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Short circuit

FinanceBusinessConsumersHeather R. MizeurGovernment

In 2006, when the electric industry was a hot topic in the Maryland governor's race, the issue was BGE rates, with the Democratic candidate, Martin O'Malley, promising more consumer-friendly regulators who would seek to roll back a 72 percent increase. Eight years later, another Democratic candidate, Del. Heather Mizeur, is seeking to make the electric industry part of the governor's race and is again promising more consumer-friendly regulators. But the issue this time is reliability.

Ms. Mizeur hails from the Pepco service area (as do her chief competitors in the June primary), where customers have had more problems keeping the lights on than even BGE patrons — so much so that the Public Service Commission fined Pepco a record $1 million for failing to make proper investments in grid maintenance. Ms. Mizeur is the only one talking about the issue in this governor's race, and for that she gets credit. Unfortunately, her proposed solutions either make no sense or might actually make things worse.

In a policy paper issued on Tuesday, she complained that the utilities "have finally come to recognize the need for increased infrastructure investment, but only if they can pass it on at the customers' expense." She promised to "bring balance back to the system" by appointing consumer advocates to the PSC, ending the utilities' "perpetual franchises" with the state and encouraging the creation of municipal or cooperative utilities.

The biggest idea of the bunch is that utilities like Pepco and BGE should be forced every 10-15 years to reapply to the state for their franchises to deliver power to consumers. Her reasoning is that if they were faced with the possibility of losing out to a competitor, they would provide better, lower cost service.

It sounds good, but in reality, the idea is absurd. Maryland already has competition for who supplies energy to consumers — they can get what's called "standard offer service" from utilities like BGE and Pepco, or they can shop for better deals from suppliers. But no matter who generates or supplies the power, it is delivered by a local, regulated utility because the idea of having competition for who will string wires to every home, not to mention provide transformers, substations and so on, is implausible and undesirable.

For Maryland to dislodge BGE, Pepco and the like, it would need to seize their assets through eminent domain and compensate them. There's no real precedent for a state taking an action like that, but to give a sense of what it might require, we can look to Boulder, Colo. That city is seeking to municipalize its electric utility and sent a letter of intent to Xcel Energy in January announcing its intent to purchase its distribution assets — everything from the substations to the meters. Boulder voters have approved spending up to $214 million, but the utility is seeking its own appraisal and believes its assets may be worth well more than double that. Maryland's population is more than 50 times larger than Boulder's, and its land mass is almost 500 times greater. That is to say, the cost and complexity of such a move on the scale of an entire state — or even the service area of one of Maryland's utilities — would be astronomical.

Delegate Mizeur's complaint that utilities are only investing in their infrastructure if we pay for it also betrays a fundamental misunderstanding of the system. What she describes is not a shortcoming of BGE and Pepco but rather a fundamental feature of utility regulation. It has always been the case that the companies are allowed to seek reimbursement from customers for prudent and necessary investments in their infrastructure.

A genuine issue she does identify is the PSC's recent decision to allow Pepco to assess a $24 million "grid resiliency charge." It also approved a similar surcharge for BGE. The question with those charges is not whether they should be assessed to consumers but when — it effectively pre-authorized the utility to recoup the expenses for certain infrastructure upgrades rather than seeking PSC approval after the fact. The decisions were controversial, with People's Counsel Paula M. Carmody and others arguing against them. However, funding the improvements this way enables BGE and Pepco to accelerate the pace of their efforts to do things like add redundancy to the system, bury lines and re-route or remediate failure-prone feeder and distribution lines. In other words, to make the power system more reliable.

Finding ways to prevent the catastrophic power failures we have seen in recent years should be a part of the debate in this year's governor's race because the problem is only going to get worse as climate change fosters more extreme weather. Unfortunately, these ideas aren't the way to address it.

Correction: An earlier version of this editorial incorrectly described Pepco's grid resiliency charge. The Sun regrets the error.

Copyright © 2014, The Baltimore Sun
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FinanceBusinessConsumersHeather R. MizeurGovernment
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