Time for state to consider electricity re-regulation

January 18, 2011
The Baltimore Sun
Jay Hancock

For a decade Maryland has waited — sometimes patiently, sometimes angrily — for the promises of electricity deregulation to come true.

We saw Baltimore Gas and Electric transfer its valuable generation plants to an unregulated affiliate of Constellation Energy. We saw Constellation reap huge profits as it jacked up electricity prices in a deeply flawed wholesale market.

We saw our regional electric grid manager PJM Interconnection repeatedly tilt market rules in favor of entrenched generation companies such as Constellation, Mirant and Exelon. We looked for deregulation to lower kilowatt prices in the same way that it lowered long-distance phone prices, as the visionaries predicted. Instead prices rose.

Above all we waited for new generation plants to power Maryland's economy in the new century. OK, maybe electricity prices didn't plunge as expected, the deregulation boosters said. But surely the high prices that did result — as much as double what Marylanders paid a decade ago — would "incentivize" electric companies to build badly needed generation.

That hasn't happened, either.

It's time for Maryland to stop waiting, stop playing the victim and take control of its fate. The Public Service Commission has pointed the way. In a little noticed, pre-New Year filing, the PSC published a blueprint for building new generation plants and requiring BGE or Potomac Electric Power Co. — or both — to buy that electricity.

No longer would the utilities get all their megawatts from the deregulated wholesale market. No longer would Maryland wait for independent investors to finance new generation. By forcing BGE or Pepco to buy electricity from a new plant, regulators would simultaneously guarantee its construction and pass the building costs to BGE or Pepco customers.

Such a move would partially re-regulate Maryland electricity, one generation plant at a time — "potentially a major change in direction for Maryland," William F. Fields, senior assistant people's counsel for the state, told a symposium in Washington sponsored last week by the American Public Power Association.

There are reasons to favor such a course even if it proves moderately more expensive for BGE or Pepco customers.

The coal-fueled plants that Maryland relies on for much of its power will become pricier or go out of business, thanks to environmental regulation. A proposed expansion of the Calvert Cliffs nuclear-fired generation plant will probably never happen.

Maryland's economy has begun growing again after the recession.

And even with conservation, even with the revolution of efficient lighting and proliferating solar panels, we're going to need new, large, cleaner generators.

But rather than delivering them, deregulation has pretty much ensured they'll never arrive. PJM, heavily influenced by power companies, has produced a set of rules in which the companies collect billions for owning generation capacity — basically pure profit on top of whatever they spend to run a plant.

The capacity charge, which I have figured costs a typical BGE household $175 a year, was supposed to incentivize the companies to build generators for Maryland. But why should they? New plants would lower the capacity bonus, and right now they're getting rich doing nothing.

The PSC can break the impasse by ordering new plants financed by BGE or Pepco revenue.

"We're going to have to see states and consumers become more proactive in providing for their own resource adequacy," energy economist James F. Wilson told the power symposium.

They might even save themselves money. Competitive Power Ventures, which has been trying for years to build a $750 million, 640-megwatt, natural gas-fired generation plant in Charles County, argues that the facility's new supply of electricity would cause such a plunge in PJM's capacity and congestion charges that it could pay for itself.

In one intriguingly subversive suggestion, Maryland regulators could sabotage the annual PJM capacity auction by ordering a new plant to bid its megawatts at "zero" instead of asking to be paid for the capacity, thus dragging down capacity prices regionwide and saving consumers lots of money.

It's not necessarily fantasy. In New Jersey, where regulators and legislators are considering a similar course, PJM's own market monitor said such a move would "artificially depress" the auction and decrease revenue collected by power companies by $2 billion a year.

BGE's or Pepco's new source could be the plant built by CPV, with clean-burning natural gas and lower carbon dioxide emissions than coal plants. It also could include wind generators, although the offshore wind projects being talked about for Maryland sound quite expensive.

Whatever it turns out to be, incumbent power companies and PJM will fight it like hell. But they've left consumers and policymakers little choice. While Gov. Martin O'Malley was talking about re-regulating Maryland electricity two years ago, the discussion died down as policymakers gave deregulation a bit more time to work.

It hasn't. Time has run out. The PSC, acting after asking hard questions about the capacity-charge racket in hearings last fall, is right to fire up the re-regulation convoy.

Maryland is paying power companies close to $1 billion a year in capacity charges — and getting little in return. Why not take that money and invest in our future?

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