Small Town Finds Its Little Utility Quite Empowering

By Lisa Rein
Washington Post Staff Writer
Thursday, September 25, 2008

EASTON, Md. -- This is one in a series of occasional reports about regional energy issues.

Residents of this Colonial town on the Chesapeake Bay get a live voice on the phone when they call their local power company. If their electricity dies in a storm, customers call the chief executive at home to complain. And he picks up.

Easton Utilities customers also receive lower electricity bills than most Maryland residents, and the town-owned utility is being portrayed by the governor as a model for other communities as the state updates its electric infrastructure. Part of Easton's secret is a power plant that sits unobtrusively in the middle of town, across the street from a Chico's clothing store.

The plant, built in 1923, and a companion generator near the municipal airport don't fire up their diesel engines very often -- about 1,000 hours a year, about four hours at a time. But during those periods, they make electricity the utility sells on very hot and very cold days on the thirsty mid-Atlantic power grid.

After the cost of fuel, an annual $1.5 million payment to the town and other expenses are taken care of, the power plant's profit from producing energy -- $4 million in each of the past three years -- is returned to the utility's 10,000 customers, who live in Easton and surrounding Talbot County. On average, they pay 10 percent less than residential customers of Pepco and Baltimore Gas and Electric Co., Maryland's largest private power companies.

"There can be a classic tension in our industry of: Are you going to do right by your customers or your stockholders?" said Hugh E. Grunden, Easton Utilities' president and chief executive and the former town engineer. "In our case, they're one and the same."

Gov. Martin O'Malley (D) pointed to Easton as a prototype last month as he laid out a plan to overhaul the state's energy policy. Electricity bills in Maryland and the District have soared with deregulation because promised competition has not materialized. And the Washington region's demand for power will probably outpace supply, which could prompt rolling blackouts in Maryland by 2011, officials say.

It has been two decades since the last power plant was built in Maryland, which has to import about 30 percent of its electricity from other states, along congested transmission lines, when demand is high. This has caused some of the steepest residential rates in the country.

The municipally owned plant in Easton, 35 miles east of the Chesapeake Bay Bridge, is one of a handful of public power companies in Maryland and Virginia that serve local customers at lower rates. Few generate their own power. In Northern Virginia, Manassas joined with six small jurisdictions to run a public utility that buys most of its electricity from Dominion Virginia Power but makes some of its own. Residential rates are about 12 percent below surrounding rates.

To increase supply and reduce prices, O'Malley pledged state assistance to help local governments finance power plants such as Easton's. "The governor's theme is we're going to keep the lights on in any way possible," said Malcolm Woolf, the state's energy administrator. But a similar 70-megwatt plant would cost more than $50 million to build today, Woolf said.

In Frederick County, the Thurmont Municipal Light Co. is weighing whether to build a plant fueled by ground-up tree trimmings to lower costs for its 6,000 customers.

Easton is a niche market on the electricity grid that supplies the Washington region and other parts of the mid-Atlantic region. The plant's engines turn on only when demand for air conditioning and home heating jumps. The grid operator, Pennsylvania-based PJM Interconnection, notifies Easton to fire up the generators.

The price of Easton's electricity is set in the wholesale market, where a megawatt of power was at one time based on what it cost a coal, nuclear, natural gas or diesel plant to produce it. Now, the price is set by expensive peaking plants such as Easton's, the last generators called into service on hot days. It's a windfall for the town: On Aug. 8, 2007, the price of a megawatt of power spiked to a little more than $1,000 for one hour in the Easton area. The plants were running. The profit allowed Easton Utilities to save its customers 25 percent on their electric costs that day.

Its diesel generators produce 5.5 percent of Easton's electricity. Like Pepco and BGE, the town buys the rest through long-term contracts with energy suppliers. Rising fuel prices have pushed up bills in Easton as in the rest of the Washington region. But the nonprofit municipal system does not mark up prices.

And it is reliable: When a massive power outage left the Delmarva peninsula in the dark one night seven years ago, Easton used batteries to fire up its engines. The lights were back on in 39 minutes, but they stayed dark for about eight hours elsewhere.

"We had the only streetlights along Route 50 that were working," Mayor Robert C. Willey recalled.

About 2,000, or 14 percent, of the country's power plants are municipally owned, and a small number are run by nonprofit cooperatives. Like most other municipal power plants, Easton's was built out of economic necessity: Private companies were bypassing rural areas where homes were too far apart to run power lines and still make money. The Rural Electrification Administration finished the job during the New Deal.

About a third of the country's municipal power utilities make their own electricity. According to the American Public Power Association, those customers pay about 13 percent less on average than those served by private utilities.

When the cable television industry exploded in the 1980s, it looked like Easton would be bypassed again. Service to rural areas was not cost-effective. So the utility went into the business, laying 120 miles of cable. The town owned the valuable telephone lines and now offers its own Internet service.

It's hard to miss the power plant on Washington Street. But not everyone knows it produces such a valuable commodity.

"People tend to take things for granted when they work pretty well," said John Lopes, a retired analyst for the Department of Defense. The people the utility sends "stop at the door and take their shoes off."