State favors middle road to keep the juice flowing

December 05, 2007|By JAY HANCOCK

No, says the Public Service Commission, Maryland is not about to spend billions to buy back Baltimore Gas and Electric's electricity plants so it can control what they charge. Nor will policymakers depend on the free market alone to furnish enough megawatts to prevent brownouts.

We won't completely re-regulate. And we won't completely deregulate.

We'll do something in between that pleases absolutely nobody, causes household electricity prices to stay high for years and - this is the key - ensures Maryland's growing economy gets the power it needs.

It would have been shocking to see the commission go in any other direction.

Yesterday legislators looked at two long-awaited reports on Maryland's energy options prepared by consultants and procured by the PSC. People will yammer over the details, but the broad direction of Maryland's energy policy just became clearer.

Here are a few educated guesses about what will happen over the next five years:

Constellation Energy will start building a third unit at its Calvert Cliffs nuclear plant, probably with millions in subsidies from taxpayers and ratepayers.

To induce companies to construct other generation plants, BGE and other utilities will agree to buy electricity from them for a decade or more. This would erode the system in which BGE shops for all its electricity in the wholesale market a few times a year.

Except for expensive wind energy and other "green" options, there will be few alternative electricity products for BGE household customers. (Commercial customers will still get to shop around.) Independent providers will find a less-than-fully-deregulated market unattractive.

Maryland will subsidize - either through electricity prices or through taxes - solar and wind energy. The state will also offer modest incentives for insulating your home and other conservation.

BGE and other utilities will install cool "smart meters," connected to the Internet that allow households to conserve energy and avoid buying the most expensive kilowatts. Expect the cost of these meters to be mostly passed on to consumers.

See a common theme? New plants. Ka-ching. Tax subsidies. Ka-ching. Green energy. Ka-ching. New meters, same idea.

This is politically unfortunate for Gov. Martin O'Malley, who campaigned on promises of reversing BGE's famous 72 percent price increase.

O'Malley's PSC is pushing the idea that building new plants will reduce "upward pressure" on electricity prices by addressing a generation shortage, and this is true for the long term. But it's also true that folding all or a portion of a plant's capital costs into residential BGE rates - which is where this seems to be going - will raise prices in the short and medium term.

But, really, there is nothing else to do.

The unsubsidized free market might have paid for new plants if Maryland hadn't capped household kilowatt prices for years, preventing independents from competing. But it's too late to establish a market. Plants take years to build, and experts think Maryland could suffer brownouts by the summer of 2011 if no new generation arrives.

(A new Calvert Cliffs unit will take a decade to complete, so we need gas plants sooner.)

Nor should we put much hope in planned transmission lines that would eventually pipe juice from Pennsylvania, Virginia and West Virginia. They'll improve the price and supply of electricity, but they're out of the state's control, face big regulatory challenges and will also take years to happen.

And we can't stuff the deregulation genie back in the bottle.

Complete re-regulation would require BGE and other utilities to buy back the plants they gave up as part of deregulation so the PSC could again control what they charge. But that would cost a gargantuan $17 billion to $24 billion, the PSC's consultant calculated. Ratepayers would bear the cost, which would boost bills beyond today's high levels. And you would still need to build and pay for new plants and conservation.

O'Malley could still get to boast that he achieved rate relief.

In coming weeks the PSC will deliver other reports on whether BGE parent Constellation Energy reaped an unjustified credit after deregulation and whether the wholesale power auctions that caused the 72 percent increase were fair.

It's possible that Maryland could do what Illinois just did: allege a flawed auction, sue and reach a billion-dollar rebate for electricity customers.

But even that won't put much of a dent in the bills. Unless the world economy goes into a tailspin and takes energy prices down with it, we'll have high kilowatt prices for years.

Expensive electricity, however, is better than not enough electricity.

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