On Tuesday, Maryland Governor Martin O’Malley (D) introduced legislation to partially re-regulate the electricity market in that state. Separately, state legislators also have filed two bills (SB 795 and SB 844) that would go even further, and fully re-regulate Maryland’s electricity market.
Maryland’s deregulation law was implemented in 1999. It required distribution utilities to purchase power supplies from the wholesale market. Retail prices were capped to allow the wholesale market to develop and to protect ratepayers from the volatility of the transition to a fully competitive wholesale market. When retail price caps were lifted in 2006, very little competition had developed in the wholesale market and prices from auctions were quite high. As a result, retail rates charged by Baltimore Gas & Electric (“BG&E”), the regulated distribution utility for Constellation Energy, increased substantially. Constellation later reached a $2 billion settlement with the state which included $187 million in refunds to ratepayers (see April 11, 2008 edition of the WER).
The two legislative proposals would require the Maryland Public Service Commission (“PSC”) to re-regulate the Maryland power market, including all existing power plants. SB 795 would require utilities to buy back merchant plants they sold pursuant to the deregulation law in 1999. SB 844, on the other hand, would require the PSC to regulate only future generation plants. On Tuesday, the Maryland Senate Finance Committee debated both proposals.
At the legislative hearing, Gov. O’Malley proposed to scale back both bills to allow the PSC to order construction of new power plants with cost-based rates. Existing merchant plants would not be affected by the Governor’s proposal. He said that the other two legislative proposals were unworkable and defended his more modest proposal, stating that requiring regulated utilities to buy back merchant generation would be too expensive for ratepayers.
Under Gov. O’Malley’s proposal, the PSC would have expanded authority to order utilities to build new power generators, or purchase electricity through a bilateral contract or competitive-bidding process at cost-based rates approved by the PSC. Any merchant plants or pending merchant plants with certificates of need could still be built as merchant-owned generation. Any application that was filed with the PSC before March 1, 2009 would be exempt from the new process.
A press release outlining Gov. O’Malley’s proposal is available at: http://www.gov.state.md.us/pressreleases/090302.asp.