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Is there a way out of the electricity deregulation mess?

August 23, 2006|by BOB MAGINNIS

It seemed like a good idea to many members of the Maryland General Assembly back in 1999. Electricity customers would be able to choose their own suppliers, just as the break-up of the Bell System had allowed citizens to choose their own long-distance carriers.

Yes, just as with phone service, you would have to do a bit of research to get the best deal. But just as phone customers who wanted to hang on to their old familiar service were allowed to do so, power customers could opt to stay with their traditional suppliers.

All this and a bonus, too - commercial, industrial and residential rates would be capped for years. Homeowners wouldn't have to worry about anything changing until 2008. By that time, surely any bugs would be worked out, right?

Wrong. As we saw in last year's Maryland General Assembly session, when the Baltimore Gas & Electric Co. announced a 72 percent rate increase, the free market has turned on many who hoped it would help.

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Other suppliers who were expected to enter the market and provide new competition didn't, for reasons that, in retrospect, seem simple.

As reported in March by The Washington Post, the mid-Altantic region has seldom produced enough power for its own needs. Customers here already import power for which they pay market rates.

And, The Post noted, even if another supplier had wanted to compete, rates for existing suppliers were capped. The old familiar, suppliers would begin any race for customers with a 100-yard head start - not a condition that would attract newcomers.

As of January 2002, 18 months after the start of deregulation, no new suppliers had entered the market.

In January 2005, caps for Allegheny Power's commercial and industrial customers came off. The Eastalco aluminum plant, whose operators had supported deregulation, couldn't find cheaper power and was forced to close, laying off 500 workers.

Now, sooner than anyone seems ready for it to happen, residential caps will come off in January 2008. What should residents expect?

Probably not a BGE-style price hike, but it would be foolish to think that after holding rates steady for seven years, that there wouldn't be some increase.

What that might be is unknown now, according to Allen Staggers, Allegheny's manager of corporate communications.

"I don't know and I can't say exactly for sure," Staggers said.

But Staggers said that when the Maryland General Assembly passed S.B. 1 this year, it directed Allegheny to work with the state's Public Service Commission on "rate mitigation."

Emphasizing that a solution is still a long way off, Staggers said that "what we would envision is that we might take a look at something like we did in Pennsylvania," he said.

In the Keystone State, which also deregulated electricity, Staggers said the settlement agreement was extended by two years, followed by a series of rate caps, the first of which took effect this year.

The process of gradual rate increases will continue until 2010, Staggers said.

Unfortunately, according to Staggers, any mitigation of power rate increases wouldn't affect Maryland commercial and industrial uses, because those caps have already come off.

Staggers said he anticipated Allegheny and the PSC will begin working on the plan later this year.

Even without deregulation, power prices would have risen, Staggers said, because of the rising costs of energy it takes to generate power.

"Deregulation has gotten the blame for higher energy prices, but prices are increasing, regardless of deregulation," he said.

If there is a happy ending here, it won't come because of the brilliance of the legislators who passed deregulation in 1999. They blithely accepted assurances that this would be good for business, when in fact it removed an asset - state power rates - that made the state more attractive to new business.

If they manage to put out this fire without too much damage, that will be a job well done. But let's not forget who lit the flame.




Bob Maginnis is Opinion Page editor of The Herald-Mail.

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