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The Tentacle


April 5, 2006

Shock and Amps – the Second Candle

Kevin E. Dayhoff

Members of the Maryland General Assembly’s leadership deserve a lifetime achievement award for ducking their responsibilities, scapegoating and obfuscating the truth in their response to the rate caps coming off Baltimore Gas and Electric as a result of the 1999 electric deregulation legislation.

The legislative proposals, the “Omnibus Rolling Blackout Acts of 2006,” that have arrived at the governor’s desk, do nothing to address the problem of consumers facing a huge increase in their electric bills July 1.

It is obvious that the Maryland General Assembly does not know what to do except try to be re-elected. All their proposals do is blow up the Public Service Commission (PSC), hold the merger of Constellation Energy and Florida Light and Power hostage and attempt to spin it in such a way as to convince the public that they solved the problem – which they caused in 1999.

In a show of politics at its most craven level, most peculiar is that the proposals do nothing to address rate relief for Pepco or Delmarva Power and Light customers – or for that matter, any electric consumers outside the central Maryland area. For example, Baltimore Gas and Electric’s service area includes very little of Prince George’s or Montgomery counties.

For further illustration, consider the fact that Pepco’s commercial and residential electric rate price caps came off in July 2004. They are also slated to increase further in the coming months: 38.5 percent for Pepco and 35 percent for Delmarva.

However, Pepco’s service areas usually vote heavily Democrat, no matter what the Democratic Party does to them. Signs are that this dynamic is changing, but it may take some time for these areas to figure out that they are totally taken for granted by Democrats.

Conventional wisdom is that the areas in the Baltimore metropolitan area, serviced by BGE, are exactly where the gubernatorial election will be decided in November. Perhaps it is only a coincidence that the General Assembly has only put forth legislation to address BGE. Usually in the world of pandering populist politics, a big corporation is an easy target in an election year with liberals.

The wild card in this charade is the political writers at Baltimore’s Sun and the Democrat leadership, who actually believe that the truth will not come out eventually. The voting public in Maryland is far more intelligent than they are given credit.

So far, the blame-game is retroactively revising history. In fact, the blame game is totally inappropriate here. In the late 1990s, legislatures from all across the country were puffing on an electric deregulation high. Maryland was no different.

When dealing with market forces of the unimaginable complexity of electric generation, transmission and distribution, things can go bump in the night. This is where we are now and what Marylanders want from the General Assembly is leadership – not finger pointing.

Maryland Senate President Mike Miller (D., PG) and Speaker of The House Michael Busch (D., Anne Arundel) were part of the leadership team that shepherded the 1999 legislation through the MGA.

Six years later, Senate President Miller is scapegoating the Public Service Commission for doing exactly what the Democrat-controlled legislature required it to do.

Speaker Busch is blaming Baltimore Gas and Electric for the nationwide rise in the cost of electricity, which is out of BGE’s control and far beyond the General Assembly’s regulatory reach.

Writing in The Gazette on March 31, Blair Lee nailed it: “But instead of working together, the incumbents are playing a risky game of political ‘‘chicken” with one eye on the clock and the other on the precipice.”

The cliff is only days away at this point. The governor must veto the current legislation on the table which will ultimately bankrupt the electric utilities and provide no relief to electric ratepayers.

Where is the plan – any plan – from the General Assembly leadership except to block the merger and bankrupt BGE – two feathers in the cap of any populist politician appearing to be looking out for the little guy?

Hopefully the leadership of the General Assembly, the governor’s office and Constellation Energy can work out a win-win solution by the end of the week: a solution that phases-in the rise for the cost of electricity to customers, maintains the financial stability of the utility companies, and facilitates market forces entrance into the Maryland market to hopefully blunt future rate increases, if not lower electric bills.

Blocking the merger is a non-starter in the negotiations. The quicker Constellation Energy and Florida Power and Light merge, the quicker the resulting utility company of this size and scale can cajole the market to facilitate lower costs of electricity.

As soon as the merged company can muscle its way back into the electric market, the sooner they can seek a “blended portfolio” of electric costs. The recent contracts for electricity reflect a situational spike in costs. Agreements with the State of Maryland, which facilitate the utilities re-biding for lower prices, will help ‘average down’ the cost of electricity, and the savings can be passed on to consumers.

Tampering with “stranded costs” is counter-productive. Only by accelerating the depreciation of the existing generating plants will the utilities be able to accumulate the capital necessary to begin building more generating capacity.

Simple supply and demand economics dictate that the more electricity on the market, the more the price will come down. If anything, there needs to be additional incentives for the power companies to build more power plants in Maryland.

Phasing-in the rate increases is appropriate and something that BGE understands is consistent with its social contract with consumers. After all, BGE has been a part of the Baltimore area community since 1816.

However, any phasing of BGE’s rate increases needs to be consistent with the price increases scheduled for Pepco at 38.5 percent and 35 percent for Delmarva.

Everyone has a stake in a win-win solution. It is time to get real and get to work. You can catch up on your sleep after Monday.

Higher costs for electricity appears to be the straw that has broken the camel’s back for the public; and if the Maryland General Assembly doesn’t get its act together on this, this may be the year that the voters decide to “throw all the bums out.”

In that scenario, it may be wise for the leadership of the Maryland General Assembly to notice that there are more Democratic Party incumbents than Republican incumbents.

Kevin Dayhoff writes from Westminster Maryland; E-mail him at: kdayhoff@carr.org



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