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A Blinding Flash of the Obvious

At first blush I thought a political breakthrough had been achieved. The Baltimore Sun headline read Energy forum keys on supply. Any time you can get Democrats to start talking about supply and demand rather than fairness it is a quantum leap in the reality level. Then I saw the subhead: “Conservation plans to top discussion list.”

Conservation deals with demand, not supply. So how is one going to focus on supply when demand tops the discussion list?

Not to fear, it got much scarier.

More below the fold.

Gov. Martin O’Malley said yesterday that eliminating the link between power companies’ profits and the amount of energy they distribute – a plan recently approved for Pepco, the Washington-area utility – could be one of the most effective strategies for reducing electricity bills across Maryland.

Officials with that company say they could begin incentive programs to help consumers conserve energy as early as this fall, and the idea of “decoupling” is likely to be a major issue at the energy summit O’Malley will hold in Annapolis today.

“In the past, the energy companies had a profit motive in promoting consumption,” O’Malley said. “If we can decouple that, I think it’s a step in the right direction.”

This is just nonsense.

As Martin Watcher pointed out in The New Energy Plan – Same Great Price – But Not So Much For You this is just not how the energy utility system works.

The energy utilities governed under the Public Service Commission have an essential monopoly on supplying electric power. In return for this monopoly the utility is supervised by the state and is guaranteed a fair return on its investment.

At one time this made a lot of sense, just as it did with the phone companies. When electrical production was in its infancy. Now perhaps not so much.

The idea that you will save money through conservation if conservation becomes the norm is lunacy. As conservation decreases the number of kilowatt demanded, the utiliites will charge more per kilowatt to deliver it. They will make the same amount of money and you will pay more per unit. There is really no way around it.

When energy deregulation hit the assumption was that the utiities would be broken up into what was referred to as Gencos (generating companies which no one wanted because of environmental liability), Transcos (transmission companies who would manage the high voltage transmission lines and substations), and Discos (who would deliver the power to your home and send you the bill — which everyone wanted to participate in.)

From a legal and regulatory view this has nearly come to a screeching halt. The idea of energy deregulation is predicated on a national power grid which allows excess energy produced in Alabama in the winter to heat homes in upstate New York and allows excess production from New England to air condition Atlanta in August.

This has all bogged down in a morass of bickering over stranded assets and the fragmented national power grid which is managed by folks who need it to stay that way.

The bottom line is that the electrical generation costs of BG&E or PEPCO or Allegheny Power fluctuate only mildly with the cost of fuel. Their costs are driven by the infrastructure it takes to generate and transmit electricity and to maintain its facilities. The holders of their debt and equity are guaranteed a return on their investment because without that guarantee no one would invest in a utility.

Bringing additional power plants on line, or taking them off line, may very well make your life more or less pleasant but it isn’t going to affect your electric bill.

One final note. O’Malley Watch noted how the governor’s hand picked Public Service Commission chief Steve Larsen has a record of screwing taxpayers. Don’t look for that record to change.






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