Md. may pull plug on power regulation Legislators face task of changing system for utilities industry

Billions of dollars at stake

Businesses would gain from competition and lower prices

December 27, 1998|By Michael Dresser | Michael Dresser,SUN STAFF

With all the wariness of utility workers approaching a downed power line, Maryland lawmakers are steeling themselves to take on the issue of bringing competition to the electrical power industry.

Deregulation of the industry, an idea that the General Assembly has danced around for the past two years, would affect the pocketbook interests of every Marylander who doesn't live in a cave. It's an endeavor that is breathtaking in its implications and mind-boggling in its complexity.

"It's a dull, technical issue -- except it involves billions of dollars over the next 20 years," said Del. Dan K. Morhaim, a Baltimore County Democrat.

Grappling with the matter, said an aide to Gov. Parris N. Glendening, is like "a long visit to the dentist."

The idea behind deregulation is that competition would give customers choices and drive prices down. It is an enticing argument for large businesses, which stand to enjoy the greatest benefits.

Before that can happen, the Assembly must reinvent the state's regulatory system -- or delegate that power to the Public Service Commission. Where the old system regulated all phases of the electric business, the new one would have to control a monopoly distribution system but leave power generators free to compete.

That alone is complicated enough, but deregulation also involves issues of taxation, economic development, the environment, consumer protection and poverty.

With so much at stake and so many powerful interests involved, the energy deregulation debate is a full-employment program for lobbyists. Virtually every prominent "hired gun" in Annapolis has a client with a stake in the energy plan.

The process involves such serious political perils that many legislators are wondering why they should bother. After all, the public is not imploring them to tinker with a regulatory system that has protected residential ratepayers. The governor, saving his political capital for issues dearer to his heart, isn't pushing the Assembly to act.

But House Speaker Casper R. Taylor Jr. and Senate President Thomas V. Mike Miller, who set the legislative agenda in Annapolis, have decreed that this is the year to pass a plan.

The two presiding officers -- who split over the issue last year -- are optimistic that they can get the job done in the 1999 session, which begins Jan. 13. "The House and the Senate are clearly on the same page," said Taylor.

Miller and Taylor have compelling reasons to get out front. Other states are deregulating as part of a nationwide trend. Some of Maryland's largest employers say lowering electricity costs is crucial for their businesses. Economic development advocates say power costs make up one of the biggest factors in decisions to expand or relocate plants.

The PSC is also urging action and has proposed a target date of July 1, 2000, for beginning the transition from monopoly.

'Stranded costs'

The current utilities agree that the time for competition has come, though they are continuing to press for the recovery of money they invested in building their networks -- "stranded costs."

That issue -- which involves billions of dollars in potential costs to ratepayers -- is at the heart of negotiations between power companies and big energy users over a plan that could be presented to the Assembly as a basis for legislation.

One Maryland plant whose future might depend on the outcome of the debate is the Alcoa Eastalco Works in Frederick, which employs about 675 workers in the energy-intensive aluminum-smelting business.

Earl Robbins, the plant's government affairs director, said the Frederick aluminum plant is the largest energy customer in Maryland -- paying $65 million to $70 million a year for electricity. He said the facility's costs are the highest of Alcoa's 11 North American plants -- largely because of power expenses -- making it vulnerable to competition within the corporation.

"Any time you're the high-cost plant, it certainly puts you in a very awkward position," Robbins said. "We need to see deregulation happen as soon as possible. We need it to happen last week."

Economic development arguments and a business-only consensus are unlikely to be enough to pass a plan.

Legislative leaders say the foremost concern of senators and delegates will be the effect of deregulation on residential customers, whose rates have traditionally been subsidized by business customers. Miller and Taylor said any bill would have to include provisions capping residential rates, protecting low-income customers and shielding consumers from shady business practices.

Michael Travieso, who as People's Counsel serves as Maryland's advocate for residential ratepayers, maintains that a simple rate freeze is not enough.

"We ought to figure out a way where residential consumers can get some benefits during the transition period," Travieso said. In some states, mandated rate cuts have been the political price of passing a bill.

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