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  • Md. legislative report
  •   Md. Faces Task of Power Deregulation

    By Robert E. Pierre
    Washington Post Staff Writer
    Friday, February 12, 1999; Page B01

    As Maryland legislators work to create an open market for the sale of electricity – one that may rival the competition among long-distance phone companies – there is concern that big businesses could benefit at the expense of homeowners and small businesses.

    "I want to see a system in place where we ensure that the consumer, the individual homeowner and small business are protected," Gov. Parris N. Glendening (D) said in an interview last week.

    Though nearly everyone in Annapolis agrees it would be political suicide to push through a bill that heaps savings on big power consumers but shortchanges the little guys, powerful forces with competing interests are working to influence the legislative outcome.

    Outside power suppliers want to ensure that the lawmakers create a level playing field so they can compete with local companies such as Potomac Electric Power Co. and Baltimore Gas and Electric Co. Those local utilities say they can't compete without millions in compensation for power plants they built with the expectation that their monopoly would continue and without property tax breaks to bring their costs in line with the out-of-state competition.

    That plea for tax breaks alarms county officials – including those in Calvert and Prince George's, who could lose millions in annual revenue. And environmentalists are concerned that cheaper, coal-burning plants will displace cleaner electric generators as competition heats up, thereby increasing air pollution.

    On the open market, hospitals, manufacturers and supermarkets that use large quantities of electricity will negotiate for lower energy costs. Glendening is adamant that those savings not come at the expense of homeowners and small businesses.

    "If large entities can negotiate a deal for lower energy costs generally . . . they are going to be skimming the cream off the top, and then the average homeowner ends up paying more in the future," Glendening said.

    Members of the legislature say they share those concerns.

    "If you ask the average person if they've received savings from deregulation [of other industries], they can't really tell where they've saved a whole lot of money," said Del. Darren M. Swain (D-Prince George's). "If we're going to make these changes on the hype that the average consumer will benefit directly, then we're going to have to show that."

    Following on the heels of similar action in the Senate, House Speaker Casper R. Taylor Jr. (D-Allegany) produced a proposal this week that would cap rates for four years, establish a "universal service fund" to protect low-income customers, and ensure that utilities don't receive inordinate profits from selling off generating plants built under the monopoly system. Taylor said restructuring is needed to keep Maryland competitive with neighboring states that are moving forward with deregulation.

    Glendening sees the need – but not the urgency to rush passage before ensuring the protection of small customers.

    "Deregulation is important for the competitiveness of the state, particularly if other states end up doing this," Glendening said last week. "It can keep business costs down and make our utilities more competitive in a nationwide market. But I have some major reservations."

    Anticipating approval of a deregulation plan this year, Pepco has announced plans to sell off its power plants and become a power provider, essentially buying power from elsewhere and selling it in Maryland.

    But those plans are contingent on legislators establishing rules to replace the current system in which regulators – the Maryland Public Service Commission – tell utilities what they can build, when they can build it and how much they can charge for electricity. And the utilities also need the tax problem resolved so that they are not saddled with tax payments while their out-of-state competition goes tax free.

    Maryland's Public Service Commission also has set an agenda that assumes legislative approval this year to begin a three-year phase-in of deregulation in July.

    Until recently, it was widely assumed that electricity service was best provided through monopolies. In exchange for serving all customers, utilities and their shareholders were promised a resonable profit as determined by regulators. But after the 1970s energy crisis, the federal government began requiring utilities to purchase power from independent generators.

    Through a series of decisions in the early 1990s, the Federal Energy Regulatory Commission opened the door to full competition in the retail market. As a result, many states concluded that competition would increase efficiency and make their states more attractive, especially to businesses where energy costs are a significant portion of their expenses.

    Though there is no federal mandate to do so, 18 states have adopted plans to deregulate the industry. Below is a synopsis of the major players in deregulation and their concerns:

    Environmental Concerns


    Several lawmakers and Glendening, who have made environmental protections a major priority, want to ensure that whatever legislation the state produces does not increase air pollution.

    For example, coal-fired plants are more efficient fuel producers, but they also spew more waste into the air. Two Montgomery County legislators – Sen. Brian E. Frosh (D) and Del. Leon G. Billings (D) – have drafted legislation that would allow residents to choose "green power," which is energy produced by windmills, solar panels and geysers instead of fossil fuels. But some lawmakers are concerned that a requirement that all companies competing in Maryland offer green power could raise rates for all customers.

    'Stranded Costs'


    Maryland utilities, including Pepco and BGE, have asked the Public Service Commission to allow them to recoup $2 billion from ratepayers for plants that they built under the assumption that their monopolies would continue. The utilities contend they have not been able to recoup the costs of those plants from ratepayers, as allowed under current agreements with the commission. And from their perspective, it would be unfair to force their shareholders to absorb those costs.

    But public advocates contend that those so-called stranded costs are overstated, and they cite cases in other states where utilities have earned big windfalls from selling power plants, as Pepco plans to do.

    Taxes


    Utilities have also argued that significant property tax breaks are needed for them to remain competitive with outside power providers seeking to do business in the state. Under a tax proposal advanced by legislative leaders, utilities would pay property taxes on 40 percent of the assessed value of generating equipment, as opposed to 100 percent under current law. That would result in a $44 million revenue loss, which would be shared equally among the state, counties and ratepayers.

    The Maryland Association of Counties, which represents local jurisdictions, contends that the proposal "would severely compromise our fiscal planning," said Michael Sanderson, the group's legislative director. The group plans to submit an alternative proposal, which essentially would pass along the cost of the tax break to consumers.

    Big Consumers


    Big consumers and outside power providers have banded into a group called the Alliance for Customer Choice of Electrical Suppliers and Services.

    They are pushing the Public Service Commission to allow Marylanders to begin choosing their power suppliers in July, forgoing the approved three-year phase-in period during which rates would be capped. ACCESS, as the group is known, wants to leave most of the tough decisions – including any cap on rates – to the Public Service Commission.

    But Senate President Thomas V. Mike Miller Jr. (D-Prince George's) has proposed a mandatory four-year cap. Many other legislators agree with the concept, afraid that without such a mandate, rates may skyrocket for residents and small businesses.

    Business leaders contend that such intrusions into the free market run counter to deregulation.

    "I don't think you can sit as a legislative body and limit people's options that way," said James H. DeGraffenreidt Jr., chairman and chief executive of Washington Gas Light Co. "How do you implement something like that?"

    Glendening, however, said a mandatory cap is just one of many protections needed to ensure that low-cost electricity remains readily available, especially to the poor and elderly.

    "There is every indication from the telecommunication deregulation that [people] with less income and [who are] less well educated are likely to pay more because they don't have the ability, if you will, to bargain collectively and get lower prices," the governor said.


    © Copyright 1999 The Washington Post Company

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