What electricity re-regulation would look like
Today's column calls for Maryland to partially re-regulate electricity. Like "health-care reform," electricity re-regulation has a million different meanings. I'm suggesting re-regulation lite. Some have been calling for Maryland to seize generation plants by eminent domain and force them to adopt new pricing plans. That would be complicated, hugely expensive and reinforce Maryland's "People's Republic" reputation.
Instead, the state should look at forcing BGE and Pepco to buy electricity from a new gas-fired power plant. Although BGE/Pepco customers would pay for the plant's electricity, it would be built with private dollars. And the extra megawatts brought to the table would bring down PJM Interconnection's exorbitant "capacity" prices, for which everybody has to pay through the nose and which have given Maryland little in return. I love the idea, being floated in New Jersey and here, of bidding new plants' capacity at "zero" into PJM's capacity auction, thereby using PJM's own artificial rules against the incumbent power companies.
Competitive Power Ventures has been proposing a gas-fired plant in Charles County for some time now, with some interesting features. The CPV plant could be bid into the capacity auction at zero, which would bring down Maryland capacity prices. The extra supply of energy would also bring down the energy component of the PJM auction prices. CPV pledges to open its books and build the plant along the lines of the old, "cost-plus" deals under regulation.
The Public Service Commission has the power now to order BGE and Pepco to buy power from CPV or some other plant. Yes, the plant's capital costs would be built into BGE and Pepco prices. But CPV argues that it would actually save consumers money because of the effect on overall wholesale prices. That's something the PSC should verify, but it's an intriguing proposition. To ensure Maryland new electricity supplies and to start replacing the dirty coal plants now creating our megawatts, the deal may be worth doing even if it doesn't absolutely lower prices.
Comments
I think the real question here is at what point do you stop socializing energy and start standing behind capitalism. All businesses are here to make money. Although the problem comes when you are dealing with a commodity that has almost become a basic right/need such as food, shelter, and clothing. Then we are faced with the question "How much profit is a company allowed to make?" once you head down that road you are then asking "How much is that company allowed to pay it's employees?" and finally "Could the state run it better than a private company?" or "Should the state run it for the good of the people?"
There is a fine line between Chinese socialism and American capitalist values. The State of Maryland should be very careful with that fine line. After all, why should I be paying $3.10 at the gas pump, I need to be able to afford to get to work right? How much profit are big oil companies allowed to make?
Should we treat energy and gas like water or more like the socialized trash collection service paid for by our property taxes where if one person recycles 90% of what is used they get no discount.
I do think it would be great if we could continue to make home ownership of solar more economical. Too bad BP Solar in Frederick closed, Maryland really was leading the nation when that company was producing Solar panels.
Posted by: Anonymous | January 18, 2011 10:01 AM
"Maryland's People Republic" - Call it what you will; it's my opinion that all necessary commodities should be regulated.
Posted by: Michelle Brown | January 18, 2011 10:18 AM
Dear Mr. Hancock,
I agree with the idea of the messed-up wholesale electricity market that you posted yesterday. The problem with those incomplete markets begs complete markets that enable a virtuous circle, instead of backwards to the obsolete properties of vertical integration that lack said virtuous circle. The need is to go forward with retail and wholesale markets that mutually reinforce each other.
At the center of such complete markets is the emergent smart grid that does not require capacity markets. Please take a look at an article that starts with "The Electricity Without Price Controls (EWPC) Architecture Framework (EWPC-AF) is a basic innovation that greatly simplifies today’s exceeding complex power industry. The EWPC-AF emerged to replace the century old Investor Owned Utilities (IOUs) Architecture Framework (IOUs-AF) and its incremental extensions, such as Open Transmission Access, Capacity Markets, NERC Mandatory Requirements, and now the regulated architecture Smart Grid," in the link http://bit.ly/8XJlra
Best regards,
José Antonio Vanderhorst-Silverio, PhD
Creator of the EWPC-AF
Posted by: José Antonio Vanderhorst-Silverio, PhD | January 18, 2011 11:51 AM
Much of the concern in going forward and embracing any change is the lack of a black and white methodology that explains how it can be achieved
I would like you to consider milk.
Many would call it an equally boring commodity or at least it was in the 1950’s, when the choice was “how many bottles do we get delivered.” Yet today we are confronted with a staggering choice of milk brands with things added and stuff removed; all representing different prices and more importantly different value propositions to different consumers. We now have choice in milk. It is a very competitive market. The same can apply with electricity it is possible today.
Posted by: Bruce Johansson | January 23, 2011 8:33 PM