State to step up for energy

O'Malley says government will work to avert electricity crunch

August 17, 2008|By Laura Smitherman | Laura Smitherman,Sun reporter

Gov. Martin O'Malley asserted a stronger government role in averting an expected energy crunch yesterday as he laid out a multipronged plan for bringing more electricity into Maryland before the state is faced with rolling blackouts predicted for 2011.

The Democratic governor, in a speech to a conference of local government officials in Ocean City, proposed several ways to put more power on the grid, including encouraging localities to build their own generators and contracting with renewable power ventures. He also said the state should accelerate the installation of high-tech gadgets in homes to help residents reduce their energy use at times of peak demand when it's most expensive.

If the power shortfall is not solved, O'Malley said, it may be necessary to direct utilities such as Baltimore Gas & Electric Co., Maryland's largest, to find additional power supplies or build a new plant to ease supply constraints.

The Public Service Commission, the industry's regulator, began laying the groundwork for such a move through an order issued last week.

"We cannot, cannot stand idly by and wait for market forces or the electricity good fairy to come in and solve this problem for us," O'Malley told the annual conference of the Maryland Association of Counties. "We know that there's no new generation coming online. We have to do something about this now or the rolling brownouts and blackouts will happen."

The proposals mark a stark reversal from the state's effort to deregulate the electricity industry in 1999, a free-market experiment that many politicians and policy wonks now regard as a failure. State officials said that while the governor's proposals fall short of wholesale re-regulation, the ideas reflect a desire to act rather than wait for market forces to right the supply-and-demand imbalance.

But while O'Malley's proposals could drive down electricity prices, some of the upfront capital costs would be borne by residents, potentially adding to utility bills at least in the short term. Residents already have seen some of biggest price spikes in the country in recent years.

The prospect of pushing utilities to own generating assets also sets up a potential clash with Constellation Energy Group, BGE's parent company, and could discourage other companies from entering the market, industry analysts say.

O'Malley, who campaigned on promises to address rising utility bills and would face re-election one year before the blackouts are expected to hit, has had a confrontational relationship with Constellation.

BGE transferred its power plants to an unregulated affiliate of Constellation as part of deregulation, and now it must buy electricity on the wholesale grid, where prices are high. Officials with Constellation, a publicly traded company, have said that ordering utilities to build plants would shift risks, such as rising fuel costs, from shareholders to ratepayers, who also would foot the cost of construction.

"Key to any solution set must be the ability to balance affordability, reliability and sustainability, all of which are critical to making Maryland an attractive place for future energy investment," Constellation spokesman Robert L. Gould said in a statement.

No new large-scale power plants have been built in Maryland in decades, despite population growth and development. Constellation's plan to build a new nuclear reactor may not come to fruition until at least 2015. Similarly, efforts to build high-voltage transmission lines to bring more power here could take years.

O'Malley said he would seek legislation in the General Assembly next year to enable the state to float bonds to finance building small "peaking" plants by cities and counties to provide power during peak demand times, when the system would be most vulnerable to disruption. Such plants could cost several hundred millions of dollars.

The state is working with the town of Thurmont in Frederick County on such a project, and Easton in Talbot County has owned its own diesel-powered generation for decades.

The proposal is likely to be met with some skepticism in the legislature. Sen. E.J. Pipkin, an Eastern Shore Republican who frequently speaks out on energy issues, said government agencies might not be equipped to build and run power plants. But the lawmaker said he was encouraged that the governor acknowledged the current system is "busted" and a new model is needed in Maryland.

"How we get there is going to be open to a lot of interesting debate for the next several months," Pipkin said.

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