Fixing Md.'s deregulation will be harder than its start

May 27, 2007
The Baltimore Sun
Jay Hancock

You thought Steve Larsen could mutter an incantation, lift his eyes to heaven and make BGE's electricity-price increase vanish?

We wouldn't be in this mess if it were that easy. If there's an upside to last week's Talladega act by Larsen and the rest of the Public Service Commission, it's this: Now we know how difficult it is to fix electricity deregulation.

Larsen waved Baltimore Gas and Electric's 50-percent increase across the finish line virtually untouched. (It takes effect Friday.) But he had to. While individual personalities got us into this and individuals made it worse, neither he nor any other individual can get us out.

Not in a jiffy, anyway. Former Gov. Parris N. Glendening and the General Assembly of 1999 did their work too well, anchoring deregulation deeply in the law and castrating the public bodies that once could control electricity prices. No, the solution will take time, deliberation and courage from all government.

There were high hopes for Larsen, who became PSC chairman in March and joined two other new commissioners to revamp a board that was vilified for deregulation chaos.

Democratic Gov. Martin O'Malley, who had promised to stop rate increases during his campaign against Republican incumbent Robert L. Ehrlich Jr., stoked the optimism by saying the new commission "understands we need to stand up for consumers."

A strong believer in government's power for good, Larsen is best known for single-handedly killing the sale of the nonprofit CareFirst BlueCross BlueShield and exposing huge golden parachutes at the health insurer, Maryland's biggest.

But that was when he was insurance commissioner. Now's he's chairman of the PSC, an agency that retains a small fraction of the power that it held a decade ago, thanks to deregulation. Most importantly, it lost control of the supply side of the market, which is the biggest part of the problem.

Yes, Larsen could have ordered BGE to freeze the prices it charges households after June 1, or not raise them so high. He would have eventually been rebuked in court; last year's General Assembly explicitly allowed BGE to raise prices as high as needed to recoup its soaring wholesale costs.

But before that happened, BGE would have landed in bankruptcy proceedings, requiring a bailout dwarfing the $500 million annual price increase taking effect this week.

One good thing about California is that it experiments with risky behavior so the rest of us can observe the results before trying the same thing. A few years ago California did what some people expected of Larsen: It froze retail electricity prices even as wholesale prices broke records.

Unable to recoup its costs, Pacific Gas & Electric went $9 billion in the hole and filed for bankruptcy. The whole thing cost Gov. Gray Davis his job and cost PG&E customers more than if they had just paid for the juice in the first place. Whatever the shortcomings of the Maryland PSC, as a utility overseer it is vastly preferable to a bankruptcy judge. And it's an improvement on its predecessor. The commission under previous Chairman Kenneth Schisler was politically hard of hearing, required BGE to buy power at what turned out to be a peak in the wholesale market and did not acknowledge that deregulation has turned into a debacle.

Maryland's No. 1 difficulty is getting new generation and transmission facilities to increase competition, support growth and lower consumers' cost. Yet this is close to impossible. People don't want generators or power lines in their towns. There hasn't been a major electricity plant built in central Maryland since the 1990s.

The wholesale electricity market, suspect since Enron was revealed to have manipulated California prices, got more problematic when the watchdog for the Mid-Atlantic grid claimed his bosses compromised his independence.

What's worse, the Federal Energy Regulatory Commission, not the PSC, oversees wholesale prices. FERC seems content to watch prices float into the ionosphere and cross its fingers. Addressing the problem requires change in Washington.

In Maryland, it will take leadership, guts and studying what's working elsewhere. Should BGE, whose plants were surrendered to parent Constellation Energy seven years ago, be allowed to build new ones? Can O'Malley grease a fast permitting track for generators and lines? Is there any way Maryland can re-regulate output from the Calvert Cliffs nuclear plant and other generators?

Hard questions. But now that we know the tooth fairy doesn't exist, it's time to tackle them.

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