Electric Schemes, Nuke Dreams

On Thursday, the Maryland Senate endangered the Governor’s settlement with Constellation Energy by voting to amend it. Here’s why the Governor’s deal is worth passing.

When the administration and Constellation, parent company of electric utility BGE, settled their lawsuits against each other, the deal had several components. First, BGE’s residential customers would receive $187 million in one-time rebates, or $170 each. Second, individual Constellation investors would be permitted to own up to 20% of the company each. Third, BGE customers would see limits on electricity distribution charges in the future. Fourth, BGE agreed to add two independent seats to its board. Fifth, the deal cut the liability faced by ratepayers for eventually decommissioning the Calvert Cliffs nuclear plant from $5.2 billion (which Constellation is permitted to collect by the 1999 deregulation law) to $3.7 billion (the current estimated shutdown cost). This will save Marylanders $1.5 billion. There are additional smaller components but these are the most important parts of the deal.

The Governor’s settlement was contingent on passage by the legislature. Constellation’s position was that the deal had to pass without changes. But the Senate thought better. On a 27-18 vote, the Senate added an amendment to regulate the sale of electricity from any new plants built in the state, essentially a limited rollback of deregulation. Senate President Mike Miller and the Governor claim that this vote endangers the deal because it changes its terms. Now it’s hard to blame the Senators who voted for the amendment. Deregulation has been a disaster for Maryland ratepayers and has created shocking wealth for the power companies and their CEOs. But the best reason for sticking with the Governor’s deal is its least-mentioned and most-important provision: the $1.5 billion reduction in the Calvert Cliffs decommissioning liability.

As someone who works for a union that gets carpenters and millwrights hired onto nuke jobs, I can tell you that these jobs are really, really expensive. All trades workers that set foot into a nuke plant must pass background checks and drug tests. And those checks and tests are repeated over and over. All of the workers have completed or are enrolled in four-year apprenticeship programs and numerous journey upgrade and safety courses. (We actually own a gas turbine at our international training center that our instructors practice dismantling and assembling.) Many workers also need to get haz-mat (hazardous materials) certifications. Often, there’s not enough qualified workers in the local area so out-of-state people are flown in. Those guys get per diems and sometimes even signing, retention and head-hunting bonuses. Everybody gets top scale and massive amounts of overtime. Even the laborers are rolling in dough. And part of the decommissioning will include clean-up and storage of radioactive waste. You don’t want to know how much that costs. All of this will go on for years at a decommissioning site.

I can’t tell you how much my guys like this kind of work. These jobs are an apprentice’s fancy, a journeyman’s love and a local union business manager’s dream. The last remnant of America’s working-class aristocracy may be the tens of thousands of “boomers” – traveling super-skilled electricians, pipefitters, boilermakers and millwrights – who fan out across the country to work nuke shutdowns and turnarounds. The boomers can make six-digit annual incomes and set themselves up for fat pension checks and lakeside retirement cabins.

So Constellation says the Calvert Cliffs decommissioning will cost $3.7 billion? Horsepuckey. It will cost four billion, five billion… aw, who cares how many billions as long as my members get the work!! (If you were wondering what “bread-and-butter unionism” is, that statement is a good example.)

But enough about my nuke-worshipping hardhats. My point is that if you are a Constellation/BGE customer, you do not want to be on the hook for all of these costs. Let Constellation’s shareholders and/or its merchant generation division pay some of them. The decommissioning liability reduction is a far more valuable asset to BGE ratepayers than the rebate and it is worth protecting.

So my advice to the General Assembly is to approve the Governor’s deal as-is and come back to re-regulate the power industry next year. That way the ratepayers will get their rebates, the residents will get the protections of regulation and BGE customers won’t have to pay $1.5 billion in extra billings. And what about my boomers? We’re all going to strap on our toolbelts and head down to Calvert Cliffs for some of that overtime!

The author is the Assistant to the General President of the United Brotherhood of Carpenters. He wishes he was as well-paid as the boomers.

Maryland Ratepayers Fatten Power Industry Bosses

Maryland’s electric power industry has been in the news quite a bit lately. The Washington Post had a good wrap-up story a couple weeks ago on how Maryland consumers are struggling with rising electric bills. Politicker Maryland ran a few articles linking deregulation to campaign contributions. The Governor is announcing a legal settlement with Constellation Energy that would provide BG&E customers with a $170 rebate each. And the Maryland Senate is considering a plan that would cut electric bills by $2 a month. But none of these stories cover an important set of facts: just how well have Maryland’s electric power companies fared under deregulation?

