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Maryland Adopts Plan For Energy Efficiency

By Steven Mufson and Lisa Rein
Washington Post Staff Writers
Saturday, July 21, 2007

In a bid to cut energy use, Maryland yesterday became just the fourth state in the nation to approve a plan that removes the incentive for electric utilities to sell more power in order to make more money.

In a rate case ruling issued yesterday, the Maryland Public Service Commission endorsed an approach known as decoupling, which ensures that utilities do not lose revenue if customers use less electricity.

"The fact that Maryland has undertaken this step is clear evidence that states are going to be ramping up their own programs to take energy efficiency to new levels," said Jim Owen, a spokesman for the Edison Electric Institute, a utility industry association.

Gov. Martin O'Malley (D), facing criticism over steep rate hikes for 1.1 million Baltimore Gas and Electric customers, has set a goal of reducing Maryland's energy demand by 15 percent by 2015. Cutting electricity use will help the state cut its greenhouse gas emissions.

California is the only state where decoupling has been in effect for years, and energy experts say that it is one reason why the state uses less electricity per person than any other state. Earlier this year, Idaho and New York approved decoupling measures.

PSC officials and customer advocates said decoupling will not cut electricity demand by itself, but it will mean that utilities can provide incentives for conservation programs -- such as rewards for purchases of high-efficiency appliances -- without losing revenue.

"It will smooth the way for utilities," said Theresa Czarski of the People's Counsel, an independent state agency that represents Maryland's residential consumers. "Everyone knows we have to reduce demand. Government knows it, consumers know it, and now the utilities know it."

Under decoupling plans, if customers cut energy use, the rate for distribution costs is increased in later months so that the utility can cover its fixed costs and maintain its wires, poles, substations and other infrastructure. Consumers would still save money on fuel costs, the largest component of their electric bills.

If energy usage increases, as it often does in unusually hot weather, then the distribution rate would be reduced so that the utility's revenue would remain the same.

The PSC ruling came in rate-increase applications by Delmarva Power & Light and Pepco, both units of Pepco Holdings.

"We look at it as a significant win for both the customer and the utility," said Pepco Holdings chief financial officer Joseph M. Rigby. "If we have reduced usage, the utility is not harmed. It provides a great deal of stability to the revenue the utility gets and it also provides a great deal of stability for the customers themselves."

Delmarva has projected that its customers' average electricity use will rise 1.2 percent a year through 2010, and Pepco has forecast 0.8 percent annual increases, though rising prices have actually lowered demand slightly over the past two years. But the utilities currently spend virtually nothing to promote energy efficiency. In their proposals to the PSC, they said they would spend a still-modest $7.4 million over the next three years.

The PSC took a less favorable stance on Pepco Holdings' rate requests, even though Pepco and Delmarva's distribution rates have not increased since 1993. Pepco sought $55.7 million in new revenue, a 3.9 percent increase in customers' typical monthly bills. The commission approved only $10.7 million, a 0.56 percent increase. Delmarva sought $20.3 million in new revenue, or 3.4 percent more per customer. The PSC approved $14.9 million, a 2.2 percent increase.

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