A Big Win for Maryland Ratepayers, But the Fight Over Electricity Markets Is Just Beginning

For the benefit of the nearly 50% of America’s population that was born after the Berlin Wall came down, the domino theory was a Cold War belief that if one country fell to communism, its neighboring nations would do the same, much like a line of dominos. Today, that theory may soon be put to the test in the energy marketplace as a number of mid-Atlantic and Midwest states continue to play footsie with electric utilities that wish to own and operate electric generation in the states as monopolies.

Recently, ground zero in the fight against utility-owned generation was Maryland. Eariler this month, Governor Wes Moore signed into law the Utility RELIEF Act, a comprehensive energy package designed to lower utility bills for Maryland ratepayers and reform excessive utility spending.

However, the bill was equally noteworthy for what it did not include – an Exelon proposal to allow monopoly utilities to own and build new power generation in Maryland that was dropped as the bill made its way through the committee process. The Exelon provision would have allowed its subsidiary BGE to own and operate generation plants in Maryland with legally guaranteed profits for the utility’s shareholders. Had this language been included in the final bill, Maryland’s competitive market would crater as BGE would have been granted a state-sanctioned monopoly over electric generation in the state on top of its current monopoly for distribution and transmission. Congratulations to the Maryland legislature which rejected Exelon’s proposal and instead chose to preserve the competitive energy market that has helped protect ratepayers from utility excesses for decades.

The legislature was right to tell Exelon no. A new statewide poll conducted by Gonzales Research & Media Services, Inc. found that 80% of Maryland utility customers oppose giving their local monopoly utility total control over the state’s energy marketplace. The poll also reports that 93% would be concerned with shifting financial risk onto consumers, and 84% have concerns about guaranteeing utilities a profit paid for by customers.

Despite being told no by the legislature, and irrespective of the overwhelming opposition to utility-owned generation in Maryland, BGE is not preparing to take no for an answer. The utility is signaling that it will continue to push for this self-serving disruption to Maryland’s energy marketplace.

In neighboring states, the competitive markets also hang in the balance. Legislation in New Jersey seeks to build a large nuclear reactor at the behest of PSEG whose CEO told its shareholders they are “not putting our own capital to work” on the project but will instead place the risk on the backs of their captive customers. Next door in Pennsylvania, PPL’s CEO says the state should “allow regulated electric utilities to invest in generation resources, up to and including owning and operating generation resources again,” and found a lawmaker to introduce a bill to that end. In Delaware, Delmarva – another Exelon company – is arguing publicly to get back into owning generation.

Moving westward, last summer, the Ohio General Assembly passed into law HB 15, a comprehensive energy strategy that strengthens the competitive energy market that Ohio adopted in 1999. In addition, the bill emphatically shut the door on utility-owned generation seemingly for good by killing off electric security plans – the mechanism by which utilities could manipulate to own generation once again. Undaunted, a mere nine months after HB 15 was signed into law, AEP has helped write legislation granting the utility the ability to own and operate small nuclear reactors in Ohio and pass the risk to ratepayers. The legislation was introduced last week.

At a time when electricity bills are skyrocketing, scrapping the current competitive markets makes little sense, as countless studies by independent energy sector consulting groups have found time and time again that the competitive market works, that utilities bear most of the responsibility for driving bills up, and that ratepayers would pay far more if under the thumb of utility monopolies.

A recent study published by Energy Tariffs Experts (ETE) analyzed energy bills in Maryland, New Jersey, Ohio, and Pennsylvania over the past decade. It found that the cost of energy generation, while fluctuating, has held steady, while the utilities’ costs of distribution and transmission has grown substantially. ETE reports that “higher bills are largely a reflection of growing spending by local utilities on transmission and distribution systems and the costs of state policies that have pushed generation sources into early retirement and increased cost of operation for remaining thermal plants.” The ETE study can be read here.

Similarly, a new analysis published by FTI Consulting details the significant risks Maryland ratepayers would face if state policymakers were to allow for the return of utility-owned generation and electric utility monopolies. Among other things, FTI found that transmission and distribution costs charged by monopoly utilities are driving rising electricity bills in Maryland, and that energy costs in states with vertically integrated monopoly utilities grew twice as fast as they did in Maryland since 2010. The study concludes that the competitive market has resulted in lower costs for ratepayers and protected them from the monopoly utilities’ business model that incentivizes spending on complex, expensive projects with guaranteed profits for their shareholders that may not benefit customers.

So why are these states now willing to entertain the idea of scrapping competitive markets and exacerbating the problem by handing utilities a monopoly? It is certainly not because utilities need the money. Last year, PPL ranked first in the Northeast among utilities for profit margin and eighth in the nation. In the second quarter of last year, AEP reported record profits as net income was $1.226 billion, up from $340 million from the previous year. This year, PSEG extended its streak of consecutive annual dividend increases to 15 years. As for Exelon, last month its stock reached a 52 week high, and BGE’s profits grew by $50 million last year.

Utilities are lobbying for the issue now because they believe that they can coerce lawmakers into doing their bidding amid the turbulence of high prices. They think policymakers — desperate to appease ratepayers who are angry over spiking bills — will grasp ahold of any idea, regardless of merit, to tell their constituents that they are trying. Never let a good crisis go to waste.

Last month, Maryland leaders stood up to the utilities, and as a result, Maryland will not be the first domino to fall. The other states should follow Maryland’s lead by preserving their own competitive markets and telling their own utilities that we don’t need another monopoly.

Rob Nichols is the spokesman for the The Alliance for Competitive Power , which was formed to fight reregulation of electricity generation in the states and to promote competitive energy markets. Its members are the all-of-the-above independent power producers with assets in states throughout the PJM region, and the ACP is currently active in Maryland, Ohio, New Jersey and Pennsylvania. Our coalition is listed on our website.