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Reregulating energy in Maryland no solution to high bills

Originally published in the Washington Examiner

Economic & Fiscal Policy, Environment

by Marta Hummel Mossburg

OP-EDS

This winter's cold temperatures sent utility bills through the roof for customers and complaints multiplying to the Public Service Commission, which oversees the utility industry.

Skyrocketing bills also prompted some lawmakers and Gov. Martin O'Malley to call for reregulating the utility industry that the state legislature voted to deregulate in part in 1999. Problem is, there is no sure way to reduce energy costs in either a regulated or deregulated system - because legislators do not control the cost of natural gas, coal or oil.

And as the Cato Institute's Peter Van Doren said, "you can't win because of the cycle." Regulated markets may smooth out costs, but they do not benefit consumers in the same way deregulated markets can when prices drop. And blaming deregulation isn't quite fair.

The way utilities must buy contracts means consumers are locked into a certain price for a set amount of time. So we are still paying peak prices even though they have dropped precipitously from highs in July.

Reregulation could also impose huge costs on taxpayers. Legislation proposed by state Sen. E.J. Pipkin (R-36) and Sen. James Rosapepe (D-21) asks the Public Service Commission to evaluate whether taxpayers should buy back the state's power plants and would give it the authority to decide when to build new ones.

Pipkin said at a news conference last month announcing the bill that "Now's the time. The numbers work." What numbers? Common sense says buying a power plant will add to each month's bill, not subtract from it. So will building a new plant, a costly and long-term project that would not impact consumer bills for years.

PSC Chairman Doug Nazarian has even said so. "Passing this bill or not passing this bill is not going to materially move peoples' rates up and down this year or next year or the year after or probably the year after that."

But even if the legislation miraculously lowered monthly power bills, how will it encourage lower energy use -- a key goal of the O'Malley administration. In July of 2007, O'Malley announced his goal to reduce power consumption by 15 percent in Maryland by 2015. Lower prices encourage more electricity use, not less. So which does he want?

As electricity market expert Tim Brennan, a professor at University of Maryland, Baltimore County, said, "The governor is sending incredibly mixed signals."

He and legislators must decide soon which direction to take. According to statements from the PSC from late last year, the state could face electricity shortages within two years. "Although the specific amount of any shortfall is a matter of some debate, there is no dispute that if we as a State do nothing in the interim - i.e., if we fail to undertake some combination of finding or building new electricity generation, increasing the capability of the transmission system to deliver more electricity into Central and Eastern Maryland, or reducing consumption - the very real threat of rolling blackouts or brownouts will remain."

So which is more important - reducing monthly bills or building more transmission and capacity? Or is reducing energy consumption the end goal?

What's clear is that they are not all compatible goals and that legislators must first decide which of them is most important before rushing to pass legislation by the end of the session. And whatever they decide, they must know they do not do it in a vacuum. Power companies do not want to do business with a state that changes its mind every couple of years - especially when hundreds of millions of dollars are at stake in the form of a new power plant.

Not all legislation must call for sweeping changes. Peak pricing - and the smart meters to make that possible - would give consumers the power to monitor their daily electric use and run the dishwasher and dryer, for example, at lower-cost times. As it stands, consumers have no incentive to run electricity-gobbling appliances during off hours because they do not benefit from it and have no tools to show them how to avoid peak times even if they wanted to for altruistic reasons.

High electric bills hurt - especially at a time of rising unemployment. But little evidence supports that reregulating utilities will lower costs in the short or long term for consumers. Worse, passing the legislation will show Maryland's elected officials once again as capricious followers instead of the leaders we elected them to be.

Examiner columnist Marta Mossburg is a senior fellow at the Maryland Public Policy Institute.