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September 10, 2010

The tangled history of Md. electricity deregulation

In October 2001 I wrote a column that began:

MARYLAND regulators are spending millions to educate people about electricity deregulation, but a few key parts of the process haven't been covered in the government brochures."Sorry, Baltimore consumers, we blew it," is what the brochures would say if you put sodium pentothal in the Public Service Commission water coolers. "Our motto is, `You use it. Now choose it,' but in Central Maryland you may not get electricity choice for years.

Nine years later electricity shopping is finally a reality. More BGE households than ever have swtiched to a competitive supplier. What happened meanwhile? How did Maryland let BGE transfer its valuable generators to its parent, which preceded the near doubling of BGE household kilowatt prices? What has happened since then and what should be done now? Thomas Firey, a senior fellow at the Maryland Public Policy Institute, gives a good, sophisticted overview.

His ultimate prescription is closely related to regulators' recent approval for BGE to install smart meters.

Instead of pushing consumers to buy more-expensive energy-efficient appliances or building more generating plants and power lines, the easiest, lowest-cost solution to Maryland’s electricity problems would be to simply shift some of the peak demand to offpeak times when wholesale prices are lower and congestion is less.

When energy experts worry about Maryland’s future supply of electricity and its cost, their concern is about meeting peak demand. If the peaks can be moderated even slightly, that would greatly benefit Maryland consumers.

Moderating peaks is what smart, computerized meters are supposed to do.

In a history of Maryland electricity deregulation I would have mentioned the windfall profits that BGE parent Constellation Energy made from the Calvert Cliffs nuclear plant at the peak of the energy bubble. Wholesale megawatt prices were keyed to very high natural-gas prices, but (the largely depreciated) Calvert Cliffs was cranking out cheap, uranium-based power that Constellation could then sell at the inflated, going rate. Before deregulation, savings from the cheap power would have been passed to customers. But that's a quibble with Firey's account.

Posted by Jay Hancock at 6:00 AM | | Comments (4)
Categories: BGE/electricity
        

Comments

I can't wait until these "smart meters" with wireless technology are hacked into and the fun begins!

Hi Jay,
I'm sure that I'm making this more complicated than it probably is, but I don't understand exactly what "shifting some of the peak demand to offpeak times" entails exactly?

Hi Michelle -- Good question, actually. The worst, most expensive peak demand comes on hot summer days, when generators have to run their least efficient, most expensive, last-gasp capacity to keep all the air conditioners running. To remove this strain and expense, policymakers want people to shift some of their usage from midday on hot days to other times. Run your pool pump or washer or dishwasher at night, not 2 pm in July. Turn off your computers on a hot day. Vaccum the floor early in the morning. Peak time is typically from noon to 7 pm or so. The idea is to cut use during that time -- including by cycling your AC, if you agree to that. That saves money by a) your not having to pay for really expensive, peak-time kilowatts and b) by not having to build new generation plants to serve growing peak demand. With smart meters BGE is supposed to pass along the savings by rewarding people who cut electricity use during critical peak times. Hope this helps. JH

Jay, you write about moderating peaks as though it's a new concept. But in the last three years the Maryland utilities have been implementing demand response programs under the direction of the PSC, and the PSC has twice ordered the procurement of demand response... all of which equals two or more powerplants' worth of peak shaving.

Gal: You're right, of course. BGE's Peak Rewards program has worked quite well. So well, in fact, to make you wonder whether the marginal peak shaving to be gained from smart meters will be worth the expense. JH

Hi Jay,
Our winter bills are far more expensive than our summer bills. Is there such a thing as peak usage in the winter? If so, can you talk a little about that and what can be done to control those costs?

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About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Tuesdays and Sundays.
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