Maryland's electricity market is neither free nor fair

March 29, 2006|By JAY HANCOCK | JAY HANCOCK,SUN COLUMNIST

It's "anti-business" to advocate tougher Maryland regulation for electric utilities and rate relief for Baltimore Gas and Electric customers, say several thoughtful readers.

Cracking down on BGE and parent Constellation Energy jeopardizes their planned merger with FPL Group and worsens Maryland's reputation as a business abuser, they say.

The episode joins Maryland embarrassments such as last year's requirement for better employee medical coverage at Wal-Mart; the 2002 rejection of the WellPoint/CareFirst insurance merger; and the 1981 interest-rate caps that drove credit-card concern MBNA to relocate its headquarters from Maryland to Delaware, they contend.

"You and the politicians in Maryland just don't get it," says a reader via e-mail. "First MBNA, now Wal-Mart and next BGE, if you have your way. America works because of free markets, not regulation to impede free markets. If you want to reduce Maryland's standard of living keep up the good work."

I respectfully disagree. I support free markets. I opposed last year's attack on Wal-Mart, supported the WellPoint/CareFirst buyout and have written repeatedly about the folly of driving away MBNA.

But there is nothing resembling a free market in the sale of Maryland electricity.

Even libertarians recognize that markets don't always work and that market failures such as monopoly require government intervention.

BGE isn't just a monopoly; its electricity is an essential economic ingredient for virtually every household, business and factory in Central Maryland. For typical families the price of that ingredient is scheduled to rise 72 percent, or $743 a year - $800 million for all BGE households lumped together.

In Maryland's $200 billion economy, $800 million is what corporate accountants like to call "material." It matters.

Not all that money would get subtracted from household spending if rates rose 72 percent. People would cut energy use. Even so, rate shock would certainly sap what consumers have to spend in stores. Would rubber-stamping it be pro-business?

Deregulation flops

In Maryland, attempts to cultivate a free and vigorous electricity market have flopped.

After deregulation in 1999, the scrapping of wholesale price controls was supposed to make generation companies compete for business and lower prices for the juice they sell through BGE's monopoly.

Competition emerged for big business customers, but the smaller the user, the lower the likelihood of choice for electricity. Families in Central Maryland essentially have none.

It's true that government intervention - price caps that expire July 1 for BGE households - inhibited competition and contributed to the current mess. It's also true that thriving electricity choice would develop at some price if government stepped aside.

But the damage to lower-income families would be incalculable, and the pain for middle-income families would be real, and that excuses state intervention. Electricity is - repeat - a necessity. We're not talking about price controls on iPods, or even gasoline.

Complaints about beating up Constellation/BGE might resonate if there were more evidence the company has dealt fairly with the legislature and the public.

I supported WellPoint's attempt to buy the nonprofit CareFirst BlueCross BlueShield because WellPoint agreed to pay a fair price for the public asset it wanted to take over - $1.3 billion, which would have gone into philanthropic foundations.

Constellation, by contrast, transferred BGE's generation plants to an unregulated affiliate without buying them and then demanded and got another $528 million "stranded cost" settlement from BGE ratepayers because it claimed the plants would lose value. They didn't. While it's not a nonprofit, BGE is a quasi-public entity, and plants built for ratepayers' benefit are now out of their control.

Redoing deal

You can argue that, by renegotiating stranded costs and trying to get back money for ratepayers, Maryland's General Assembly is going back on a done deal.

Of course it is. There might be more sympathy, however, if Constellation bosses hadn't renegotiated their own done deals: their employment contracts. They upgraded their "golden parachute" packages - at great expense to shareholders - just before agreeing to the FPL merger that would trigger them.

Nor does the argument that legislative attacks will drive Constellation jobs out of Maryland ring very loudly. The company has already agreed to marry FPL and cede control to FPL directors and executives.

That will probably cause job loss all by itself.

Just as we shouldn't grant carte blanche to businesses, we shouldn't offer it to the legislature, either.

The latest bills in Annapolis - to try to fire gubernatorial appointees on the Public Service Commission and appoint a Spanish Inquisition to analyze the FPL deal - are missiles better left in their silos.

But if the process leads to a negotiated compromise with Constellation, relief for ratepayers and more control over BGE for the state, that will be good for everybody.

Including business.

jay.hancock@baltsun.com

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