Power rates bedevil governor for re-election

MARYLAND - As rallying cries go, it was a Democratic candidate's dream: Martin O'Malley, the big-city mayor fighting for working families, would stop a 72 percent jump in utility rates for customers around Baltimore and some of the Washington suburbs.

As governor of Maryland, he said in his 2006 campaign, he would appoint regulators who cared about consumers — not the corporations he claimed were on Republican Gov. Robert L. Ehrlich's side.

Three years later, O'Malley, now the governor, is still portraying himself as a fighter against rising energy prices as he prepares to run for a second term. With climate change and energy costs high on the national agenda, he has aggressively pursued alternative power sources and an ambitious conservation goal and pledged his support for a new nuclear plant in Southern Maryland. But residents are still dogged by rising electricity bills.

The fight to provide real relief will be among the top themes of O'Malley's campaign next year, the governor and aides say. The strategy in part reflects the realities of electoral politics. The swing districts in the Baltimore suburbs where he is likely to campaign heavily are served by Baltimore Gas & Electric, Maryland's largest utility with 1.2 million customers. It's an advantageous political backdrop for a battle focusing on profits and golden parachutes at Constellation Energy Group, the parent company of BGE.

In recent weeks, as Constellation has begun seeking regulatory approval for a $4.5 billion nuclear venture with a French firm, O'Malley's rhetoric has escalated: If the deal is to proceed, he wants concessions for electricity customers. He sent a video message to Marylanders last month and has accused the Baltimore-based energy giant of "standing for one thing and one thing only: The profit motive."

"I don't know another way to move us forward except to be relentless," O'Malley said in an interview. "People keep getting hit with their high electric bill every month.... You add on top of that the global recession, and people feel like they're between a rock and a hard place."

Constellation has called O'Malley's public relations war unfair and resisted his call for givebacks to customers. "The best thing we can do to improve energy prices and the environment in Maryland is to make the right long-term investments in clean energy sources and conservation programs," company spokesman Robert Gould said.

The company could still come to the table. But O'Malley and state lawmakers are finding that turning back electricity prices enough to make constituents notice has been an easier promise to make than keep.

"In fairness to him, he's attempting to clean up a mess he didn't make," said Del. Dereck E. Davis (D-Prince George's), chairman of a House committee that handles energy matters.

Deregulation, adopted a decade ago throughout the region, was supposed to lower utility prices by creating competition. But that didn't happen for residential customers. When rate caps began to come off in 2004, prices rose sharply. Generation companies, including Constellation, were free to charge utilities such as BGE and Pepco what the market would bear when they bought power.

When O'Malley came into office, he appointed new Public Service Commission members and a chairman, Steve Larsen, who had successfully taken on BlueCross BlueShield over executive compensation. They had hopes of re-regulating utilities.

O'Malley has had some victories. The PSC recovered millions of dollars from federal officials over irregularities in the system of power auctions. Utilities were ordered to come up with money-saving energy efficiency programs. And last year, the administration reached a settlement with Constellation that gave BGE customers a one-time $170 rebate and relief from about $1.5 billion in future costs to decommission the Calvert Cliffs nuclear plant.

But the successes seemed relatively small to some in the face of still-rising bills. It became clear that returning Maryland to the old style of regulation had become unrealistic: Pepco, which serves Montgomery and Prince George's counties, and BGE had sold their power plants when competition was introduced, and rising global energy demand had pushed the plants' value into the billions of dollars. Neither the state nor the utilities could afford to buy them back.

"We found out collectively that turning things back was a lot more complicated than the governor thought," said Larsen, who left the PSC last year.

"Very few people remember the $170 handout they got last summer," said Johanna Neumann, state director of the Maryland Public Interest Research Group.

Some have criticized O'Malley for focusing his fight for rate relief on BGE customers while ignoring others around the state, some of whom pay higher rates than the 11.93 cents per kilowatt hour that BGE charges. Pepco charges 12.51 cents.

"Why is he only working for BGE constituents?" asked Del. Anthony J. O'Donnell (R-Calvert), the House minority leader. "They got a rebate. No one else got a rebate."

O'Malley said in the interview that BGE's customers are particularly vulnerable to rate increases because Constellation uses BGE as a "cash cow." He said his plans to re-regulate the industry will bring long-term relief for all customers in Maryland.

Those representing the fledgling market for residential electricity competitors say the PSC has not done enough to clear the path for them.

"The bottom line is, you can't control commodity prices," said William Kress, a lobbyist for an association of competitive suppliers. "It's like the governor saying, 'I'm going to lower the price of bread.' Does he control the wheat market?"

The governor turned this year to another strategy to stabilize prices. The state might not be able to look back, but it could look forward — by regulating future power plants. The case for a new policy became more urgent this winter, when the PSC received thousands of complaints from customers with newly higher bills, many threatened with turnoffs. Emergency PSC hearings proved inconclusive. The power companies blamed cold weather and a longer Christmas holiday billing cycle, but regulators and lawmakers were skeptical.

The Senate passed legislation to re-regulate, but the bill, strongly resisted by the industry, failed in the House. "The only thing standing between ratepayers and lower rates is the political power of the energy industry," said Sen. James C. Rosapepe (D-Prince George's).

The industry argues that re-regulating will force customers to pay for new plants, which will push prices up, not down.

O'Malley says re-regulation of future plants will be among his legislative priorities next year. It could give him a victory to tout on the campaign trail. But new plants will take years to build and will constitute a fraction of Maryland's energy supply. Customers would not see relief for years, another reason energy policy has been one of the governor's thorniest issues to tackle.


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