PSC wants role in utilities

Senators are told that deregulation can't meet Md.'s power needs

December 05, 2007|By Paul Adams | Paul Adams,Sun reporter

Utility regulators yesterday presented lawmakers with a new model for electric regulation in Maryland, reinforcing the widespread view in Annapolis that competitive markets have failed to deliver benefits to consumers.

Steven B. Larsen, chairman of the Public Service Commission, said the state could not afford to wait for the power industry to act on its own to keep the lights on.

He told members of the Senate Finance Committee that it would take a series of interventions by regulators to ensure reliability of the power grid and achieve lower prices in years to come.

Though the regulators' report was well received, the proposals laid out by the commission represent a significant move away from deregulation as lawmakers envisioned it in 1999 when they passed legislation seeking to create competition.

"If anything, this report says that 1999 was a mistake," said Sen. E.J. Pipkin, an Eastern Shore Republican and member of the Finance Committee.

Legislation passed last session directed the commission to study options for re-regulating the industry and report back to lawmakers. Yesterday's report was the first of a series of reports and orders the commission will issue as part of the directive.

The regulatory reforms discussed yesterday would put regulators back in charge of decisions affecting construction of new power plants, and could leave retail electric suppliers frozen out of the Maryland market.

Deregulation was passed with the aim of giving residential customers a choice among scores of electricity suppliers, who would drive down prices as they competed for customers.

So far, fewer than 3 percent of Maryland utility customers have switched to one of a small number of competitive suppliers operating in the state. And residential electric rates have risen significantly since competition entered the state.

The PSC report comes as Gov. Martin O'Malley is putting together his legislative plan for dealing with the state's energy crisis.

"The PSC report underscores that Maryland faces serious electricity challenges that need to be addressed both in the short and the long term," said Rick Abbruzzese, an O'Malley spokesman.

The issue was given urgency after six years of rate caps expired and the state moved to deregulation, resulting in a more than 70 percent rate increase over two years for customers of Baltimore Gas and Electric Co.

Key among the commission's proposals is a plan to spur construction of new power plants by requiring utilities to enter into long-term contracts with power companies. Without new generation or transmission lines, the state faces a projected energy shortfall as early as 2011.

New generation is also needed to reduce the premium Maryland utilities pay for power because there is a lack of transmission and energy supply throughout the region.

Those premiums come in the form of so-called "capacity" and "congestion" charges added to the price of electricity. The added charges are intended to spur power companies to build new plants, but that has not occurred.

The market monitor for PJM Interconnection, which operates the regional power grid, estimates that congestion charges cost Maryland ratepayers as much as $500 million in 2006. That money goes to BGE parent Constellation Energy Group, Mirant and other companies that own power plants in Maryland.

Consultants hired by the PSC found that construction of a new nuclear plant at Calvert Cliffs could help alleviate the problem in the long-term. New gas-fired generation would do the job faster, along with the addition of conservation programs aimed at getting consumers to cut back.

Baltimore-based Constellation, the state's largest energy producer, said competition can solve the problems facing the state, but it needs more time to work.

The company is working to expand capacity at some of its existing Maryland power plants, and is exploring whether to build new gas-fired generating plants. It also is considering construction of a 1,600-megawatt nuclear reactor at Calvert Cliffs. And BGE recently sought approval for various conservation programs.

"When you look at what the commission has suggested, we're already playing a major role in three of them," said Rob Gould, a spokesman for Constellation.

Constellation has argued against having utilities enter into long-term power supply contracts, arguing that it would disrupt competitive wholesale energy markets. Larsen conceded that the move could discourage some generators from building new plants in Maryland.

The proposal is vindication for the Maryland People's Counsel, the agency that represents residential utility customers. The office has long argued that consumers would benefit if regulators abandoned the existing system of having utilities buy power through energy auctions.

But retail power suppliers - who want to compete against BGE and other utilities for customers - do not like the plan because they say it will make it harder for them to enter the market. Retail suppliers compete by trying to offer lower prices than those offered by utilities.

"I think it would make it extremely difficult for retail competition to develop," said Leah Gibbons of the Retail Energy Supply Association, a trade group.

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