Electricity restructuring in Maryland

August 20, 1997|By Christian H. Poindexter

ACROSS THE NATION, electric-industry restructuring has emerged as a complicated and highly charged issue. Two efforts under way in Maryland will have enormous impact on energy consumers and our state.

This week the Maryland Public Service Commission began public hearings on how to regulate the state's electric utility industry to allow customers to choose their electricity supplier. At the same time, a 20-member task force is to identify the potential benefits and impacts of electric-industry restructuring and make recommendations to the legislature.

For 87 years, regulated monopolies have provided electricity within defined territories at rates set by the Public Service Commission. The system has worked well. Marylanders enjoy reasonable rates and service that are among the best and most reliable in the country.

But regulated monopolies are fast becoming a thing of the past, just as they have in the telecommunications industry. Maryland is now traveling the same path as the U.S. Congress and most states in reviewing the extent to which electricity service should be regulated.

It's the right path for residential and business customers alike. Ultimately, customer choice is right for Maryland because a competitive marketplace is always a better ''regulator'' of prices and service than a government-regulated marketplace. And BGE is ready to compete with all comers.

At the same time, moving from a regulated to a competitive market won't be easy. Many important issues will have to be decided before the state is ready to make the change. These include maintaining system reliability and customer service, social and low-income programs, environmental issues, tax policy and the costs of transition to a new market structure.

When competition comes, it will be important to our economy and our communities that Maryland's companies not be placed at a disadvantage to out-of-state competitors that haven't made the same investments in our state. This will mean amending the tax code to ensure a level playing field for all competitors. And it will mean allowing Maryland investor-owned utilities to fairly recover the costs of investments they were required to make to ensure low-cost, reliable electric service.

Under the current system, regulators gave the utilities and their shareholders the opportunity to earn a fair return on these investments, in exchange for the utilities' assuming the obligation to supply electricity to all the customers within their territories. To meet that obligation, utilities built generating plants, transmission lines, substations and other important parts of the electricity infrastructure. These investments have been reviewed and approved by regulators.

When the electricity market changes from regulated to competitive, guaranteed customer bases and defined service territories, which local utilities were created to serve, will disappear. This could potentially leave the utilities and their many in-state shareholders to bear the so-called ''stranded'' or transition costs, even though these costs relate to investments required under the old regulatory system.

Why should you, as a utility customer, care about this? Because you have a vital stake in the continued reliability of Maryland's electric supply and in the health of Maryland's economy and business. It is important to all Maryland customers that any utility industry changes strengthen, not weaken, Maryland-based businesses that employ Maryland workers and provide a good return to Maryland investors.

You also have a stake in the community-service role played by Maryland's utilities. That role includes charitable contributions that enhance the quality of life in our state. And it includes social programs designed to ensure that the neediest among us get the reliable and affordable electric service that very often their lives depend upon.

Groups like the Baltimore Urban League have expressed concern that, in an environment motivated mainly by profit, many of these programs might disappear as costs are cut by companies to stay competitive. This is a reasonable concern. The new entrepreneurs in electricity marketing, for example, have never had to meet community obligations like low-income energy assistance. It's not clear how or whether they might be required to do so in a new electricity market. Policy makers must make sure that future investments in important programs like these -- as well as existing investments necessary to ensure reliable service for all Marylanders -- are fairly shared among all those who sell power in this state.

In Maryland, we enjoy an electric power system that everyone can count on. Changing our current regulated system to one of customer choice will be good for our state, but getting there will be a complicated process. The key to success will be to take enough time to do it right.

The governor's task force and the Public Service Commission should fully investigate what we need to do to prepare for the new market, its costs and benefits, and what new legislation and regulation is needed. When all these questions have been thoroughly examined and fairly deliberated, Maryland will be ready to fulfill the promise of customer choice.

Christian H. Poindexter is chairman and chief executive officer of the Baltimore Gas and Electric Co.

Pub Date: 8/20/97

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