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Allegheny's payment plan is a Band-Aid, not a solution

January 21, 2007|by TIM ROWLAND

To make us feel better about paying substantially higher power rates in the future, Allegheny Energy proposes that we should start paying higher rates now.

Um, OK.

If I bend my mind a bit, maybe I understand this. If we start paying gradual increases by March, it won't seem as if we're being whacked as much in 2009 when our electricity bills are scheduled to surge by 60 percent. And what we pay up front will be used to soften the increase in the 2009-10 out years.

So basically, the theory is like a typical utility budget plan, which evens out your heating bill over 12 months as opposed to getting socked in the winter.

I don't know for a fact that on its face this is a bad idea. When speaking of essential monthly bills, such as home heat, the first concern must always be for those on fixed incomes. Higher electrical costs can quite literally mean less food, or less medicine.

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Several slight jumps may be more humane than one large one. It offers the chance to plan and to prepare. Yes, this is largely a head-game. But some times head games help. On the other hand, if we live here from March until 2009 and then move, do we get our overpayment back?

Smart people, precious few of them, knew this day was coming back in 1999 when Maryland deregulated electricity, but capped rates in place for a decade to give free enterprise time to rule the roost.

In that time, Allegheny's costs have been going up, but not its ability to pass those costs on to the consumer, which truth be told, is its right as a business.

In theory, by now competing energy companies would have moved in and if consumers thought Allegheny's prices were too high they would have had the option to move on to some other company.

But rate-payers are still waiting for the phone to ring.

Huge start-up costs have thwarted any potential competition. So we're left with one monopolistic power provider - which is the basis for state regulation in the first place. If only one company can realistically provide a service, it is generally assumed to be the responsibility of the state to assure that this company does not gouge consumers who have no other choice of providers.

In such circumstances, the state Public Service Commission decides on a fair profit for the company, but no more. That's why power companies were always thought to be such a nice, safe investment for widows. What other business is basically prevented by the state from losing money?

But Enron changed the landscape, and this is where I begin to have a problem with Allegheny's plan.

Allegheny's well-documented belly-flop into the world of energy trading cost it dearly. It reached for the sun and was expensively burned. If these rate increases are due to normal operating expenses, well and good. But consumers of a basic service should not be on the hook for losses that came about because of mismanagement and poor business decisions.

When it gazed at the energy-futures stars, I'm not convinced that Allegheny was playing with its own money, and not ours. We should have to pay for power, not executive gambles.

Ideally, the Maryland Public Service Commission would protect us from such shenanigans. But State House Democrats say it is packed with Ehrlich-appointed industry sympathizers and unlikely to side with the consumer. In fact, they wish to fire the board and name replacements.

Is it possible Allegheny wants to lock in a plan with a friendlier commission before some other group gets its mitts on the situation? Maybe, although such a plan could always be altered by future commissions. This proposal may also be designed to make it look to the state as if Allegheny is proactively "doing something" about the situation - which was something Baltimore Gas & Electric did not do (and got hammered for) when it dumped a 72-percent hike on an unsuspecting public.

But what does appear clear is that Allegheny, industry lobbyists and the Maryland General Assembly let the public down, and now the guilty parties appear willing to let the rate-payers pick up the pieces. And that's not right, no matter what kind of payment plan they come up with.

The expanded payment plans, which smack more of three-card monte than a serious policy proposal, may not be an entirely bad idea, but it has nothing to do with the real problem.

Both Allegheny and the state thought the world of energy was about to experience revolutionary change. Now we're back to square one, where utilities are back in the simple business of generating and selling electricity. Only now, the watchdog of state regulation has been stripped of its teeth.

Without action, Allegheny will be held blameless and walk away with profits in tact. And the state will simply walk away unperturbed, like a cat that has knocked over a valuable vase.

Were energy a more typical commodity such as apples, consumers could respond by refusing to buy apples. But electricity does not afford us that choice. We have to pay, no matter how egregious the mistakes made on high.

How the General Assembly reacts to the situation this session will say a lot about the quality of government we have in Annapolis.

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