A bid to curb energy firms

As bills soar, O'Malley opens door to regulating future power plants

March 03, 2009|By Laura Smitherman | Laura Smitherman,laura.smitherman@baltsun.com

Gov. Martin O'Malley laid out a blueprint yesterday for a partial return to a regulated energy industry, rejecting a decade-old policy that was intended to lower consumer prices through market competition but is widely regarded as a failure.

In the midst of an outcry over budget-busting utility bills, O'Malley unveiled a plan that would allow the state to regulate future power plants if such a move is determined to be in the best interest of customers.

The proposal also would allow the state to decide when new plants are built, taking that authority from utilities.

"I don't have to tell anyone, especially on a day like this in the cold winter," O'Malley said, "just what a tremendous amount of pressure Maryland families and especially people on fixed incomes are facing when you combine the national recession with rising energy bills."

O'Malley acknowledged that his proposal is not a "quick fix by any means" for customers grappling with soaring costs. In the meantime, he said his budget for next year includes a record $90 million to help low-income residents pay utility bills. He also noted that the Public Service Commission has opened an inquiry into the recent rate spike.

Mounting electricity prices have bedeviled O'Malley, a Democrat, since he campaigned more than two years ago on promises to fight rate increases. Since then, consumers have seen higher bills - in some cases doubling this winter - and the state faces a supply shortage that could lead to rolling blackouts as soon as 2011.

The governor acknowledged yesterday that few issues have taken more of his administration's time.

Bipartisan sentiment has grown in the General Assembly for revisiting the legislature's 1999 decision to deregulate the energy industry, and some leading lawmakers praised O'Malley yesterday for embracing some re-regulation.

But industry officials warn that if the state turns its back on deregulation, consumer choice would be squashed and energy companies would avoid doing business in the state. On the other side, a consumer group that has protested rate increases by Baltimore Gas & Electric Co. characterized the governor's proposal as politically calculated and insufficient.

"O'Malley is just feeling the pressure," said Maria Allwine, a consumer activist. His plan, she said, "is not going to do anything about rates we are paying right now."

Constellation Energy Group, BGE's parent company, continues to support deregulated, competitive energy markets. But the company signaled yesterday that it was willing to discuss the governor's proposal, which would exempt its proposed third nuclear reactor at Calvert Cliffs. The company stridently opposes more sweeping re-regulation bills introduced earlier in this legislative session.

"From what we have heard today, but have not yet had a chance to see in detail, the governor's approach differs greatly from the other proposed legislation that we have seen in recent weeks," Constellation Chief Executive Officer Mayo A. Shattuck III said in a statement.

Shattuck called the other proposals "unworkable attempts to reach into the past" that "would lead to further destabilization of the Maryland energy markets."

O'Malley's plan lands in the middle of the 90-day session, giving lawmakers a shortened schedule to consider it. A Senate committee will hold a hearing today on two other bills - one calling for a full-scale re-regulation that would also cover existing power plants and another proposing a more moderate regulatory regime only for new power generation.

O'Malley's administration will present the details of its proposal at the hearing and suggest using one of the existing bills as a vehicle for enacting it.

The governor's proposal would give the Public Service Commission broad powers. Chief among them would be the ability to order, through eminent domain and other authority, that utilities construct new power plants or acquire power through long-term contracts. Those decisions, he said, should be guided by public interest, not profit.

"We cannot afford to tap our feet, stare at our watches and hope and pray that the markets will somehow deliver on its promises," O'Malley said.

The legislation also is aimed at energy companies that are "squatting" on suitable sites for new power plants. Malcolm Woolf, director of the Maryland Energy Administration, noted that Sempra Energy abandoned plans to build a plant at a site in Frederick County that was permitted and close to transmission lines. He said the state could direct a regulated utility to build there.

The governor stopped short of proposing that existing power plants be returned to regulation, under which state-controlled price limits are imposed and utilities are allowed a government-set profit. That's not a practical solution, he said, and could actually add to utility bills as ratepayers bear the cost of buying back aging coal-fired plants that need expensive upgrades.

But Sen. E.J. Pipkin, an Eastern Shore Republican who has been outspoken on energy issues, said he would continue to explore such a scenario, which he contends could deliver savings to consumers. He said the plant asset values have plummeted because of the recession and he was encouraged that O'Malley embraced some form of re-regulation.

"The 10-year experiment is dead," he said.

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