Energy deregulation 'a total failure'

May 24, 2008
Baltimore Business Journal
Sue Schultz

Lawmakers struggle to deal with consequences of '99 vote

Some lawmakers who voted to deregulate the electric industry in Maryland in 1999 now say it was a big mistake, one that has cost ratepayers heavily. Those who adamantly opposed it say their worst fears have come true.

But today, lawmakers are still divided over charting the best course for Maryland's energy future. Dozens of bills offering solutions have popped up this session, but with less than a month left to act, progress has stalled and some doubt a decision will be made this year.

"Do I regret it? I sure do, and I wish I hadn't done it," said Sen. Katherine Klausmeier, a Democrat representing Baltimore County who voted as a House Delegate in 1999 in favor of deregulation.

Sen. George Della Jr., a Democrat representing Baltimore City, was one of the few lawmakers in 1999 who voted against deregulation. "It's a total failure," Della said. "I just can't believe what the General Assembly allowed to happen. I was sitting in my chair then thinking, 'What are we doing here?' This decision has driven costs up."

Former House Democrat Leon G. Billings in many respects led the fight against deregulation in 1999. He said he didn't trust a deal that relied on utility monopolies to give consumers a competitive price after regulations were lifted, or the promises of lower rates for businesses and residents.

But his opposition met resistance from big energy lobbyists and political leadership muscle like Senate President Thomas V. Mike Miller.

"This wasn't a democracy," said Billings, now an environmental consultant in Washington, D.C. "There weren't many voices of opposition out there, and Miller had threatened everybody on this to get it through."

Miller, a chief proponent of deregulation, said in 1999 that the state needed to move quickly because neighboring states like Virginia and Delaware were opening their doors to competition. Lower electric rates in these states could have drawn businesses away from Maryland.

That April, deregulation passed in the House by a vote of 95-34 and in the Senate by a vote of 34-13.

Miller could not be reached for comment.

Working to fix the problem

But as some lawmakers plot how to correct an old problem, an ongoing battle between the state and Baltimore-based Constellation Energy Group dominates the political foreground.

Lawmakers and state utility regulators are busy trying to determine whether Baltimore Gas and Electric Co. and its parent company, Constellation, overcharged ratepayers as a result of the 1999 agreement. And the state of Maryland is entangled in a federal lawsuit brought by Constellation to recoup $386 million in ratepayer rebates it alleges the state took illegally.

As ratepayers wait for a fix, electric rates continue to soar. BGE customers will see a 5.5 percent increase in rates this summer.

Some say you can't undo what's been done, so the best approach is to boost efforts to make the state a more competitive electric market.

"It's done, we did it, so let's move forward with it and try to make it the best way for ratepayers," Klausmeier said.

Klausmeier and other lawmakers who voted for deregulation are standing behind it and have introduced new legislation to lower regulatory barriers so that retail electric suppliers will have more opportunity in the residential energy market in Maryland.

One bill would help retail electric companies use existing utility databases such as BGE's to bill residential customers and collect debts. The move would lower costs for the companies and entice them into offering more residential service in Maryland. Similar legislation was introduced in Connecticut last year.

Casper Taylor Jr., a lobbyist in Annapolis with Alexander & Cleaver who served as the House Speaker in 1999 and helped craft deregulation legislation, said it's time the state moves forward on the work it began nearly a decade ago. He said the state's extension of residential rate caps kept many companies from entering the Maryland market and competing with BGE and other utility companies.

"Deregulation was a very good decision for Maryland," Taylor said. "There were just a lot of things that happened that slowed down the competitive market we wanted to get to."

Delegate backs more state control

In 1999, David Hernandez was a mid-level manager with Enron Corp., the Houston energy behemoth that eventually collapsed amid a financial scandal. The company was pushing many states to open electric markets to competition.

He said the company created an expectation of lower prices, which wasn't a complete picture of deregulation.

"The concept was a good one, but Maryland's execution wasn't good," said Hernandez about deregulation.

Now CEO of Liberty Power, a Florida-based energy supplier offering electric services to businesses in Maryland, Hernandez said there's still a lot the state could do to help open the door for competition in Maryland.

But other lawmakers said deregulation has done enough damage, and it's time to cut and run.

Del. Emmett C. Burns, a Democrat representing Baltimore County, said his vote to deregulate the state in 1999 was a mistake. He has introduced legislation this year to reregulate the electric market. The legislation received an unfavorable recommendation from the House Economic Matters Committee, but Burns said he also supports legislation introduced by Della and others that would tighten state control over future power generation plants and utilities.

"I think people would be more accepting if they knew energy generation was in our hands," Burns said.

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