Maryland's chief energy regulator warned yesterday that lawmakers cannot reverse the deregulation of energy markets that many regard as a failure, concluding that seizing utility assets would be a costly gamble in uncertain economic times.
The Public Service Commission did, however, hold out the possibility of what it called "re-regulation light," under which ratepayers would help pay for construction of new power plants in return for state-controlled price limits. Because of deregulation, Maryland utilities now buy electricity on the often volatile open market.
"The commission believes that the public interest compels some re-regulation of Maryland's electricity markets," the commission wrote in its report, ordered by state lawmakers last year. "Public interest is not served by deregulation that requires the commission to wait passively for market forces to deliver a reliable supply of electricity at reasonable rates."
Maryland regulators are trying to head off potential rolling blackouts that could arrive because of electricity supply shortages as soon as 2011, and to bring cheaper electricity to ratepayers saddled in recent years with soaring utility bills.
State lawmakers approved electricity-market deregulation in 1999, believing that it would bring competition and lower prices. Instead, household costs in Maryland rose - along with energy prices worldwide - after rate caps were lifted in 2006 after a seven-year transition period.
Commission Chairman Douglas Nazarian briefed top lawmakers in Annapolis yesterday on the agency's findings and plans to appear next week before legislative committees.
Constellation Energy Group, which owns Maryland's largest utility, as well as two companies competing to buy all or part of the Baltimore-based company, have also been invited to appear before lawmakers to discuss the possibility of a partially regulated energy market.
Constellation agreed to sell itself to Warren Buffett's MidAmerican Energy Holdings Co. for $4.7 billion in September as the company faced a liquidity crisis. But the company's board is in talks with its largest shareholder, Electricite de France, after the European utility offered last week to buy half of Constellation's nuclear assets for nearly the same price as MidAmerican is paying for the entire company.
A MidAmerican executive told lawmakers in October that the company was willing to discuss regulation of new generation and transmission assets when the deal is completed.
"As these negotiations go forward, you're also going to get a flavor from MidAmerican or EDF of what their feelings are on the report and whether they are open to the idea of utilities being in a partially regulated marketplace," House Speaker Michael E. Busch said.
Constellation spokesman Rob Gould said yesterday that the company is reviewing the report.
Sen. Jim Rosapepe, a Prince George's County Democrat, said he disagrees with the report's conclusion that reacquiring utility assets would not be economically feasible for Maryland ratepayers. Under complete re-regulation, the state would seize power plants through eminent domain, incurring billions of dollars in debt to pay off Constellation and other owners.
Rosapepe pointed to the commission's own analysis, which found that returning Pepco Holdings Inc. operations to rate-based regulation could be economically beneficial to those ratepayers. Pepco owns Washington's electric utility. Constellation owns Baltimore Gas & Electric Co.
"If the numbers work for Pepco, they certainly should work for Constellation," Rosapepe said.
Rosapepe, along with Sen. E.J. Pipkin, an Eastern Shore Republican, plans to resubmit legislation that would require regulation of new power generation in Maryland. That proposal failed in the legislature earlier this year.
The PSC would oppose such a bill as too restrictive but would support legislation to expand options for new electricity generation, such as another bill that didn't pass that would have allowed utilities to form a consortium to build power plants, agency officials said.
The regulatory commission said it would explore whether and on which terms to order the construction of one or more new power plants in Maryland.
The commission has the authority to require that investor-owned utilities build plants, and Gov. Martin O'Malley, a Democrat, raised the possibility of taking such a step during a policy speech last summer. When asked recently about re-regulation, O'Malley said: "We continue to look at all options."
Regulators said the threat of rolling blackouts has eased because the recession appears to have prompted consumers to cut back on energy use. A proposed line that would bring electricity from the Midwest also overcame several regulatory hurdles this year and could be in place by June 2011.
But building a new plant would not only help cover demand but also provide economic benefits, the PSC found. Ordering utilities to add more generating capacity could save as much as $800 million a year.
THE RE-REGULATION REPORT
The Maryland Public Service Commission studied re-regulation and has concluded:
* Full-scale re-regulation of Maryland utilities is too costly and risky.
* Regulation of newly built plants should be considered.
* The threat of power shortages in 2011 has eased.