEZE that caused the big price jump. O'Malley needs to leave this alone, focus on all of his constituents, and all that generate power, or we will all lose in the end.
Posted by: SV | June 18, 2009 9:49 PM
Conservation and renewable energy are not the panacea their advocates make them out to be.
Conservation will not protect consumers from rate increases because BGE will make its profit from the generation side of the equation not on how much electricity it sells to consumers. We will pay more to use less.
Renewables cannot meet our energy needs, even with the billions in federal subsidies. They cost more to produce and transmit and are unreliable. Rate payers will bear the cost for O'Malley's increase in the state's RPS.
Renewables are Europe's dirty little secret too: They haven't done a thing to meet the EU emission reduction goals, other than raise energy costs
http://www.spiegel.de/international/business/0,1518,606763,00.html
Let's not forget the rent-seeking involved with renewables. GE (son of Enron) aside did we alread forget O'Malley and Mike Miller's payback to former Maryland Dem Party chairman and local wind barron Wayne Rogers? They slipped legislation throgh the GA allowing him to bypass PSC approval to build his wind farms.
Posted by: Mark Newgent | June 24, 2009 7:35 AM