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Electricity Deregulation: High Cost, Unmet Promises

Retirees Don and Helen Dunn fear that rising electricity costs and higher property taxes could force them out of their Ellicott City home.
Retirees Don and Helen Dunn fear that rising electricity costs and higher property taxes could force them out of their Ellicott City home. (Photos By Ricky Carioti -- The Washington Post)

"This whole thing was started with Enron," he said.

Enron Corp. envisioned a world in which power nationally would become a commodity, much like oil, and it could profit by being a supplier and trader of that commodity. Enron lobbied heavily in states, including Maryland, for deregulation. A little less than half the states embraced some form of deregulation in the late 1990s.

But Enron later succumbed to a wave of scandals, including one in which it manipulated the California wholesale electricity market in 2001, causing prices to soar.

Deregulation has not worked as envisioned in any of the 20 states that have undertaken it, said Kenneth Rose, an Ohio energy consultant who advises state utility regulators.

"Those of us who were in favor of the competition that deregulation promised, and I was one of them, haven't had our hopes realized," he said. "Not at all. It was Enron in California where I first thought something is not working here."

For state governments that bought into deregulation, the remorse has been acute.

"I think everyone is just looking at Maryland and getting sick to their stomach," said Elizabeth A. Noel, the D.C. people's counsel. "This is not what was supposed to happen. . . . Nobody intended this."

Constellation officials are adamant in their contention that neither deregulation nor BGE is responsible for the rate increase. The fault lies, they say, in sky-high raw energy prices, particularly natural gas, which is used to generate about half the electricity used in this region.

"Price increases are driven by fuel rises, and gas prices have tripled since 1999, oil prices have doubled and coal prices have doubled," said Mark Case, director of regulatory services for BGE.

Rate increases have been higher in states that deregulated than in those that kept the old regulatory framework. Among the regulated, rate increases have varied widely -- 4.4 in North Carolina, 23 percent in West Virginia and a high of 32 percent in Oklahoma, according to Regulatory Research Associates. Among the deregulated, Delaware will have a 35 percent increase in May.

Experts say higher energy costs are only part of the reason for the jump in wholesale electricity prices, upon which residential rates are based.

Among the promises of deregulation was competition -- homeowners and businesses would be able to pick their own energy providers, creating price competition with local power companies. In Maryland, that has not happened. Part of the blame, experts say, lies in the way Maryland deregulated. The 1999 rate caps, which are coming off this summer, imposed a falsely low rate that no BGE competitor could match, preventing competition.

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