Traditionally, power companies were vertically integrated. They owned the generating plants, the transmission facilities and the distribution lines. Deregulation was intended to create competition by separating generation and distribution ownership. Multiple generators were supposed to compete by selling power at the lowest price to commercial and retail users. Those users would order that power through the now-independent distribution companies.

After Maryland passed its law in 1999, its power industry re-organized to comply with the new regime. Baltimore Gas & Electric established a new holding company, Constellation Energy Group, and separated its generation and distribution assets into different subsidiaries. Allegheny Energy, which owned Potomac Edison in Western Maryland, followed suit. Pepco sold its power plants to a totally independent third party, national generator Mirant, and became a pure distributor. Those corporate re-organizations are one reason why deregulation is so hard to undo.

Consumer choice took effect in 2000, but to give competition a chance to develop, consumer retail rates were frozen through 2006. However, there were two problems. First, no new major competitors came to Maryland. Second, power fuel prices soared. According to the Bureau of Labor Statistics, between 2000 and 2006 wholesale prices increased 44% for coal, 80% for natural gas and 116% for refined petroleum. Constellation and Pepco claimed that these input cost increases were largely responsible for the 40-70% electric bill hikes faced by Maryland ratepayers starting in 2006.

Is that true? If all the power companies were doing was passing on cost increases to consumers (something the old regulated system was supposed to restrain), we would expect the companies to report higher revenues but stable net incomes. But that is far from what is really happening. Below we report to our readers the financial results from Maryland’s four largest electric power companies in 2003 and 2007 from their Securities and Exchange Commission filings. We also report the total compensation earned by their CEOs in 2003 and 2006 (the latest year available). Judge for yourselves the real record of Maryland’s deregulation.

Constellation Energy
Parent Company of BG&E, Nationwide Merchant Generator

Stock Close, 1/2/03: $24.84
Stock Close, 3/26/08: $90.23

Revenue, 2003: $9.343 Billion
Revenue, 2007: $21.193 Billion

Net Income, 2003: $277 Million
Net Income, 2007: $822 Million

Chairman/President/CEO: Mayo A. Shattuck III
Total Compensation, 2003: $6,901,426
Total Compensation, 2006: $20,058,669

Pepco
Electricity Distributor in Washington Suburbs

Stock Close, 1/2/03: $15.61
Stock Close, 3/26/08: $24.67

Revenue, 2003: $7.269 Billion
Revenue, 2007: $9.366 Billion

Net Income, 2003: $107 Million
Net Income, 2007: $334 Million

Chairman/President/CEO: Dennis R. Wraase
Total Compensation, 2003: $895,942
Total Compensation, 2006: $4,921,550

Mirant
Nationwide Merchant Generator, Owner of Former Pepco Power Plants

Stock Close, 1/2/03: NA (Filed for Bankruptcy on 7/14/03)
Stock Close, 3/26/08: $35.92

Revenue, 2003: $3.856 Billion
Revenue, 2007: $2.019 Billion

Net Income, 2003: Lost $3.835 Billion (declared bankruptcy)
Net Income, 2007: $1.995 Billion (includes $1.562 billion from discontinued operations)

President/CEO in 2003: S. Marce Fuller
Total Compensation, 2003: $3,231,071

Chairman/President/CEO in 2006: Edward R. Muller
Total Compensation, 2006: $8,646,648

Allegheny Energy
Generator and Distributor in Pennsylvania, West Virginia and Western Maryland

Stock Close, 1/2/03: $7.76
Stock Close, 3/26/08: $50.39

Revenue, 2003: $2.182 Billion
Revenue, 2006: $3.307 Billion

Net Income, 2003: Lost $355 Million
Net Income, 2007: $412 Million

Chairman/President/CEO: Paul J. Evanson
Total Compensation, 2003: $7,652,138 (includes “make-whole payment” of $6,397,330 connected to leaving another power company in mid-year)
Total Compensation, 2006: $9,329,832

Now I suppose we could recover some of these executives’ plunderings from Maryland ratepayers through a millionaire surcharge but some people might argue against that. After all, if any of these looting bosses – excuse me, these upstanding members of the community – actually live in Maryland, we don’t want to drive them out of the state, right?