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February 12, 2007

The Great Maryland Electric War

Kevin E. Dayhoff

With a Democratic governor in the statehouse, Ken Schisler out of the way, and the proposed merger of Constellation Energy and Florida Light and Power stopped, it would appear that the Democrat controlled Maryland General Assembly has succeeded with most of its election goals from last year's gubernatorial contest.

All except the fact that electric rates have still gone up a great deal and will continue to escalate in the foreseeable future.

Geez, if that is the case, then what was all that gnashing of teeth, rhetoric and hand wringing all about last year and what are they going to do next?

Now the hunt is joined to name another chairman of the Public Service Commission (PSC). Who in the heck would want the job? Perhaps a recap of the last year's events is in order.

The "Great Maryland Electric War" actually began innocently enough seven years ago. In a classic example of the law of unintended consequences, what was once heralded as pro-consumer, the 1999 electric deregulation legislation went horribly wrong.

The concept was simple enough. If the cost of electricity for Marylanders could be obtained by way of the national market, most likely the cost would be much cheaper than relying on Baltimore Gas and Electric's (BGE) parochial generating capacity in Maryland.

BGE was required to sell off its generating plants and the Public Service Commission was required by law to oversee the electric utility efforts to obtain electricity from the national market by a bidding process also formulated by law.

Although the legislation was spearheaded by Maryland's Democratic Party leadership, it had bi-partisan support with one glaring exception: the governor at the time. Parris Glendening did not support it and repeatedly vowed to veto it.

Although the legislation passed with a veto-proof majority, a last minute concession was given to Governor Glendening to avoid the specter of a Democratic governor vetoing the over-whelming Democratic Maryland General Assembly's signature legislation. And this is where the lug nuts were loosened that would inevitably cause all the wheels to come off the cart.

The concession was a rate cap. Not just a rate cap from 1999 to 2006, but a retroactive rate cap back to 1993 minus 6.5 percent.

What were they thinking? Of course, under this construct no competition dared enter the Maryland market where the rate cap was well below the market cost.

But what remains reprehensible is the partisan political games that ensued in 2006 which have resulted in misleading Marylanders to believe that with a Democrat in the statehouse residence and Ken Schisler gone, everything will be hunky-dory. Of course, nothing could be further from the truth.

As 2006 approached, Marylanders in BGE's market footprint had enjoyed a cost of electricity profoundly lower than cost - for 13 years. Along came Katrina and more uncertainty in the supply of oil.

What followed was an historic nationwide spike in the cost of electricity.

Contrary to what the public has been led to believe, PSC Chairman Schisler repeatedly warned the Maryland General Assembly. On March 24, 2006, WBAL Radio News reported that it had "obtained records that show numerous conferences and meetings between PSC agents and lawmakers" over concern about the precipitous rise in electric rates. "At least 20 briefings or meetings are documented by the PSC."

Meanwhile, totally unreported is what - if anything - did the Maryland Senate's own deregulation committee do in the last several years. Unconfirmed reports suggest that it met "four times and did not produce any suggestions or reports."

Totally misled by the Maryland Democratic Party and The (Baltimore) Sun, most of the public still fails to understand the role of the Public Service Commission. It is not a legislative body and can only facilitate and administer the laws promulgated by the Maryland General Assembly.

Furthermore, the Public Service Commission under Chairman Schisler followed the regulations that were developed by the members of an earlier commission, all of whom were appointed by the previous Democratic administration.

The responsibility for any alleged diminution of Ken Schisler's reputation lies at the feet of the persistent and consistent misrepresentations by The Sun and the Maryland Democratic leadership, who choose to tar and feather a scapegoat instead of rolling up their sleeves and accepting responsibility to address the challenges. It was easier to throw Mr. Schisler under a bus.

As far as the implementation of the deregulation and the administering the wreckage of the 1999 electric deregulation legislation goes, there is very little either the governor or the Public Service Commission can do. And that goes for any chairman, no matter whether they are a "professional regulator" or rabidly pro-business or anti-business.

The responsibility rests solely with the Maryland General Assembly.

Meanwhile Governor Martin O'Malley is painted into a corner.

With the Democrats' future handpicked chairman of the PSC, and not having Governor Robert L. Ehrlich, Jr., or Chairman Schisler around to misrepresent and scapegoat, who are they going to electrocute next for the global market forces that have precipitously escalated the cost of electricity for the last seven years - while the legislature slept?

The PSC cannot constitutionally require an electric utility to sell electricity at a rate lower than its cost. Electricity will not be cheaper than the 1993 rates in the foreseeable future.

If Chairman Schisler followed the 1999 law written by the legislature and actually, contrary to what the public has been told, did everything The Sun and Maryland Democratic leaders said he should have done, who in their right mind would want to step up the plate and take the job now?

That is unless, with a wink and a nod, The Sun and Maryland's Democratic leadership agree to employ situational ethics and whitewash future rate increases as being caused by the inevitable market forces?

This ought to be really interesting.

Kevin Dayhoff writes from Westminster: E-mail him at:

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