Competition may come to electricity industry after all

September 23, 2007|By TIM ROWLAND

This side of the big-energy tycoons lighting their stogies with hundred-dollar bills, you would be hard-pressed to find one solitary person who believes that Maryland's 1999 decision to deregulate electricity was sound policy.

Which, in itself, is reason to give the issue a second look.

We all know the law of unintended consequences, which is where electricity deregulation stands today. Lawmakers believed that deregulation would spark competition, driving energy prices downward.

But the competitors didn't show, leaving the existing energy stalwarts free to basically raise prices at will, once temporary rate caps were removed.

The explosion in rates has been similar to the startling explosion caused by removing the cap from a can of novelty snakes.


Power companies say they are not taking advantage - the higher prices are merely reflective of seven years of capped rates and the higher costs of the fuel that spins the generators.

There's a fair degree of truth in that. There's also a fair degree of sense in thinking that, basically given the chance to raise rates as much as they want, power companies will not aim low.

Some lawmakers and regulators, calling it greed, want to go back to the old way of modest, state-approved increases based on power generating and transmission costs.

Greed is a powerful force. But so is the market. When someone gets rich, someone else is bound to notice and figure out that there's a buck to be made if he is willing to get slightly less rich than the person who is currently getting rich.

Through the past two decades, corporations in every walk of business have become bigger and bigger, swallowing up smaller corporations in an effort to achieve a size that no one can challenge.

At least, no one can challenge them in conventional terms. But most everything is cyclical in its own way, and we may be entering a phase where smaller is better.

Local banks have been consumed by the big boys, which in turn have been consumed by the bigger boys. Then in Hagerstown and Martinsburg, W.Va., along comes Centra Bank, which is making considerable hay out of the fact that its decisions are made in the four small communities it serves, not in some faceless global office in New York.

I don't know that the Potomac Bead Co. in downtown Hagerstown could match a big department- or craft-store chain in price, but I do know that because of its specialization, no chain can match Potomac's variety.

Mammoth agricultural concerns that cannot be matched for economies of scale are receiving a small but spirited challenge from tiny farmers who are discovering that people are willing to pay a bit more for wholesome, locally grown food.

Energy conglomerations have been part of the "embiggening" process too, and many are no doubt feeling pretty secure, reckoning that no one is big enough to encroach upon their turf.

But what if the challenge comes not from above, but from below?

Just up Md. 77 in Thurmont, Md., the town is considering construction of a plant that would generate power for its 6,000 residents using cow manure and corn stalks.

Windmill towers in a landowner's backyard are still a curiosity, but a decade ago they were unknown. An investment in a wind/solar arrangement might take 10 to 15 years to pay for itself, but after that you're basically free of power bills. And even if your neighborhood loses electricity in a storm, you don't. The only downside is the line of people coming to your house for a hot shower.

The question becomes, when do power companies reach a tipping point? Whether it's greed or whether it's not, when they raise rates beyond what the public considers to be reasonable, they face a risk - and that risk, lo and behold, is the competition that the legislature envisioned in the first place.

So in retrospect, perhaps the General Assembly's failure wasn't in deregulating electricity, it was artificially freezing the rates for so long. Who could expect competition to materialize when profits were forcibly restricted?

I suppose it figures that, just when the 1999 law is in danger of actually accomplishing something positive, there is talk of going back to the old way.

The liberal environmental element is fond of saying that the best way to conserve oil or encourage alternative fuels is to raise gas to $5 a gallon. Those same elements in Annapolis may ask themselves why the same logic would not apply to electricity - especially since coal-burning generators are one of the leading causes of greenhouse gases.

High electric bills might encourage neighborhoods to band together by building small wind farms. Housing developers - already in the utility business of building their own sewage-treatment plants - might look at the numbers and consider the advantage of small dynamos to serve their subdivisions.

Homebuyers might be willing to pay a bit more for their houses if they come with a lifetime supply of cheap power.

Competition works when the government leaves market forces to themselves. Thinking that competition would materialize when prices were capped never made much sense.

Now that the caps are off, the legislature would do well to cool its jets and see whether deregulation can in fact be a productive policy. Perhaps it can't. But the more energy companies raise their rates, the greater the chances that it can.

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