Maryland Electric Deregulation
Encyclopedia
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.
The past several years have seen a flurry of changes in the energy
industry in Maryland
. In 1999, the Maryland General Assembly
, under pressure from state manufacturers, 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 passed though the Maryland General Assembly with many Democratic and every Republican legislator's support. The bill was signed into law by Democratic Governor Parris Glendening
who was not in favor of deregulation, but threatened with an override of any veto. 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 to 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. Baltimore Gas and Electric Company (BGE) 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 electricity rates 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, one of Maryland’s largest groups, BGE’s customers, was slated to move to market rates. Enormous rate increases in the wholesale electricity industry at that time meant that, while their rates would become comparable to other Maryland utilities, BGE customers would have their rates increased by 72%. This increase, greater than any other utility and coupled with election year politics, created a huge outcry.
". 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.
Maryland General Assembly
The Maryland General Assembly is the state legislature of the U.S. state of Maryland. It is a bicameral body. The upper chamber, the Maryland State Senate, has 47 representatives and the lower chamber, the Maryland House of Delegates, has 141 representatives...
. This bill changed the entire face of the Maryland
Maryland
Maryland is a U.S. state located in the Mid Atlantic region of the United States, bordering Virginia, West Virginia, and the District of Columbia to its south and west; Pennsylvania to its north; and Delaware to its east...
utility industry.
The past several years have seen a flurry of changes in the energy
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
industry in Maryland
Maryland
Maryland is a U.S. state located in the Mid Atlantic region of the United States, bordering Virginia, West Virginia, and the District of Columbia to its south and west; Pennsylvania to its north; and Delaware to its east...
. In 1999, the Maryland General Assembly
Maryland General Assembly
The Maryland General Assembly is the state legislature of the U.S. state of Maryland. It is a bicameral body. The upper chamber, the Maryland State Senate, has 47 representatives and the lower chamber, the Maryland House of Delegates, has 141 representatives...
, under pressure from state manufacturers, enacted legislation that would cause the electric industry in Maryland to become deregulated
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
. This bill, the Electric Customer Choice and Competition Act of 1999, was passed though the Maryland General Assembly with many Democratic and every Republican legislator's support. The bill was signed into law by Democratic Governor Parris Glendening
Parris Glendening
Parris Nelson Glendening , a member of the United States Democratic Party, was the 59th Governor of Maryland from January 18, 1995 to January 15, 2003...
who was not in favor of deregulation, but threatened with an override of any veto. 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 to 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 Public Service Commission
The Maryland Public Service Commission is an independent administrative agency within the state government which regulates public utilities and certain taxi cab and other passenger services in Maryland...
, 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. Baltimore Gas and Electric Company (BGE) chose to transfer its generation to Constellation Generation Group. Both BGE and Constellation Generation Group are subsidiaries of Constellation Energy
Constellation Energy
Constellation Energy, headquartered in Baltimore, Maryland, is an energy producer, trader, and distributor. The company operates over 35 power plants in 11 states under its operating company Constellation Commodities Group and/or Constellation Generation Group...
.
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 electricity rates 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, one of Maryland’s largest groups, BGE’s customers, was slated to move to market rates. Enormous rate increases in the wholesale electricity industry at that time meant that, while their rates would become comparable to other Maryland utilities, BGE customers would have their rates increased by 72%. This increase, greater than any other utility and coupled with election year politics, created a huge outcry.
The perfect storm
The events leading up to the 72% increase in customer's rates has been referred to by BGE executives, state commissioners, and state legislators as "the perfect stormPerfect storm
A "perfect storm" is an expression that describes an event where a rare combination of circumstances will aggravate a situation drastically. The term is also used to describe an actual phemonenon that happens to occur in such a confluence, resulting in an event of unusual magnitude.-Origin:First ...
". In the years since rates were capped, fuel prices had risen dramatically. Natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
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
Hurricane Katrina
Hurricane Katrina of the 2005 Atlantic hurricane season was a powerful Atlantic hurricane. It is the costliest natural disaster, as well as one of the five deadliest hurricanes, in the history of the United States. Among recorded Atlantic hurricanes, it was the sixth strongest overall...
and Rita
Hurricane Rita
Hurricane Rita was the fourth-most intense Atlantic hurricane ever recorded and the most intense tropical cyclone ever observed in the Gulf of Mexico. Rita caused $11.3 billion in damage on the U.S. Gulf Coast in September 2005...
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.