Energy Rate Hikes May Spell the End of Deregulation in Maryland

January 21, 2007
Stephanie Dray

Among the many issues that led to Democratic dominance in the fall elections, energy rate hikes were at the top of the list in Maryland. Forget the Iraq War. Marylanders were angry about how much it cost to heat and cool their homes.

In 1999, at the height of the privatization/deregulation frenzy, Maryland put into effect an energy deregulation bill that capped energy costs for six years in exchange for exposure to the vagaries of the wholesale market thereafter. But when the caps expired last year, Baltimore Gas & Electric proposed a 72% rate hike. Maryland's Public Service Commission gave its approval to the move, which incensed citizens and led to legislative action to stave off the increase. But the legislative action was only a temporary measure.

Now BG&E is suggesting a 47% increase instead. Due to the falling prices of wholesale energy prices, particularly natural gas, the suggested increase this year is less dramatic. But even this reduction is unlikely to stem the tide of outrage in the state, and the growing anti-deregulation sentiment.

The first victims of voter wrath are likely to be the commissioners of the Maryland Public Service Commission. Evidence surfaced last year showing that commissioners had a close relationship with lobbyists and energy company executives. Commissioners were apparently going on hunting trips with energy big wigs and sharing strategies on how to sway lawmakers.

Incoming Governor Martin O'Malley has vowed to get rid of the commissioners for what his supporters characterize as malfeasance in office and borderline collusion with the energy industry.

As one state senator said, "It's pretty much a done deal as far as the decision that the commission has to go on its own or be removed by legal or legislative action."

But the repercussions are not likely to stop there. Lawmakers are considering rolling back the deregulation scheme entirely and allowing utilities to own regulated power plants again.

The original idea behind energy deregulation in Maryland was to promote competition between energy providers, but that competition never materialized. Constellation Energy was able to reap hefty profits by selling energy at inflated prices, while maintaining a virtual monopoly in the state.

As a matter of contrasts, Maryland lawmakers might be eying Michigan, whose energy usage closely matches Maryland's and who benefited tremendously from only partial deregulation. (Michigan was one of the last states to consider a deregulation scheme and had advanced warning from the missteps of other states, including California.)

Maryland Republicans are trying to reach a compromise. State Senator E. J. Pipkin said he plans to introduce legislation that would establish an electricity board and leave the PSC to continue to regulate telephone, water and sewage companies, and taxis. But even Maryland Republicans have turned sour on deregulation.

"The problem is that, on net, we have commissioners who are believers in this failed deregulated market," Pipkin said.

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