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POWER GAMES

The Baltimore Sun

Paula M. Carmody recently stepped into the role of people's counsel at what may prove a watershed moment for Maryland's residential utility customers.

The state's Public Service Commission is in the midst of a sweeping review of electric deregulation rules that critics contend contributed to a 72 percent rate hike for customers of Baltimore Gas & Electric last year.

As the state's chief advocate for utility customers, the new people's counsel is charged with pressing the commission to adopt changes that will take the sting out of future utility bills. It's a position fraught with political peril as Gov. Martin O'Malley and lawmakers strive to make good on campaign promises to undo the damage.

But the politics of power is familiar territory for the former assistant attorney general. Carmody was fired from her job as assistant people's counsel in 2003, subsequently placing her in the middle of a political feud over whether Gov. Robert L. Ehrlich Jr.'s administration had purged Democratic appointees from state agencies for partisan reasons. A similar purging later took place a few floors away in the back offices of the PSC, where the commission's Ehrlich-appointed chairman, Kenneth D. Schisler, was criticized for firing a handful of professional staffers with deep backgrounds in utility matters.

At a legislative hearing looking into the firings in December 2005, Carmody described how her boss at the people's counsel's office appeared at her house in tears one September morning and told her she had to clear out by the end of the day. No explanation was given, she said.

Both Carmody's and Schisler's political fortunes changed just as abruptly when BGE's rate hike ignited a political firestorm over deregulation last year. Carmody's name appeared on a list of 10 candidates to replace all five PSC commissioners after lawmakers passed Senate Bill 1, which, among other things, fired both the commission and then-People's Counsel Patricia Smith. Lawmakers blamed leaders of both agencies for failing to protect consumers.

Schisler successfully fought the commission's removal in the courts and kept his job before resigning this year. But a provision in the law giving the attorney general power to appoint a new people's counsel remained in effect. In January, Carmody came full circle when newly elected Attorney General Douglas F. Gansler tapped her to lead the agency. Considering that your predecessor was fired through legislation, and given the heightened politics surrounding this position right now, do you feel pressure to take a harder line, or to approach the job in a manner consistent with those in Annapolis who voted for a change?

There definitely is some pressure there because of the underlying issues, I think, and because of the quite reasonable concern about electric rates, and the impact they have for consumers and businesses. But personally, in my view, what the members of the General Assembly and, I think, the attorney general are looking for is somebody to come in that has the experience, that knows the industry, that knows the players in the industry, knows the issues and will address them thoughtfully and carefully and present affirmatively a policy solution.

I don't necessarily think that the members of the legislature or attorney general are looking for specific policy answers for me to state, but what they are looking for me to do, frankly, is my job. And that is to go out, gather the information, make an assessment, use my judgment and state very clearly in a policy position what I think is best for residential consumers. I believe if I do that, I will be able to meet the expectations of at least many of the members of the General Assembly, the attorney general and, hopefully, consumers. This office, independently from lawmakers, has been an instigator in what could be described as a pretty comprehensive regulatory review of Maryland's power industry. What's your appraisal of that process so far?

Where we stand now is that this process needs to go forward and to move quickly toward a decision. This office back in March of 2006 did make a filing to the Public Service Commission asking the commission to review the state of restructuring regulations in Maryland, and this was coupled with activity in Annapolis which led to Senate Bill 1. Basically, coming into this structure, I'd have to say I am certainly supportive of those investigations, and it is my view that deregulation has not worked for small customers in Maryland. We do need to acknowledge those failures and move on to a different path to provide electric service to residential customers. And what I mean by that is to move away from focusing on the development of retail competition as the primary, or sole, goal, and to identify the provision of safe, reliable and affordable electricity to consumers as the primary goal.

Then that raises the question, how do we go about meeting that goal? From my perspective, the emphasis on retail competition here and in other states is not going to provide the tools to meet that objective, and Senate Bill 1 actually provides a pathway to the development of a better service for residential consumers. Senate Bill 1 has actually directed utilities to continue the obligation to provide service. The bill uses the terms "best price, less volatility," and that means that the legislature already has established a standard of providing service to residential consumers. You were around at the time deregulation was being debated and subsequently implemented. What, if any, mistakes were made during that process, and do you think deregulation itself was a mistake?

