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The Interview: Paula M. Carmody

Mergers, Acquisitions and TakeoversConsumersRestructuring and RecapitalizationBusinessPoliticsLaws and LegislationCivil and Public Service

To say the Maryland Office of People's Counsel has been busy over the last few years is an understatement.

When it comes to electricity, telephone, gas, and water or sewer matters, the People's Counsel works to ensure that the interests of residential customers are represented. The office was created in 1924, with Maryland the first state to establish a consumer advocate agency.

Paula M. Carmody heads the 18-person independent agency, which operates with a $3 million annual budget. Since being appointed to the post in 2007 after a political dispute erupted over deregulation, Carmody has overseen numerous investigations into utility reliability, proposals to build new transmission lines, and four merger proposals, including Constellation Energy Group's plans to sell itself to Chicago-based Exelon Corp.

The office has raised several objections to Constellation's proposal before the Maryland Public Service Commission, which has the power to veto the deal.

"We've had a lot on our plate because of a lot of issues affecting consumers these days," Carmody said.

The Baltimore Sun recently spoke with Carmody about Constellation's proposed merger and other issues facing utility customers.

What are your office's objections to Constellation's proposed merger?

The lens that we look through is how would this merger affect our residential consumers if it goes through. And this actually is written into the statute. In order for the commission to approve the merger, they have to show that there are actual benefits to our customers and that there is no harm to our customers.

The way we break it down, one of the major issues that's always in a case like this is market power. … What that simply means is, if this acquisition goes through, would the new company be able to exert market power in the wholesale energy market and … if this could have an impact on prices that our customers pay at the end of the day. …

We would also be looking at whether there could be other potential adverse impacts. In our testimony, we flagged a number of issues related to the organization, expanding the fact that BGE [would become] a small piece of a much bigger puzzle — that the center of the new organizational structure no longer will be in the state of Maryland, in Baltimore City, but … out in Chicago. From our perspective, this could have a very real-world impact down the line on how consumers are provided service by the utility.

We also will be looking at this merger providing benefits: What are consumers getting out of a merger like this?

Exelon and Constellation recently offered additional commitments but rejected others recommended by your office, including a three-year rate freeze.

I'm sure they didn't like that proposal. But from our perspective, that coupled with other recommendations that we made would provide some limited benefits for our residential customers. This merger is not being done for the consumers' benefit; it's being done for the companies and shareholders.

State lawmakers passed legislation this year requiring utilities to meet a certain level of performance, and the Public Service Commission is currently developing regulations. Why has it taken Maryland so long to establish reliability standards?

We do have some general reliability standards and reporting requirements that have been on the books for close to 30 years or more. But what you're referring to is more specific metrics and, to be honest, I don't know the history of why the state hasn't specified metrics.

Certainly, what we've seen over the past few years is a greater awareness of reliability-related issues, and part of it is related to the fact that we've had a number of major storms in the last couple of years, which have heightened scrutiny of company performance.

One of the things that we've certainly been able to find out [from Pepco's performance during the twin snowstorms of 2010] is an underspending over a period of years on things like tree trimming and other operational activities that over the long term contributed to lessen reliability.

Since that has become much more apparent, the need for more specific standards became more apparent. … The legislation provided a framework and allows the commission to issue regulations to set standards, particularly in the area of vegetation management, which includes tree trimming. I would hope to see some real changes over the next few years.

Does Maryland have a competitive electricity market?

The utilities and electricity players operate in the same wholesale market. From our perspective, that certainly limits the real changes or significant swings in the prices that are going to be offered.

A year and a half to two years ago, we all saw that suppliers were able to undercut utility prices for residential customers by 10 percent or 12 percent or so. It went on for a year and a half. During this time, we did see an increase in the number of supplier applications. …

Since about October of last year, when the utilities' [standard offer service, or SOS] prices started coming down — and they went down again as of Oct. 1 this year — many of the supplier offers are actually higher than the SOS. …

You're going to see swings. Sometimes, suppliers will be able to go a little bit under; sometimes they're going to be above.

From my perspective, looking at the big picture, I'm not sure this really does much of anything for consumers as a whole. Individual customers at different times could get a good deal.

Fundamentally, it doesn't change the prices that are driven by the wholesale market. That's where all of the companies have to go.

The Public Service Commission recently ordered the state's utilities to seek proposals for building a new natural gas plant in Maryland. What could this mean for consumers?

We've seen a lot of volatility when taking a look at consumer demand and what supply is available out there. Three years ago, the major talk was about transmission lines and need to construct transmission facilities.

Here we are in 2011. We've seen two transmission proposals in Maryland — one has been withdrawn and the other one suspended in large part because demand has been reduced for two reasons: economic decline, particularly in the manufacturing sector, and also the development of energy-efficiency and demand-response programs.

Some of the pieces of the puzzle when you look at transmission, generation and efficiency have changed over the past three years. The transmission lines have been temporarily put aside, but generation facilities have not been built here in the state of Maryland.

There has been a lot of discussion … about the so-called reliability pricing model. It's a mechanism in the PJM [the electricity grid for the Mid-Atlantic region] that was supposed to provide an incentive to build generation facilities in Maryland — which has not resulted in any such construction.

Customers keep paying out money, estimated at $1 billion a year, and it goes to the pockets of the companies. We don't get anything back.

When we look at something like [the request for proposals for a new natural-gas plant], this has the potential for resulting in actual construction of a facility that can have an impact on pricing and could have an impact on reliability. These are two things that provide direct benefits for our customers.

hanah.cho@baltsun.com

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