The Baltimore Gas and Electric (BGE) rate increase following the removal of rate caps implemented by the Maryland General Assembly in 1999 has brought into sharp focus the issue of energy in Maryland. Rate caps were put in place as part of a comprehensive deregulation package in 1999. The hope at the time was that deregulation would breed competition throughout the electric industry, thus lowering consumer prices. The goal of increased competition has not come to fruition for many reasons. The Legislature and the Public Service Commission continue to be confronted with the complex issue of energy. There important short-term and long-term changes that need to be made, including conservation and use of renewable energy sources, coupled with a move toward re-regulation.
In 1999, the Maryland General Assembly passed the Electric Customer Choice and Competition Act. The bill was created with the hope that deregulation in the electric industry would stimulate growth and competition, which would in turn benefit the consumer who would have lower energy costs. This plan fell short due to a number of occurrences such as the massive increase in the world price of gasoline. Since 1999, the price of natural gas has risen 127 percent, coal has risen 150 percent, and heating oil has risen 192 percent. The increase in the cost of fuel was not anticipated at the time that the General Assembly enacted the Electric Customer Choice and Competition Act of 1999. Due to increases in the prices of commodities used to generate electricity in late 2005, “standard offer service” (SOS) rates increased for the 2006 auctions. The magnitude of the increase was dramatic for BGE customers whose rate caps were expiring at this time. Rate caps created in 1999 helped facilitate rate increases seen today. It was hoped that artificially low energy costs and deregulation of the energy industry would assist the marketplace in creating new competition and consumer choice.
The Electric Universal Service Program (EUSP) was established under the Electric Customer Choice Act of 1999 to assist low-income electric customers with their current and past due electric bills and to implement energy efficiency measures to reduce future electric bills. The EUSP helps some of the poorest in the community, with a focus on residential tenants and condominium owners who are not considered retail electric customers because they are the occupants of a building of which they do not manage the internal distribution system. Senate Bill 491, which passed in the 2007 Legislative Session, requires both the Public Service Commission and the Office of the People’s Counsel to meet and discuss options for expanding EUSP to include assistance to low-income residential tenants of apartments and low-income residential condominium owners who are not actual direct customers of an electric company. The bill also encourages landlords of apartments and condominium associations to shop competitively for electric supply.

RENEWABLE ENERGY
Moving to the use of alternative energy sources is an important long-term solution that the Legislature must continue to implement. Alternative sources of energy can help increase the supply of energy, create competition in the marketplace, and are good for the environment. Such an effort to increase alternative energy sources is exemplified in Senate Bill 566, which allows for a land-based wind powered energy generating facility to be built without requiring a Certificate of Public Convenience and Necessity so long as certain conditions are met. The following provides a list of possible renewable sources as we move forward:
Solar Energy
Many technologies have been developed to make use of solar radiation. Some of these technologies make direct use of the solar energy (e.g. to provide light, heat, etc.), while others produce electricity.
Electricity can be generated (photovoltaic, heat engines). The environmental impact of a photovoltaic system is minimal, requiring no water for system cooling and generating no by-products.  Photovoltaic cells, like batteries, generate direct current (DC) which is generally used for small loads (electronic equipment).  When DC from photovoltaic cells is used for commercial applications or sold to electric utilities using the electric grid, it must be converted to alternating current (AC) using inverters, solid state devices that convert DC power to AC. 
Transportation – solar cars or cars that create enough solar energy to assist a gasoline engine can greatly reduce dependence on fossil fuels (hybrid vehicles).
Desalination- this process removes excess salt and minerals from seawater and converts it into fresh water that can be consumed.
Solar Lighting- parabolic collectors focus sunlight into a fiber optic system to illuminate building interiors with sunlight.
Biodiesel
An alternative to fossil fuel. It is made from soy beans or used vegetable oil and burns cleaner than gasoline.
Wind Turbines
Generate energy using wind that can produce electricity at a lower cost without using fossil fuel.

There are differing views on the effects of electricity deregulation, although I have come to believe that Maryland should look toward a re-regulation scheme. However, a study by Cambridge Energy Research Associates states that the impact of electric restructuring across the nation has been generally positive. United States residential electric customers paid approximately $34 million less for their electricity consumed over the past seven years than they would have in their former fully regulated environment, according to the study. These savings, however, do not show up directly on the customer’s bill – they are net savings compared with costs calculated under their former rate-of-return regulatory regimes, including the direct pass-through of fuel costs under fuel adjustment clauses. Any savings can be attributed to increased efficiency of generation operations and the independent operation of freely competitive wholesale markets with transparent pricing information.
During the transition period which aimed to give the electric industry time to switch to a competitive market, electric suppliers were unable to compete with the lower than market rates in effect under the rate caps. Although electric restructuring has primarily benefited big electricity users, such as industrial customers and State and local government operations, suppliers only slowly started to enter the market for residential customers as price caps expired. For residential customers, in fiscal year 2006, 57 companies were licensed with the Public Service Commission as suppliers in the State; however, only a handful of suppliers are actively seeking new residential customers.
Although a truly competitive market has not developed, as of July 2006, BGE customers had at least eight plan alternatives to SOS, offered by five suppliers. While most offer flat rates, several plans offer a variable rate where there is no protection from month-to-month increases if the price of wholesale power increases. Depending on the plan, estimated monthly savings range from $12 to $20 during summer months and from $1 to $6 during all other months. As a result of the entrance of competitive suppliers, almost 11,100 BGE residential customers (1 percent of total customers), almost 26,000 PEPCO residential customers (5.5 percent of total customers), and a little over 300 Delmarva residential customers (0.2 percent) had switched from SOS by the end of September 2006.
