Electroshock Legislating

The Maryland legislature is set to convene tommorrow to consider what to do about the impending BG&E rate hikes. According to the Washington Post, "the Democratic leaders are considering sweeping changes that include dismissing the state's utility regulars and restocking the Public Service Commission with members considered more consumer friendly."

There are sensible actions in the nature of transitional rate plans on which the legislature and governor ought to be able to agree to mitigate the rate shock that will result from implementation on a flash-cut basis of a 72% rate hike. But having the legilature establish the precedent that it will replace all of the PSC commissioners willy-nilly on its whim is not one of them. As I explained in a commentary published in the Baltimore Sun on April 25, there is a better way to make the PSC more politically accountable than to have the legislature hiring and firing PSC commissioners. That is a course unlikely to lead to economically sound ratemaking decisions at the PSC.

And keep in mind it was the legislature in 1999 that ordered electricity rate deregulation. And further keep in mind that nobody then predicted the surge in raw energy prices we have experienced in the last several years, due in part to geo-political factors beyond anyone's control, much less the control of the PSC commissioners. And, finally, keep in mind that it requires substantial capital investment and ongoing costs to generate, transmit, and deliver electricity. Even though we can't see it or smell it, electricity is not a free good. So, any solution proposed by the legislature that doesn't recognize this basic economic fact--in other words, a solution that is merely political theatre and nothing more--will not really be "consumer friendly". Because, ultimately, to have available on demand reliable and dependable sources of electricity, the costs of generating and delivering it must be recovered by the utilities from the consumers who benefit from such availability and use.