O’Malley Plans to Raise Your Electric Rates…Again

The Washington Post is reporting that Gov. Martin O’Malley is expected to announce an increase in Maryland’s Renewable Portfolio Standard, as part of a new push to address climate change in Maryland.  The state’s RPS law requires state utilities to generate 20 percent of the retail electricity they sell by 2022.  O’Malley is seeking to raise the mandate to 25 percent.

Maryland ratepayers should be wary of O’Malley’s renewed attack on global warming.

It is not clear that the RPS mandate works. 

Maryland implemented its RPS program in 2004, and O’Malley significantly increased the mandate in 2007 to its current 20 percent by 2022 goal.  However, renewable energy generation in Maryland has decreased from 603,462 megawatt hours to 573,665 megawatt hours, according U.S. Energy Information Agency data.  In fact, renewable energy, as a percentage share of power industry generation, decreased from 1.6 percent to 1.3 percent between 2000-2010.  See Table 5. 

Non-transparent credit trading system/Wall Street speculation 

Under the RPS, state utilities like BG&E, PEPCO, and Delmarva Power do not need to generate new renewable energy.  Rather they satisfy the mandate through purchasing renewable energy credits or RECs from qualified producers. 

For example, a homeowner with a solar array on their roof or can qualify to sell the power they produce as a REC to state utilities, which in turn use the purchased REC to satisfy their RPS mandate requirements.  Utilities are entitled to pass on the cost of RPS compliance to ratepayers with customer surcharges.  The credit trading system is operated by PJM, which also controls Maryland’s electric grid.

Utilities that don’t meet the required number of RECs must pay an alternative compliance fee or pay a penalty.  The alternative fees and penalties are directed to the Strategic Energy Investment Fund, which is managed by the Maryland Energy Administration.

Maryland’s RPS operates on a graduated scale that increases utility compliance percentages each year for Tier 1, Tier 2, and a solar carve out.

State law requires the Public Service Commission submit reports to the legislature regarding utility compliance with the RPS.   That report is based on compliance reports submitted by the utilities detailing the RECs purchased to comply with the RPS.  

With more than 30 states implementing some form of RPS, the government mandated markets have attracted Wall Street investors for years.  Like carbon markets, investors looking for a quick profit see renewable energy credits. 

There is even a Wall Street Green Summit, a convention that includes sessions for investors looking to cash in on the renewable energy credit trading market

The PSC denied a Watchdog Wire public records request for BG&E, PEPCO, and Delmarva compliance reports stating, “your request covers records that were filed confidentially because they contain confidential financial information.”  In other words the Public Service Commission is denying the public the right to know who sold our utilities the renewable energy credits, the cost of which are passed on to us.

Previous PSC reports have noted “upward pressure” on RECs due to the solar mandate and that the O’Malley administration’s manipulation of the law reduced supply, increased demand, and thereby increased the price of RECs.  Furthermore, the graduated percentage increases act as automatic price hikes.  Indeed, the 2011 PSC Report found that renewable energy credit owners were banking 90 percent of their RECs for sale in future years. 

Given that the RPS allows utilities to recover compliance costs, ratepayers should be concerned that their bills will be used to, in part, finance a renewable energy asset bubble for Wall Street.

A 2012 study by the Manhattan Institute compared the costs of electricity in RPS states with non-RPS states and found “a pattern of mostly higher costs in states with RPS mandates.” 

1.     In 2010, the average price of residential electricity in RPS states was 31.9 percent higher than it was in non-RPS states. Commercial electricity rates were 27.4 percent higher, and industrial rates were 30.7 percent higher.

2.     In the ten-year period between 2001 and 2010—the period during which most of the states enacted their RPS mandates—residential and commercial electricity prices in RPS states increased at faster rates than those in non-RPS states.

3.     Of the ten states with the highest electricity prices, eight have RPS mandates.

4.     Of the ten states with the lowest electricity prices, only two have RPS mandates.

5.     Sixteen of the 18 states with residential rates that are higher than the 2010 U.S. average residential rate are RPS states.

6.     Nineteen of the 21 non-RPS states have residential rates that are below the U.S. average.

The report noted that Maryland’s residential electricity rates increased 87 percent from 2001-2010.  In O’Malley’s time in office residential electric rates have increased 54 percent.

Of course, RPS is not the sole cause.  Other O’Malley energy initiatives like EmPower Maryland have pushed rates upward.  Utility customers, who enjoyed the privilege of paying for power they didn’t use during storm related outages, can thank the rate stabilization clauses in O’Malley’s EmPower Maryland law.