Maryland needs an energy overhaul

June 04, 2006|By RICHARD MUNSON

Pending rate increases have focused attention on electricity, yet few policymakers are looking beyond these increases to consider how Maryland could jump-start a culture of innovation and efficiency within its electricity sector.

The proposed rate increases, in fact, offer an opportunity to think boldly about the state's energy future. If regulators and lawmakers focus on creating a more innovative electricity system, they can stimulate immense environmental and economic benefits.

Opportunities are vast. An array of modern technologies can enhance reliability, increase consumer choices and reduce pollution. Yet entrepreneurs are blocked by outmoded policies designed over the last century to promote and protect monopolies.

Compared with its neighbors, Maryland has been slow to adopt market rules that would spur advances. As a result, the state has not attracted energy entrepreneurs and their investments. Rather than simply playing the blame game about who or what is responsible for today's higher rates, the state's leaders need to confront market barriers and to put into place a more efficient and reliable power system to better serve Marylanders.

Today's electricity system is not adequate for the 21st century. The average generating plant was built in 1964, using technology from the 1950s. Utilities have not improved their delivered efficiency in about 50 years.

With efficiency calculated at 33 percent, they essentially burn three lumps of fuel to generate one lump of electricity. Put another way, two-thirds of the fuel burned to generate electricity is wasted. The predominant configuration of centralized power plants eliminates the possibility of capturing and using that heat. As a result, additional fuels must be burned to provide the thermal needs of factories and buildings that are far from power plants.

The consequences of that system's inefficiencies and stresses are staggering, if little noticed. Unreliable supplies, ranging from the millisecond fluctuations that destroy electronic equipment to the 2003 summer blackout that left 50 million without power, cost Americans $119 billion a year.

Put in perspective, this unreliable power adds a 44 percent surcharge to the cost of U.S. electricity, and it puts our country at an economic disadvantage relative to some of our international competitors.

Electricity generators, moreover, are the nation's largest polluters, spewing tons of mercury, sulfur dioxide, carbon dioxide and other contaminants into America's air and waters. Despite significant government attempts to control such pollution, 46 of the nation's top 50 emitters are power plants.

Protected from competition, utilities have had little motivation to innovate. The power industry, in fact, spends significantly less on research and development than most other industries.

Rather than subsidize or mandate the technologies promoted by the politically powerful, innovation-enhancing markets require the elimination of regulatory and environmental obstacles. Numerous power market rules were designed over the last century to support and protect today's dominant structure - centralized, steam-powered generators controlled by regulated monopolies. Put another way, today's rules are skewed against alternatives and innovation. We need a strategy designed to knock down the barriers.

Because dominant power companies, for instance, can block entrepreneurs from connecting to the grid, we need clear and fair interconnection standards.

Today's utility monopolies, moreover, enjoy the sole right to string wires. Businesses can construct natural gas pipelines or build telephone lines, steam tunnels and Internet extensions to their neighboring buildings, but if they were to run an electric wire across a street, they could be sent to jail because the rules continue to provide a monopolistic advantage to electric utilities.

If the rules were changed, few firms would construct their own electric lines, just as there are few independent gas pipelines. But the availability of competitive wires would transform the power industry and end the monopolies' ability to block independents from generating electricity. We also need fair rates for entrepreneurs to sell power to, and buy power from, the grid.

Another part of a barrier-busting strategy is to eliminate the environmental rules that reward power plants that burn a lot of fuel, regardless of their efficiency.

Maryland can and should become a hub for electricity innovation. Modern technologies are available. If state policymakers can look beyond the current rate increases to restructure the electricity industry based on the principles of technology modernization, market efficiency and consumer choice, they will bring about immense benefits for the state's economy and environment.

Richard Munson, executive director of the Northeast-Midwest Institute, is author of "From Edison to Enron: The Business of Power and What It Means for the Future of Electricity." His e-mail is dickmunson@nemw.org. This article is excerpted from a report published by the Abell Foundation.

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