COMPETE Customer Members Oppose Monopoly Utility Regulation in Maryland

February 25, 2010

Chairman Douglas R. M. Nazarian
Maryland Public Services Commission
William Donald Schaefer Tower
6 St. Paul Street, 16th Floor
Baltimore, MD 21202

 

Dear Chairman Nazarian and members of the Public Service Commission: We write to offer the electricity customer’s perspective in response to Governor O’Malley’s December 18, 2009, letter urging the Maryland Public Service Commission to return to a form of monopoly regulation in Maryland by ordering new electricity generation to be built on a rate-regulated, cost-of-service basis.

As electricity customers in Maryland, we share the Governor’s goal that all customers “have access to affordable, reliable and clean electricity.” But we strongly disagree that the way to accomplish this objective is to re-monopolize the state’s electricity industry. Maryland policymakers, like many others around the country, properly abandonedthe monopoly form of regulation due to its numerous failures, uneconomic outcomes, and vast inefficiencies. As was the case when Maryland policymakers decided to restructure the electric industry, a competitive electricity market is the most effective way to provide affordable, reliable and clean electricity, and to provide the choice, flexibility and innovation that job-producing businesses need.

In Maryland, we operate over 600 facilities, provide 29,600 jobs, and spend $61 million annually for electricity. As end users of electricity, we know first hand the benefits of competitive electricity markets – they allow businesses to recognize substantial savings on electricity costs and maintain low prices on goods and services, which can in turn be passed onto customers. Promoting policies that allow electricity users to manage energy purchases is critical to achieving such savings. Electricity is one of our largest operating costs and electric industry restructuring, the introduction of competition and customer choice, has provided us with the ability to achieve lower prices, and better manage and control those costs. Controlling operating costs is a critical element to growth and profitability which benefits our customers, employees, shareholders and the communities we serve.

The reality is that Maryland businesses can get fixed market prices for electricity for multiple years under contractual terms designed to fit our operations. In a period of economic uncertainty, thousands of Maryland businesses, from the very largest to the smallest, have realized appreciable savings by selecting new electric supply sources. These savings can be reinvested and provide Maryland businesses with a competitive advantage.

It is important to recognize that competition continues to expand in Maryland. Over 40% of Maryland’s total electric usage is supplied from the competitive markets. Residential shopping has increased 40% in the last year and now stands at 80,000 customers. Indeed, Maryland’s Department of General Services (DGS) is experiencing significant savings by having a choice in the competitive electric market. Last May, DGS announced $18.9 million in savings by purchasing electricity in an auction at prices that were on average 16% lower than in 2006.

The Governor’s proposal for the Commission to order new power plant development under the abandoned monopoly cost-of-service model will impact the ability of customers to leverage the benefits of competition and experience the cost savings, cost control and innovation inherent in competitive power markets. Unfortunately, the Governor’s proposal will lead to higher costs for Maryland businesses and consumers.

Allocating the costs of new utility generating plants to all rate payers will act as a tax on those who participate in the competitive market, thereby immediately raising our cost for power and inhibiting the independent power producers from building power plants in the PJM market. The impact on competition from this policy will chase competitive suppliers from the market, thereby decreasing the competitive pressures that keep costs down and spur innovation. This proposal would negatively impact the stability and certainty that Maryland’s electric power market needs to attract investment, promote competition and increase jobs.

One of the most significant benefits of a competitive power market is that investors, not consumers, bear the investment and operating risks associated with the construction of power plants. Any program or policy that would reverse course and return to the high cost policies of the past will unnecessarily expose captive ratepayers to increased costs.

We understand the desire to have clean renewable power as part of the State’s long-term energy strategy. Before embarking on major policy changes, Maryland should take note that PJM is already attracting renewable wind resources as well as demand response and energy efficiency resources to help Maryland meet its environmental objectives. There are now 2,500 MW’s of wind on the PJM grid with 1,800 MW’s under construction and another 42,000 MW’s in the queue. It is important to keep in mind that organized competitive markets like PJM’s generally do an excellent job attracting “green” and innovative technologies. A competitive power market is the best means to achieve l initiatives, including wind and solar energy, energy efficiency and green building design.

As electricity consumers and Maryland employers, we have been active participants in the processes before both the Legislature and the Commission. We continue to support he competitive wholesale and retail market policies that are now in place because they are continuously improving, empower our businesses to be more efficient, and give rate payers more effective means to control energy costs. Markets provide cost control, innovative products and services, and help businesses remain competitive which supports growth that benefits Maryland citizens. We strongly urge the Commission to preserve the current pro-competition and customer choice policies essential to Maryland businesses and consumers.

Sincerely,

W.J. Balsamo
Corporate Energy Manager
PetSmart, Inc.

Angela S. Beehler
Sr. Director of Energy Regulation
Wal-Mart Stores, Inc.

Jeff Dummermuth
Director, Energy & Engineering
Big Lots Stores, Inc.

Steve Elsea
Director of Energy Leggett & Platt, Inc.

George Waidelich
Vice President - Energy Operations
Safeway Inc.