In 1999, the General Assembly anticipated that the major beneficiaries of its restructuring would most likely be the industrial and commercial electric customers rather than the residential customers. In order to ensure that residential customers received a benefit from the restructuring, the 1999 Act required price caps to be imposed, at prices to 3 to 7.5 percent below the then-current base rates. Accordingly, many Maryland residential customers were insulated from the effects of the rising fuel and electricity costs experienced in other parts of the nation since 1999. As the price caps expired, electric restructuring will have caused a sudden and substantial increase in costs rather than a decrease as intended.
In 2006, the Maryland General Assembly called an emergency Special Session, to change provisions governing electric operations and State oversight. Senate Bill 1 of the Special Session continued the obligation for electric companies to provide SOS to residential and small commercial customers. It also changed the supply bid process. The bill establishes specific provisions for a required rate stabilization plan for electric companies whose rate caps expired June 30, 2006 (i.e., BGE) and related deferral recovery and mitigation of deferral payments. The bill establishes review requirements for specified mergers that involve the Public Service Commission and the Office of the Attorney General. Senate Bill 1 enhanced the EUSP funding, which helped to expand program eligibility.
In the 2007 Session Senate Bill 400 was passed and enacted into law. This bill requires the Public Service Commission to conduct additional studies and complete reports on electric industry re-regulation, assess the availability of adequate transmission and generation facilities to serve the electrical load demands of all customers in the State, and consider the implications of establishing a long-term goal for energy efficiency and conservation, among other matters.
From 2002 to 2005, the nationwide average residential price for electricity rose 11.35 percent. States that did not restructure saw an average residential price increase of 11.30 percent, nearly identical to the national average. For the same time period, the average residential price increase for the states that restructured was 12.10 percent, higher than the national average. From 2002 – 2005, Maryland’s residential electricity prices rose by an average of 6.33 percent, which was well below the national average. This small increase reflects rate caps that were imposed under the 1999 Act.
From the end of 2005 to July 2006, the nationwide average residential price for electricity rose 9.34 percent. During this time period, the average residential price increase for states that did not restructure was 5.28 percent. For the same time period, the average residential price increase for the states that restructured was 11.67 percent, higher than the national average increase and higher than the increase for nonstructured states. Maryland’s residential electricity prices rose 9.36 percent, nearly identical to the national average. The higher increase in the average prices for Maryland in 2006 from the earlier time period reflects the expiration of rate caps for BGE customers.
A complete set of evaluations, findings, and recommendations required was added to Chapter 5 of the 2006 Special Session through the amendment made by Senate Bill 400, is due December 1, 2008. This will support the preliminary report identifying the issues relating to options for re-regulation as required by Chapter 5 of the 2006 Special Session.
The Legislature has tried to create competition through customer choice, but the rising cost of fuel as a commodity used to produce electricity is the largest factor in total operating costs for most generation facilities. State officials reluctantly approved a 50 percent increase in rates for BGE customers recently. Legislators tried to find other solutions to the increase, but the only two options were continued rate caps, which would just prolong and possibly worsen the rate increase or expensive litigation, which was ruled out because it was determined that there existed little opportunity for success.
The Public Service Commission is chaired by Steven Larsen. He was appointed in March as part of a wider reorganization that gave Governor O’Malley a majority of appointees on the board. Larsen promised to review how “delivery” companies such as BGE charge customers who haven’t chosen a “generation” company for power. This idea stemmed from BGE’s request to phase in the coming rate increase for a majority of its customers, most of these customers continue to rely on the BGE for their power supply.
Another aspect of the energy industry that is being researched is the wholesale market for energy. The energy wholesale market is regulated by the Federal Energy Regulatory Commission (FERC) and is overseen by the PJM Interconnection. Sellers of wholesale power are rewarded based on the number of megawatts they make available per day, a system called capacity pricing. In other words, by making a megawatt – enough electricity to power about 1,000 homes – available to a power supplier for a day, a company will get $140.15 in the Baltimore – Washington region, according to PJM spokesman Ray Dotter. In 2006, the average load obligation on the PJM grid was 142,951 megawatts. A power supplier might not use all of that power, but has to make it available in case consumer demand peaks.
In the realm of SOS supply contracts, House Bill 60 (Ch. 2) was passed and it authorizes electric cooperatives to purchase energy supply for standard contracts of short, medium, and long terms to continue doing so with appropriate review for prudent cost recovery as determined by PSC. PSC may not set or enforce a termination date for the procurement of supply through a managed portfolio previously approved by PSC.
The Act applies to one electric cooperative operating in the State. The Southern Maryland Electric Cooperative (SMECO) has been purchasing electricity supply for standard offer service through a variety of products purchased on markets, through brokers, and via bilateral negotiations. In 2004, PSC approved SMECO’s supply procurement plans through May 30, 2010.
One of the more complex issues in enacting electric utility industry restructuring was the treatment of transition costs – the difference between book value and market value of an electric company’s generation assets. Deregulation allowed an electric company to recover certain prudently incurred transition costs but those costs had to be under PSC approved transition plan, developed in accordance with fact-finding and evidentiary proceedings, and subject to full mitigation. An electric company with verified recoverable transition costs could institute a competitive transition charge that applied generally to customers located in the electric company’s service territory. An electric company was able to transfer its generation facilities or generation assets to an affiliate, but the transfer could not affect or restrict PSC’s determination of the value of a generation asset for purposes of transition costs.
As part of the transition cost determination, PSC was required to consider, the following factors in determining transition cost relating to investment in a generation asset: the prudence and verifiability of the investment, whether the investment is used and useful, whether the loss is one of which investors can be said to have reasonably borne the risk, and whether investors have already been compensated for the risk. The settlement agreement with PSC provided BGE with after-tax transition costs to be recovered from customers of $528 million. The cost recovery began (per kilowatt charge) July 1, 2000 and ended on June 30, 2006.