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You wouldn't think lawmakers would be so proud of a goof

June 11, 2006|by TIM ROWLAND

You wouldn't think Maryland lawmakers would be making such a big, happy deal of returning to a special session to address soaring electricity rates, considering they were the ones who mucked it up to begin with.

In doing so, they are loudly calling attention to one of their greatest policy mistakes of the last decade. But they're treating it as if they are white-hatted cowboys riding to the public's rescue.

This is like giving first aid to someone you've just shot.

Back in 1999, everyone was drinking the power company Kool Aid, believing that deregulation and the ensuing competition in the marketplace would actually lower rates.

The theory was, you would be able to buy your power like you buy socks. Shop around for whatever company was offering the cheapest price. Suppliers would try to undercut each other to get your business, driving prices down.

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You know, the same model that has worked so well with gasoline.

To make a long story short, the state threw a competition party and nobody came. This is curious, since it's so easy to build billion dollar generating plants and string hundreds of miles of high-tension lines. You would have thought every budding entrepreneur fresh out of business school would have been lining up for a piece of the pie.

In a regulated world, power companies were stable, boring monopoly businesses that were guaranteed a reasonable profit by the state and paid out a reasonable dividend to conservative investors content with a modest gain but averse to the risk plunging share prices.

But no CEO wants to settle for reasonable profits anymore.

So now that regulation is ending, the monopoly effectively remained in place, but the cap on rates didn't. This was a kid-in-the-candy-store situation for the power generating companies. They could charge whatever they pleased, without worrying about being undercut by competing market forces.

In that respect, the miracle is that power bills in the Baltimore area are only going up 72 percent. No sense getting greedy, I suppose.

Our turn is scheduled to come in 2008. In theory, we should be a little better off, because much of our power comes from coal-fired plants that are insulated from soaring natural gas prices. But then, theories are what got us into this mess to begin with.

The Democratic legislature's answer is to phase in the massive rate hikes and, more importantly, it seems, fire all the Public Service Commission members. The PSC, they say, is packed with corporate cronies with little interest in guarding the rate payer coop.

That may or may not be true, but if they are interested in firing those responsible, they could begin by firing themselves.

At least they had company in the fine art of being duped. You can weep for the employees of the energy-intensive Eastalco plant in Buckeyestown, but don't weep for the company itself.

Eastalco lobbyists led the charge for deregulation and were right there grinning for the cameras when it was signed into law.

Mega rate hikes are a huge blow to Eastalco. To get an idea of the energy used by such companies, consider that two aluminum-smelting plants in the Northwest - Intalco and Wenatchee - use as much power as half of the city of Seattle.

So now, Eastalco is among those that want the state to step in an do something. Ironic that seven years ago, it was trying to get the state off its back. It's like the taxpayers who don't want any public money spent on anything - unless it directly benefits themselves, in which case they want a public expenditure increase.

Pretty much everyone agrees that the deregulation genie is out of the bottle, so there's no going back to the days when you only had to worry about maybe one, single-digit price increase on your bill once every three years.

So we are left with the lawmakers' solution, which essentially is nothing more than putting power users on a payment plan so they won't be socked with the increase all at once - or more specifically, won't be socked before the November election.

But if government is powerless, the private sector is not. At some point over the next 20 years, expect the trend of monolithic power plants to reverse.

Instead of mammoth plants capable of pumping out hundreds of megawatts to serve entire regions, power generation could be handled at the community level, which would allow more flexibility, more environmentally friendly technology and reduce the risk of catastrophe should something at a major plant or grid go wrong.

Solar, wind and renewables power become much more feasible if you think in terms of neighborhoods instead of multi-state regions. And smaller, less capital-intensive plants invite competition.

Deregulation may yet work, but not in the way it was intended. Instead of choosing to buy power from a mega-company in the South or Midwest, our choices may be to buy power from a biofuel plant in Boonsboro or a wind farm in Clear Spring.

These alternative models aren't where the profits are - not yet. But the final irony of mammoth companies out to soak the consumer is that they may raise prices to the point where a lot of electricity Lilliputians will be able to cut them off at the ankles.

Capitalism is funny that way. Just when you think you have a corner on the market, the market turns a corner.

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