BGE Files Plan For Customer Choice

Baltimore Gas and Electric submitted a proposal this week to the Maryland Public Service Commission for the introduction of customer choice in the state's retail electricity market. The plan features a rate freeze, an opportunity for customers to choose a power supplier, and an early resolution of utility cost obligations.

The PSC required Maryland's investor-owned electric utilities to submit transition plans as part of an electric industry restructuring process to introduce retail competition beginning in July 2000. A key element of the filing centers on what has come to be known as "stranded costs."

Under its proposed plan, BGE would freeze customer prices at year-end 1998 levels for at least four years while the company continues to reduce costs. BGE would mitigate stranded investments by applying cost reductions to accelerate the depreciation of its generating assets. Earnings would not be allowed to go above its currently authorized 9.4% rate of return. The transition period would end when cost obligations have been met (when book value of generating assets is within 10% of market value), or no later than 2008. BGE currently estimates the transition period could end as early as 2004.

Customers would be protected by a rate freeze lasting through the transition period. They would also be able to shop for cheaper power using a " shopping credit" that provides an opportunity for customer savings. The "shopping credit" would be based on the regional market price of power; if a customer can find a power supplier who can beat that price, the customer keeps the difference in costs. Also, those who elect not to shop would be shielded through BGE's "standard offer" service, a basic level of electricity service that would remain regulated and subject to the transition rate freeze.

An added benefit of the BGE plan is that it does not attempt to estimate the cost of utility obligations in the short run, when industry change and price volatility make it difficult to determine true market value. Independent appraisals of utility assets would take place starting in 2003 under the BGE plan, and would continue annually until the transition period ends.

BGE is an investor-owned gas and electric utility company that serves more than 2.6 million residents in the Baltimore, MD area.

For more information contact: Darcel Guy, BGE. Tel: 410-234-7436.