We could spend all day on that, but it was my personal view then and it's my personal view now that the deregulation model was a mistake to begin with in terms of its adoption. There are many reasons why the Maryland General Assembly and the legislatures of many other states chose to go down that path, and my assumption is they made those decisions based on the information that was provided to them. The reality is that the act was passed, the generation plants that were owned by utilities have all been transferred or sold, and we are in a different environment now. Whether I believe mistakes were made then or not, we still have to deal with the reality in 2007, and what the structure at the federal level and state level looks like. Some have called for re-regulation. Can deregulation be undone?

We need to be careful when we use the term "re-regulation" because I can talk to 10 people and hear 10 different views on what that means. The [generation] plants, as I said, were transferred or sold, and some people when they talk about re-regulating are actually talking about reacquiring the generation and going back to that original model. I do think that is unrealistic and probably cost-prohibitive. If I use the term "re-regulation," what I am talking about, really, is a recommitment to the notion that the regulated utilities are the primary provider of electricity service to residential consumers and that the object is to make that service the best, most affordable, most reliable service it can be. ... My objective is to have the commission commit to that goal. BGE has proposed a variety of so-called "demand response" programs, including the use of "smart meters" and "smart thermostat" technology, as a way to encourage consumers to use less power and, hopefully, save money in the process. Do you think those programs are worth the cost, which could run into the hundreds of millions of dollars if applied acrsoss the system?

We will be taking a look because the [PSC] did approve a pilot program proposed by BGE for, basically, air-conditioning load control and "smart" thermostats, and our office did support the establishment of a pilot program to investigate that, and we think that is appropriate. With regard to the other elements of the filing, our office is taking a look at it. The use of advanced meters does raise some concerns for this office in large part because of the significant cost, and secondarily questions can be raised as to whether that's the best way to achieve demand reduction. We have retained expert consultants and we will be moving forward to examine the components of BGE's proposal.

Conceptually, I fully support the movement to achieve a reduction in demand by our consumers. It is good for our consumers and, fortunately, it has a bigger societal benefit to reduce usage, as well as peak usage. ... That actually will translate into a peak price reduction, and a price reduction for all our consumers. So if done right, it can be a win-win for everybody. But it is the job of this office to evaluate whether we think the components and programs being offered are appropriate ... and also look at the cost recovery proposals because obviously the utility will be seeking to recover the cost of these meters. Maryland's clean air legislation is going to require power companies to make improvements to older coal plants, in particular, and some say it could make it more expensive to develop new generating plants in the future. Given that we already import nearly 30 percent of our power from other states, do you think consumers are going to pay a heavy price for a clean environment, or are those concerns misplaced?

Concerns about price and cost are never misplaced because people have to pay bills each month, and we can never dismiss those concerns. ...

But I think one of the things I can do as a consumer advocate is acknowledge that there are other factors out there that need to be considered along with price. The fact of the matter is that the Healthy Air Act was passed, and these plants need to be upgraded and, yes, there will be a cost, and the cost will affect at some point the price of electricity. But at the same time we have to acknowledge that the very consumers who are paying their electric bill also are getting affected by the adverse impacts of unhealthy air. And as people have pointed out many times, that translates into high respiratory problem rates and emergency room costs that are factored into hospital rates, which are then paid for by the very consumers who also have to pay for electric bills. To some extent, sometimes what we do is we want to bring down a bill or price in one arena and ignore the fact that we are paying those costs somewhere else.

My job is to represent residential utility customers, and that is my primary objective. But I do not think that precludes me from factoring and taking into account that these very consumers are effected in terms of price and health and in other ways by things like unhealthy air. ... I really would hesitate to set up an either/or scheme where we can have healthy air or a lower electricity price. What we want to achieve is healthier air and reasonably priced electricity.

paul.adams@baltsun.com

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