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June 9, 2006

We're Baaaaaaaack!

Richard B. Weldon Jr.

Like the swallows returning to San Juan Capistrano, legislators across Maryland are packing their bags for a return to Annapolis as early as next week.

Unfortunately, and unlike the aforementioned birds, this is not a cause for celebration. The whisper campaign started right after the regular General Assembly adjourned in April, but the official announcement came June 5.

The subject is the much-ballyhooed Baltimore Gas and Electric Company's 72% electricity rate increase, the sad result of the failed deregulation experiment of the 1998 legislature.

The print coverage on this issue borders between incompetence and blatant favoritism. Gov. Robert L. Ehrlich, Jr., has found no friend in the metro-area newspapers, and Senate President Mike Miller (D., Calvert/PG) and House Speaker Mike Busch (D., Anne Arundel) have taken full advantage.

They have successfully shifted the dialogue away from the failed actions of the '98 General Assembly, the true culprit, and transferred culpability to the Ehrlich appointees on the Maryland Public Service Commission (PSC).

The PSC is charged with regulatory oversight of the actions of the utility industry, everything from approving new power plant construction to approving rate increase requests.

The Miller/Busch team argues that the PSC has not fulfilled a consumer protection role by allowing a dramatic rate increase to take affect. There are two fundamental problems with their argument, but you won't find that in news coverage.

First, the PSC's hands were tied by the legislative action that put the deregulation policy in place. The bill that artificially froze the electric rates in 1998 included a provision that forces the PSC to allow the utility companies to set rates that cover the full commercial cost of power when the caps are lifted.

Second, the Office of People's Counsel, not the PSC, is charged with protecting consumer's interests in rate cases. The legislature recognized that the PSC had a conflict in their charter. They are tasked with increasing competition and developing additional markets for power generation, so they might not be the best entity to fight rate battles against the same companies they are enticing into Maryland's marketplace. Hence the need for the Office of People's Counsel.

The flawed assumption was that there would be a flood of competition, that electric generators would be battling one another to serve customers as prices fell to record low levels. The generation competition never materialized, and the price of power on the "grid" has skyrocketed.

In the months before the last General Assembly session, BGE's parent, Constellation Energy, put forward a serious bid to acquire Florida Power and Light, a major east coast electric generator. The thinking behind the merger is that FP&L is a solid, well-financed company, and adding their fiscal strength to the Constellation family of power companies would prop up the weaker entities, especially BGE.

The acquisition of FP&L would trigger mandated stock option sales by officers and board members of both BGE and Constellation. The Miller/Busch team has seized on this, accusing Constellation of profiting while jacking up rates on consumers.

Oddly, it is this same action that encourages BGE to put hundreds of millions of dollars ($600m at last count) on the table to help offset the rate increases.

So, a special session looms, and the choices and political overtones make for a very interesting back-story.

In the gubernatorial sweepstakes, here's the breakdown:

Governor Ehrlich - He tried to work with both the House and Senate leaders before Sine Die. He had some success, in that the House voted overwhelmingly to approve his rate stabilization plan, 128-9. His success in dealing with Speaker Busch was offset by his inability to work with Senate President Miller, who sat out the day-long negotiations, and then failed to work his chamber to get the votes necessary for passage.

Governor Ehrlich says that the special session is only necessary due to the judicial intervention of Baltimore Mayor Martin O'Malley. Mayor O'Malley had the city solicitor sue to stop the governor's rate plan from taking affect. The suit suspends the only credible rate mitigation plan, meaning that as of July 1, BGE customers are facing 72% increases.

The likely scenario for Governor Ehrlich is to fall back on the bill that the House overwhelmingly approved. He can then claim that he had crafted the "real" solution, and all of this other stuff has just been political distraction.

Expect him to lose his PSC appointments, though. Ken Schisler, Chuck Boutin, Karen Smith, and Allen Freifeld are goners, squarely in the targets of the legislature. Commissioner Harold Williams, a Glendening holdover, would probably get a pass from the legislature since he's been critical of his colleagues.

Mayor O'Malley - He has been both a chief critic of any plan authored by the Ehrlich Administration as well as a court opponent. He has used his city's legal department to fight the governor, and the one big victory, the decision to suspend the implementation of the governor's negotiated rate plan, has been touted across the state in an election-style media blitz.

Expect him to arrive in Annapolis during the upcoming special session at the same time the cameras and reporters appear. He'll need to stay on top of the process, and he and the legislative leaders will stay in constant contact to maximize the Democrats' political advantage.

Montgomery County Executive Doug Duncan - While Mayor O'Malley and Governor Ehrlich are battling in court and on the front pages, Mr. Duncan is sitting back and smiling. His media statements reflect his whole campaign strategy. He criticizes Governor Ehrlich for allowing "his" ineffective" PSC to let a huge rate increase to slip by, and attacks Mayor O'Malley for wasting time fighting Ehrlich's plan in court.

He'll be in Annapolis, too. In fact, all three will be vying for TV time. In the end, this will be a major, deciding issue in the November election, so all three guys will want to influence the court of public opinion.

The General Assembly - Democrats, led by Del. Curt Anderson (D., Baltimore City), have been clamoring for the special session. On top of their priorities is the demolition of the Public Service Commission, notably the Ehrlich appointees. It is crucial to their strategy that the Democrats make this about the PSC, not the past actions of the legislature.

This political sleight of hand is a crucial aspect of the Democrat's spin for November. Every statement they make, every reference in press conferences, and the bills they craft will be designed to make enemies of BGE, Constellation, the PSC, and Governor Ehrlich.

Republicans will try to defend the rate stabilization plan crafted during the last session. We'll also try to make it clear that while it's politically easy to blame the PSC, the bad outcome is a result of the legislature, not the administration. That will be a little weird itself, since some of the Republicans who will have to argue on behalf of the governor have themselves voted for deregulation.

Will we produce something better than that which is already out there? Sadly, probably not. If we blow up the PSC, take away the power of the governor to appoint new members, and pass the same rate stabilization that the House passed back in April, that might be about as good as it gets.

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