Washington Post, August 17, 2008

by Lisa Rein

OCEAN CITY, Md., Gov. Martin O'Malley announced Saturday that Maryland will join Montgomery County, the University of Maryland and other local governments in a long-term commitment to buy wind power and other renewable energy, as he laid out an aggressive plan to overhaul the state's electricity system.

O'Malley (D) said the boost to alternative power sources, the first deal of its kind in the nation, will be critical in preventing rolling blackouts Maryland could face as soon as 2011 if the state's thirst for power continues to outpace supply. But he put on notice the energy companies whose profits have soared as electricity bills increased under deregulation: Unless Maryland's still-regulated utilities add new supplies of power, his administration will order them to build new plants.

"We cannot stand idly by and wait for market forces or the electricity good fairy to solve this problem for us," the governor told 350 local and state government leaders gathered for the Maryland Association of Counties annual conference.

Acknowledging that the switch to deregulation almost a decade ago "has failed us" with no promised competition to lower prices, O'Malley took a swipe at Constellation Energy Group, whose utility, Baltimore Gas & Electric, imposed eye-popping rate hikes in the Washington suburbs and Baltimore during the transition to competition. "We already saw what happened when we tried to whistle a happy song: 70 percent rate hikes."

Constellation Energy said in a statement that the company is "pursuing innovative and constructive solutions" to increase the supply of power, offering incentives to BGE customers to conserve with energy-saving devices and seeking federal approval for a third nuclear reactor.

Residential customers in Maryland and the District pay among the highest bills in the mid-Atlantic, owing to the region's congested power grid, a 20-year drought in new plant construction and a free-market system that allows power companies to charge what the market will bear.

By using its market clout to buy electricity from the fledgling wind-power industry -- much the way the state-federal Medicaid system secures lower prices for prescription drugs -- the coalition of state and local governments and the university will be able to meet up to 20 percent of their energy needs, the governor's energy advisers said. The contracts to supply "clean," carbon-free power could be locked in for as long as 15 years, speeding up plans for a large wind farm off the Delaware coast that is seeking a guaranteed market to satisfy investors, officials said. A Minnesota company eyeing an Eastern Shore site for a plant that would turn poultry litter into energy also could bid on the contract.

The coalition plans to buy at least 200 megawatts of renewable power, enough new generation to serve 200,000 homes or half the electricity produced by a conventional coal plant. A deal for environmentally friendly power could also hedge future spikes in the price of coal and natural gas, officials said, although wind energy is expensive to produce.

"We need to harness clean energy in a way that we can tell people there's an economic benefit" of adding new power supplies, said Isiah Leggett (D), Montgomery County executive. The county buys 10 percent of its power from wind farms in West Virginia.

O'Malley's speech capped an 18-month effort to position himself as a pro-consumer energy leader working to curb Marylanders' demand for power and find new sources to keep the lights on.

On Saturday, the governor also proposed installing "smart meters," a new technology aimed at reducing bills by telling customers exactly when their rates are highest, in every Maryland home by 2012, although customers would probably pay the expense. And he pledged state assistance to help local governments finance power plants that could be pressed into service on hot days when air-conditioners are working hardest, another strategy to boost supply and bring down costs.

While spiking oil and gasoline prices are a challenge for governors across the country, and other states have predicted electricity shortages in the next decade, energy experts say Maryland's imbalance between demand and supply is particularly acute. The state imports 30 percent of its power, and with 3,221 miles of coastline and tidal shoreline, concerns about global warming are front and center. Strict new environmental restrictions on coal plants make it unlikely that coal can come to the rescue as it will in Virginia, where the state, with Democratic Gov. Timothy M. Kaine's blessing, just approved a new coal plant.

New transmission lines and a third nuclear reactor proposed for the Calvert Cliffs plant in Southern Maryland are years in the future, too far away to guarantee a reliable electricity supply, experts say.

Like Maryland and Virginia, other states have taken steps to put solar, wind and other forms of renewable power on the grid. But no state has committed to a contract to help finance new sources.

O'Malley's threat to force the state's traditional utility companies to add more megawatts or build new plants sets up a clash with the energy giants he has battled since he took office. Even though power companies were authorized by federal regulators last year to impose surcharges to induce them to invest in new plants or renovations, the charges have resulted in few new megawatts, leading critics to accuse the industry of deliberately constraining supplies to keep prices high.

The company is seeking a third nuclear reactor at Calvert Cliffs and spending billions on upgrades at several Baltimore area coal plants, Constellation Energy spokesman Robert L. Gould said.

Any solution must "balance affordability, reliability and sustainability," Gould said.

In the deregulated system, the utilities that used to own the generation plants that deliver power to homes and businesses sold them to outside buyers or, in BGE's case, to Constellation, its parent company. Some state lawmakers have pushed for a return to regulation to push prices down. But O'Malley said Saturday that re-regulation made no sense: The state cannot afford to buy back the power plants. The bill would reach at least $20 billion.