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Electric Storm Coming

Consumer watchdog forecasts Maryland energy crisis will hit Virginia.

According to one of Fairfax County’s consumer protection officials, Maryland is grappling with its biggest problem since World War II.

After following a nationwide trend and deregulating its electric providers in 1999, the state began lifting rate caps on electricity prices in 2004. When it did, there were no market forces to prevent power companies that were suddenly unregulated monopolies from raising prices. In the years after 2004, electricity rates in Maryland increased anywhere from 50 to 100 percent depending on the company and the locality.

The premise behind breaking up state-sponsored, and therefore regulated, electric monopolies was that competition would emerge in a free market, driving down prices.

But according to Steve Sinclair, the chief of the Utilities Branch of Fairfax County’s Department of Cable Communications and Consumer Protection, competition has yet to emerge in any of the 20 states that have deregulated electricity.

Why was Sinclair telling this to the Mount Vernon Council of Citizens Associations at their December meeting? Because Virginia passed legislation similar to Maryland’s in the same year, 1999. Its rate caps were originally set to expire in 2007. But in 2004, with no competition to Dominion Virginia Power having emerged, these caps were pushed back to Dec. 31, 2010.

Sinclair, who said his opinion does not represent that of the county’s Board of Supervisors, believes he knows what will begin on Jan. 1, 2011. “My prediction is that if we continue to go forward, market prices will be set by unregulated monopolies because we’re not getting new competitors in there.”

“We can expect huge rate increases such as we’re seeing in our neighboring states.”

BUT SINCLAIR SAID a foresighted decision by the General Assembly means the state’s road to spiking electric rates runs two ways. Unlike other states, Virginia has left itself a backdoor allowing it to reverse its decision to deregulate. Maryland mandated that its utility companies sell off their power plants to foster competition, meaning that the state lost its influence over them. The Virginia General Assembly did the opposite, refusing to allow Dominion to sell its electricity generating assets and therefore keeping them under the influence of the State Corporation Commission. According to Sinclair, this means the state still has the option treat deregulation as a test, not a commitment. “We initially went into this thinking of this is an experiment and the experiment might result in lower prices. It hasn’t happened.”

Sinclair said the high cost of new power plants is a barrier that prevents competition from entering the market. Wall Street investors are hesitant to provide massive loans to unregulated power companies that have no guarantee of survival in the free market. He also said the electricity market itself does not encourage competitive pricing. Many energy companies that tried to take advantage of deregulated markets, like Enron, have “imploded,” according to Sinclair’s presentation.

But David Dale, the Planning and Zoning Committee chairman, suggested a broader perspective on rising power prices. They may be bad for individuals’ finances and the region’s economic climate, but they are good for the actual climate. Hitting Americans hard in the wallet might be the only way to alter habits of energy consumption that create greenhouse gases and damage the environment.

“Another impact of high rates is that we would all use less [electricity] and that would then reduce the need for additional plants and reduce the coal that is burned,” Dale said. “It increases the likelihood of alternative sources.”

SINCLAIR ACKNOWLEDGED it might seem quixotic to spend his evenings sitting through two-hour community meetings like the MVCCA’s to give a PowerPoint presentation on a situation that won’t emerge for four more years. But he believes people and businesses need to mobilize now to sway the General Assembly. He described the looming rate cap deadlines as, “that ominous cloud off in the distance that not many people are aware of. But it’s sitting there and its headed in our direction.”

Mount Vernon’s General Assembly representatives said they are keeping an eye on the electrical storm. “We paid close attention to what happened in Maryland last year,” said. Del. Mark Sickles (D-43rd), who sits on the Commerce and Labor Committee, which has direct oversight over deregulation. “We don’t want that to happen in Virginia. We don’t think it will.”

He said that the General Assembly has already allowed Dominion a one-time rate increase to offset rising fuel costs and prevent an even sharper spike in 2011. He added that competition to Dominion may not emerge until after rate caps are lifted, because it is difficult for any businesses to compete against Dominion’s artificially low capped prices.

But he added that the Assembly would also consider extending rate caps.

“I’ve got a completely open mind about the whole thing,” he said. Though he added that he did not expect the Assembly to completely reverse course, as Sinclair is advocating.

State Sen. Toddy Puller (D-36th) expressed concerns about the lack of competition and said she is waiting to hear from the special sub-committee commissioned by the Assembly in September to explicitly study the growing chorus of concerns expressed by people like Sinclair.

Del. David Englin (D-45th) agreed with Sinclair about the urgency of the issue, but said he too is waiting to hear the subcommittee’s findings. “We also can’t just spin off and do something now just to say we did something now and quickly.”

He also cited “one additional measure of protection,” a provision Gov. Timothy Kaine inserted into this session’s energy bill that ensures utilities must increase fees gradually. “The basic idea is that we don’t want to be like Maryland.”

Addressing Sinclair’s call to roll back the deregulation plan entirely, Englin said, “You’re talking about the restructuring of a whole industry, that’s something you don’t want to do with a knee-jerk reaction.”