Monday, June 26, 2006 - The Progress & Freedom Foundation Blog

A Damnable Shame in Maryland

The Maryland legislature, as expected, overrode Governor Ehrlich's veto of a bill that would have limits Baltimore Gas & Electric's rate increases and eliminated all the current members of the PSC. The bill is a travesty for two reasons, and bodes very ill long-term for Maryland's electricity customers.

First, the bill continues the Maryland legislature's well-known belief in its ability to suspend basic principles of economics. With this bill, the legislature effectively denies BG&E cost recovery for its electricity service -- or, rather, to pay the competitive price for electricity. While this is being hailed as a populist victory over corporate greed, no one has made an effective case that the PSC's determination back in the spring was indeed wrong. The 72% rate increase -- whether phased-in or digested all at once -- is certainly large, none of the opponents has made the case that BG&E's costs have not increased that much. With natural gas prices up in the neighborhood of 300% in the past few years and the market price for electricity being far above that currently charged by BG&E, it is no surprise that rates would rise, even substantially. Of course, none of this can get in the way of a good political skewering of the PSC and Constellation Energy, BG&E's parent. In the future, though, Maryland ratepayers will get to enjoy lower bond ratings for its utility, higher debt costs, less capital expenditures, diminished reliability, and all other byproducts of a good populist rebellion.

Just as disturbing as the legislature's unilateral suspension of the price system is its dismissal of the Maryland Public Service Commission. Though I have my doubts about the progressive-era model of "expert" regulatory agencies, the wholesale sacking of the commission by the political branch bodes ill for the institution and the regulatory climate in Maryland. To begin with, pending regulatory matters will be put on hold while a new commission is found and seated. Cases may have to be retried, new commissioners brought up to speed en masse, and even already-decided cases will have uncertain authority. In effect, the dismissal decision amounts to a wholesale transfer of power to the commission staff. Longer term, the finality and reliability of commission decisions is now suspect. The precedent for a legislative "veto" of commission decisions will always loom, creating negative consequences for the decisions made by the commission in the first place. Finally, the independence of the commission in Maryland is compromised so deeply that the Maryland legislative might just want to take back to ratesetting duty itself. A commission that is always looking over its shoulder at how the legislature might react is not independent at all, and will trim its decisions to suit the prevailing political winds.
Of course, a committed populist will celebrate all of these things, arguing that these decisions should be made according to political criteria by the elected representatives of "the people." Fair enough. But, as with the rate issue that gave rise to to this legislative tantrum, the effect on Maryland consumers will be negative. A state whose political class yanks around its utilities in this way will drive away capital and investment, lower bond ratings and increase cost of capital. How this benefits "the people" defies explanation.

posted by Ray Gifford @ 4:01 PM | Electricity , State Policy