Power Outages Forecast For Md.
Likely Brownouts, High Rates Blamed On Deregulation

By Lisa Rein
Washington Post Staff Writer
Tuesday, December 4, 2007

Maryland's deregulation of electricity markets failed to deliver lower prices but instead led to rate spikes for millions of customers and left the state vulnerable to power shortages so severe that they could cause frequent brownouts, a highly critical report by state regulators concludes.

The Maryland Public Service Commission said in the report, released last night, that the excessive rates and threats to the region's power supply are so dire that it must step in, using its authority to force utility companies to buy more electricity. The regulatory agency also plans to require utilities to implement an aggressive series of conservation programs that would, for example, reward customers with rebates if they turn off their air conditioners on hot days.

"We cannot . . . do nothing," says the report, which commission Chairman Steven B. Larsen will present to a General Assembly committee today. "Unless steps are taken now, Maryland faces a critical shortage of electricity capacity." The shortage could be so severe by 2011 that regulators might need to require "mandatory use restrictions and rolling blackouts," the report says.

Larsen is expected to tell the Senate Finance Committee that because the demand for electricity is growing so much faster than new power supplies are being added, brownouts on hot summer days could be routine within five years.

The report represents the commission's first effort to assess the impact of Maryland's switch to a competitive power market in 1999.

Electricity prices rose for millions of residential customers this past spring, but high rates are only part of the problem, the agency says. Population growth, ever-larger houses with electricity-hungry gadgets, poor planning for new power sources and an aging, bottlenecked network of transmission lines have threatened the reliability of the power grid, the regulators say. With an expected 17 percent rise in demand from 2005 to 2016 and no major new transmission lines to move electricity from distant low-cost plants into Maryland, the state could be woefully short on power.

The estimated shortfall of 1500 megawatts is the equivalent of the electricity put out by two coal-fired power plants, Larsen will tell lawmakers.

The commission said it plans to regulate the market by forcing utilities to contract long-term with power companies, a change that it says would provide more electricity, force prices down and guarantee the industry a reliable investment.

Gov. Martin O'Malley (D) also is expected to unveil an aggressive plan this month to encourage ratepayers to use less electricity. Another idea under consideration would offer tax incentives to encourage renewable energy firms to locate plants in Maryland, administration sources said. They spoke on condition of anonymity because the plan has not been finalized.

O'Malley made reconstituting the Public Service Commission one of his first priorities, pressuring its top regulator under former governor Robert L. Ehrlich Jr. (R) to resign and replacing him with Larsen, a former state insurance commissioner who quashed CareFirst Blue Cross Blue Shield's controversial plan to convert to a for-profit company.

Today, based on the conclusions of a Washington energy consultant hired to review the state's energy prices and power supply, Larsen is expected to make the case that deregulation has failed to stimulate new competition and power supplies in one of the nation's most congested electricity grids.

In the past, regulators would have ordered utility companies to build more power plants. But Maryland now relies on the free market to push those producers into building plants.

There has been little investment, though, in part because of environmental concerns about coal and promising but only fledgling industries for wind and solar power. No major power plants are planned to come on line between now and 2011. Maryland imports 30 percent of its power from states that produce more, pushing up prices.

"We have invested time, money and dollars in this for seven years, and the end result is that we have some of the highest [electricity] rates in the nation and no competition," said Paula Carmody, director of the Maryland Office of the People's Counsel, which advocates for residential ratepayers.

Under the competitive system, utilities have sold their generating plants, leaving the wholesale companies that supply power to set prices based on the market.

"It's clear to me we have a monopoly situation with no competition," said Sen. E.J. Pipkin (R-Queen Anne's), one of the lawmakers leading the charge to re-regulate.

Constellation Energy Group, Maryland's largest power generator with three coal-fired plants and the Calvert Cliffs nuclear plant, is reviewing options to enhance the state's electricity supply by reactivating some of its mothballed plants or building new ones. It's unclear when any new power sources would come on line.

Robert L. Gould, Constellation's vice president for corporate communication, said he could not comment until he had been briefed on Larsen's report.

Larsen is expected to tell lawmakers that they cannot count on putting in more power lines. Two massive high-voltage transmission lines are planned to relieve the stressed mid-Atlantic grid, one stretching from West Virginia across Western Maryland and the other through Pennsylvania and New Jersey.

"The problem is getting the power into Maryland," said Sen. Thomas M. Middleton, (D-Charles), Finance Committee chairman.

Pennsylvania-based PJM Interconnection, which controls the transmission grid serving Maryland, the District and 12 mid-Atlantic states, estimates that the lines could be built by 2012. But the report says that date is too optimistic, given likely local opposition that could exceed the opposition to the smaller Dominion Virginia Power line proposed in Northern Virginia.