Maryland Electric Deregulation

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Maryland Electric Deregulation is the result of a bill passed in 1999 by the Maryland General Assembly. This bill changed the entire face of the Maryland utility industry.

[edit] Maryland Electric Deregulation

The past several years have seen a flurry of changes in the energy industry in Maryland. In 1999, the Maryland General Assembly, under pressure by Enron, enacted legislation that would cause the electric industry in Maryland to become deregulated. This bill, the Electric Customer Choice and Competition Act of 1999, was signed into law by Democratic Governor Parris Glendening. Prior to this legislation, the local electric utility was in charge of procuring and delivering power to the people in their service territory. Under the new legislation, the consumer could choose to continuing purchasing power from the local utility [known as Standard Offer Service (SOS) or Provider of Last Resort (POLR)] or purchase power from an electric retail supplier. The local utility would still be responsible for the delivery of the power.

According to the Maryland Public Service Commission, Maryland considered deregulating “to put downward pressure on costs, thus providing consumers with the lowest possible prices for electricity, to allow all customers to choose their power supplier, to provide incentives for the creation and development of innovative products and services. The Maryland General Assembly placed several stipulations in the legislation designed to foster competition and maintain a level playing field between the retail suppliers and the local utilities. First, the utility would be required to eliminate their generation plants, either through sale or through transfer to a non-regulated business unit. This would force both the suppliers and the utility to use the wholesale energy market to procure power. BGE (Baltimore Gas and Electric Company) chose to transfer its generation to Constellation Generation Group. Both BGE and Constellation Generation Group are subsidiaries of Constellation Energy.

Second, customers would be forced to stay on POLR rates for a number of years. During this time, POLR rates would remain frozen at a certain rate. This frozen rate was set between 3% and 7.5% lower than 1999 prices. Some companies, like BGE, had not increased their prices since 1993. Therefore, in this period, customers would be paying less than for electricity than they had six years prior. Once that time was over, customers could shop for a different supplier and POLR rates would change from the capped rate to the market rate. The amount of time that rates would be frozen varied by company and by customer class (residential, commercial, industrial, etc.). Over a period of 6 years, various customers’ rates became unfrozen without incident. In 2007, however, that changed.

In 2007, Maryland’s last capped group, BGE’s customers, would move to market rates. While their rates would become comparable to other Maryland utilities, these customers would have their rates increased 72%. This increase, greater than any other utility and coupled with election year politics, created a huge outcry.

[edit] The Perfect Storm

The events leading up to the 72% increase has been referred to by BGE executives, state commissioners, and state legislators as “the perfect storm.” In the years since rates were capped, fuel prices had risen dramatically. Natural gas prices had risen about 125%, regular gasoline prices had risen over 150%, and heating oil prices had risen almost 200%. Maryland region’s fuel prices are tied greatly to natural gas prices. Subsequently, when Hurricane Katrina and Rita cause major natural gas pipelines to shut down for a short period, natural gas prices skyrocketed. Therefore, when BGE went to the market to procure power, prices for power were abnormally high.