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Quick and Dirty

Electric Backslide

By Edward Ericson Jr. | Posted 2/16/2005

Remember “electric choice”? That plan for you, the consumer, to reap big savings on your electric bills from competition and market forces? The Maryland Public Service Commission remembers. That’s why its executive director, Gregory V. Carmean, and chief counsel, Susan S. Miller, briefed state delegates of the House Economic Matters Committee on the state of “competition” in a Jan. 20 hearing.

The news, as usual, was grim: no competition for ordinary rate payers in Maryland, and where price caps were lifted—in PEPCO’s territory in Montgomery and Prince George’s counties—higher bills.

“I’d like to see an education campaign,” said Del. Joan Stern (D-Montgomery County), after a long spiel by Miller. Stern described the state of no-competition in the face of a 16 percent rate increase for PEPCO customers, saying of her constituents, “they don’t understand. They feel like they’re being ripped off.”

Where would they get that idea?

Actually, those unfortunate PEPCO customers aren’t being ripped off; they’re just paying the price they would have if this whole electric-restructuring plan—passed in 1999—had never happened. Baltimoreans and other Marylanders who buy their juice from BGE are getting a better deal because of a price cap, which artificially holds the price down. State lawmakers allowed the price caps in PEPCO’s service area to expire last July, and so the price went up. Caps in BGE’s area, which encompasses a 2,300-square-mile area in central Maryland, including Baltimore City, are due to expire in July 2006.

The thinking now—among Public Service Commission people and market believers—is that these higher prices will spur competition, since the new prices might allow for competitors to make money. This scenario is very different from the one pitched by Enron in the 1990s. Back then, Enron and other big corporations claimed that deregulation alone would spur competition, which would lead shortly to a 30 percent reduction in electricity prices, pretty much across the board. That promise formed the basis of the 1999 law in Maryland and similar laws in about 25 other states.

When the promised price breaks did not appear (in California, electricity shot from about $27 per megawatt hour to $520), a rethinking was begun. Most utility experts defended the “market reforms.” But California voters, unswayed by various education campaigns, recalled then-Gov. Gray Davis and replaced him with Arnold Schwarzenegger. That caused legislators—here and elsewhere—to impose or extend electricity price caps to protect consumers. The whole restructuring process stalled midway between the old regulated system and the new, imagined, “free market” model.

The dreamed-of competitive scenario may come one day, as soon as all restrictions on price have been lifted. Then, power companies will be free to offer customers new deals—maybe long-term contracts at a fixed price, maybe hourly contracts in which the price changes constantly according to use. Customers will be free to negotiate with their power companies on an equal footing, free to shop around for a better deal.

“Sounds to me as though everybody who buys electricity in the state of Maryland is going to have to have a law degree,” Del. Mary A. Conroy (D-Prince George’s) said.

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