Maryland’s Electricity Opportunity

June 2006 / Abell Reports / Community Development, Environment

How to fix the power breakdown and pave the way to innovation, efficiency, and competitive rates.

Pending rate hikes have focused the attention of Marylanders on electricity. No doubt the increases will burden individuals but they also offer the opportunity for Maryland policymakers to think boldly about the state’s energy future. If regulators and lawmakers focus on creating a more diversified electricity system, one based on innovation and efficiency over the long term, these same policymakers can stimulate immense environmental and economic benefits.

Price increases have prompted many to play the blame game. Baltimore Gas & Electric (BGE) officials blame skyrocketing fuel prices, noting that costs for natural gas, which generates about half the region’s power, have tripled since 1999, and prices for coal and oil have doubled. With rate caps expiring after six years, Maryland consumers soon will feel the full impact of those multiple-year price increases. Some Maryland legislators disparage deregulation, arguing that it didn’t deliver lower costs or competition. Others note that the state’s 1999 deregulation law was flawed because it imposed artificially low rates that prevented competitors from entering the market; moreover, without competition utilities continued to operate their older, less-efficient, and more-polluting power plants.

The substantial pending increases – 38 percent for Pepco’s suburban-Maryland residential consumers (or an additional $468 annually for residential customers) and a whopping 72 percent for Baltimore Gas & Electric (or an extra $743 yearly) – are changing market rules and political alignments. Competition may now become a market reality as entrepreneurs and independent generators see an opportunity to undercut utility prices. Just after the rate hikes were announced, for instance, Washington Gas Energy Services began offering rates 10 percent below BGE’s.

Political developments are harder to predict. Lawmakers and Governor Robert L. Ehrlich were unable to reach a deal to spread out the sudden pain of higher rates. Most recent discussions in this election year have been partisan, with a Republican governor blaming Democrats for having passed flawed deregulation legislation in 1999 and with leading Democrats blaming the governor for allowing former industry leaders to regulate state utilities. Baltimore Mayor Martin O’Malley, a Democratic candidate for governor, went so far to as state, “Bob Ehrlich has turned a watchdog agency whose sole purpose was the protection of Maryland families into a lapdog for special interests.”

Few policymakers are looking beyond the rate increases to consider how Maryland could finally advance innovation and efficiency within its electricity sector. In fact, the opportunities are vast. An array of modern technologies can enhance reliability, increase consumer choices, and reduce pollution, yet such advances are blocked by an array of outmoded policies designed over the last century to promote and protect monopolies. Compared to its neighbors, Maryland has been relatively slow in adopting market rules that spur these modern advances. As a result, it has not attracted energy entrepreneurs and their investments. Rather than simply cast blame about today’s higher rates, therefore, the state’s leaders need to confront market barriers and create a more workable, effective power system to better serve Marylanders.