Rushing energy bill could produce nasty shock

March 11, 2009|By JAY HANCOCK | JAY HANCOCK,

Maryland is doing it again: rushing into politically fashionable energy legislation that could end up generating a nasty shock.

Policymakers are talking about canceling kilowatt shopping even for commercial and industrial customers. They're setting up everybody to pay for expensive, new generation plants.

What, exactly, is the hurry, except to appear to be doing "something" about high electricity prices?

Re-regulation would force utilities to build the new power plants that deregulation was supposed to bring but didn't. But the recession, unfortunately, has postponed the date when new generation will be needed to avoid blackouts.

Steelmakers and other heavy users are burning far fewer megawatts. The manager of the mid-Atlantic grid projects peak megawatt demand to fall 1.4 percent this year and not recover to 2008 levels until 2011. The system has a fifth more generation than it needs even on the hottest summer days.

"It's clear, with the economy, now there's some breathing room," says Ray Dotter, spokesman for PJM Interconnection, the grid manager based in Norristown, Pa. For the long term, he adds, the system will still need new plants.

Deregulation involved letting Pepco and Baltimore Gas and Electric transfer or sell their power plants to unregulated companies that could charge what the market would bear.

Approved when free markets were all the rage, that setup didn't work out so well. These days, Pepco and BGE bid for juice in a flawed wholesale market and pass the high cost on to utility customers. The promised new generation and competition to lower prices never appeared, at least not in Maryland.

But every way of reversing deregulation bears costs that could make things worse.

Would you like to seize the former BGE and Pepco plants, graft them back onto the utilities and let regulators set the rates?

That would involve billions in extra expense that customers would bear. You'd have to compensate Mirant and BGE parent Constellation Energy, which hold title to the plants. You'd have to pay for environmental upgrades and decommissioning nuclear generators.

And the forcible swiping of private assets would not enhance Maryland's reputation as a predictable and sane place to do business.

A deregulation deal was a deal, however terrible a deal it was. If Constellation and Mirant someday decide that they want to be re-regulated (not out of the question), then the negotiating can begin - on terms more likely to be favorable to customers.

Gov. Martin O'Malley wisely avoided the Hugo Chavez option. And he wants to give the Public Service Commission the tools it needs to order new, regulated generation if it becomes necessary. Fine.

But his legislation and the surrounding rhetoric are likely to make building new, regulated plants at customer expense all but inevitable. O'Malley and the state energy czar, Energy Administration Director Malcolm Woolf, talk about "when" to build regulated generation, not if.

Most troubling is the possibility that regulators will decide to ditch all electricity shopping by the end of the year. That could hurt commercial and industrial users who have struck favorable deals, stifle options for wind and other "green" energy and cause headaches to cancel long-term contracts.

The world is changing. New transmission lines will deliver extra juice to Maryland in a few years, reducing blackout worries. Conservation promotion by utilities and in Washington's stimulus package will save megawatts beyond what the slow economy is accomplishing. Wholesale energy prices are falling.

The American Public Power Association has proposed important, pro-consumer reforms for the wholesale electricity market.

Time is on our side. It is hard for legislators and governors to do nothing. But until the picture becomes clearer, that's the correct response.

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