Wednesday, July 19, 2006

Power Politics

With air conditioners working overtime during the heat wave of the past few days, it is a good time to remember that it is unwise for politicians--whatever may be the short-term political gains--to make scapegoats of utilities. A story in today's Washington Post recounts the strains on the local power grid that have caused some scattered problems, along with deliberate cut-backs of power. And the Wall Street Journal has a story, "Heat Wave Spurs Calls for Stronger Power Grid," to the same effect from a national perspective. [Subscription required.] The Journal reports that, while the amount of backup power is now adequate, it "has been in decline as a result of a growing economy and disruptions in energy markets that caused many firms to cancel new power-plant projects." According to the Journal's report, "one major problem is making sure that there's enough power available to accommodate sudden spikes in usage caused by extremely hot weather."

No one likes rate increases, and certainly not every rate increase, or the full extent of such increase, sought by a power company is justified. But the fact of the matter is that the costs of producing electricity has spiked in the past few years, and, at the same time, demand for electricity has grown, putting pressure on the capacity of the existing transmission infrastructure. Ultimately the higher costs of producing electricity and the investment in new transmission facilities and power generating plants must be recovered if utilities are to remain financially healthy enough to meet the demand for electricity.

There is, of course, room for legitimate differences of opinion as to the proper pace and method of cost recovery. But make no mistake: It is the consumers who will suffer in anything but the short run if the utilities are not ultimately allowed to recover the costs incurred in generating and transmitting electricity. Absent the ability to earn a fair return, the utilities will simply not invest in the facility and plant upgrades necessary to ensure that consumers, over the long term, have available reliable, secure sources of power at reasonable rates.

That is why, in the face of this year's proposed BG&E rate increases following an extended six year rate freeze, the Maryland General Assembly's bill scapegoating the Maryland Public Service Commission is so disappointing. The wholesale firing by the legislature in mid-term of all the PSC commissioners appointed by the governor creates an unstable legal and regulatory environment that will harm the long-term interests of ratepayers. And it also harms the interest all citizens have in maintaining a system of governance that respects the separation of powers that is central to preventing abuse of government power. For more on this subject, see here and here.