Del. Impallaria: Energy – Deregulate or Regulate?

Annapolis Update – Energy – Deregulate or Reregulate? – Dec. 16, 2008

The final report to the Public Service Commission, “State Analysis and Survey on Restructuring and Reregulation (Task 2) and Analysis of Options for Maryland’s Energy Future (Task 3)” has been made. My committee, Economic Matters, has just received a briefing on it.

After listening to two hours of testimony by the Public Service Commission, I am still in full support of reregulation of the Maryland utility industry. The report showed that reregulation would be a good thing, starting three years after reregulation. This is supported by all the charts and statistics that were presented to us. In spite of this, unfortunately, the Commission feels that there are risks in reregulating.

One thing for sure, there has definitely been extreme risk in deregulation. The most recent risk is the devaluing of BGE and Constellation stock, which is proposed to be bought out by Warren Buffet at a fire sale price of $26 per share. Present stockholders would not be able to hold onto their stock until the value goes back up, which will happen immediately after the Buffet deal goes through. I feel it is in the best interests of BGE stockholders to reject the Buffet deal, if it is their intention to stick with a long-proven stock that will come back in value in the near future.

Under regulation, the management of Constellation Energy would not have been allowed to gamble with company assets in the commodities market, which caused the downfall in the stock values. Constellation’s value has not fallen due to a lack of customer base or an inability to produce a product. It has fallen strictly through the mismanagement of a deregulated management team — at the helm, Mayo Shattuck.

During the briefing, I asked three questions. First, if nuclear energy had been shown on the charts (which only showed gas, oil, and coal-fired energy), how would that change the outlook for energy reliability at a reasonable cost to Maryland consumers? The answer was, “Dramatically, it would increase the reliability of our future energy supply and provide a stable and predictable cost per kilowatt-hour, meaning lower cost.”

Second question: if the companies were reregulated, would the stockholders be forced to sell their stock? The answer to that was “No”, unlike the present deal which Warren Buffet is offering. Under regulation, a stockholder would be guaranteed a reasonable and fair return on their investment with little risk of losses.

Third, would jobs be more secure under a regulated or deregulated market, and which market would provide more jobs? I am waiting for an answer to that question from the Public Service Commission. It is obvious to me that BGE employees had more job security when the company was regulated than they have had since 1999, when deregulation took place.

On renewable energies such as wind and solar, the Commission did determine that wind offshore was not a productive means of energy and that wind on land is a break-even investment at best, while providing a very minor portion, less than 1% (one percent), of our energy needs. Solar costs more than it produces – in other words, it costs more to produce energy from solar than a company could charge for its product to make the business viable.

This study cost $3 million, and that cost will be passed on to the ratepayers in the State of Maryland. Having sat on the Economic Matters Committee and having been a member of the Public Utilities Subcommittee for six years, I can honestly tell you that I could have come up with the same conclusions for the cost of a notebook and a pen (and since my spelling is bad, an eraser) for a grand total of less tha $5.00.

There has been a major change in the ability to reregulate. As the cost of energy and the economy continue to plummet, so have the values of the power plants. A year ago the risk of purchasing these plants would have been like stepping off a cliff and hoping for a good result. Now at the devalued prices, the risk is more like stepping off a curb. If there was ever a time to take back control of these power companies and return them to the safe and valued companies they once were, now is the time. Taking control of these companies would protect the stockholders’ investment and prevent the irresponsible gambling with company funds that we have seen over the past nine years. Those funds could have beenused for better service, reinvestment in infrastructure and building new facilities with the goal of making Maryland an energy exporter rather than what we have become, an energy importer. That would be the best result for everyone involved, except for the few high-powered CEO’s
who have destroyed these once-great companies.

Delegate Rick Impallaria