Hancock: Fantasy of cheap electricity is just that

Jay Hancock

July 25, 2007

You can't have it all. Economists know a government cannot simultaneously control its interest rates, currency value and international capital flows. Only two of three are possible.

Attendees at today's Annapolis summit on energy will find a similar "impossible trinity" in trying to chart Maryland's energy future. We can have cheap energy. We can have clean energy. And we can have reliable energy. But not all at the same time.

If the summiteers don't recognize that one must be sacrificed to guarantee the other two, they'll be blowing smoke and setting Maryland up for an even worse situation than the one they're seeking to address.
 

When all is said and done, bet on the disappearance of cheap energy in exchange for energy that is better for the environment and guaranteed to be there when we need it 10 years from now.

That'll be an improvement on today, when energy is neither inexpensive, clean nor dependable. Take electricity, the form of power most within Maryland's control.

Dependable?

Maybe for now, but at this rate we risk brownouts and blackouts by the summer of 2010 or so. No major Maryland generation plant has been built since the 1990s, but the state's economy and megawatt use have grown steadily upward. Transmission lines to import out-of-state juice are also increasingly inadequate.

Clean?

Most Maryland electricity comes from coal, the filthiest fuel known to man or woman. True, pollution-control technology and stricter laws are reducing emissions of mercury, sulfur dioxide and other poisons.

But Maryland's coal generators still spew junk at higher-than-desirable rates. And that's not counting carbon dioxide. Pound for pound, coal is also the planet's worst source of greenhouse gases.

Cheap?

Electricity prices across the state are up to 70 percent higher than they were a few years ago.

Part of the increase is caused by rising prices for coal, natural gas and other generation fuels. Part is caused by deregulation, a lapse in price controls and very large profits being earned by generators such as Constellation Energy and Mirant.

What to do? Maryland could make electricity less expensive and pollution-free by shutting down coal plants and somehow ordering the rest of Maryland's generators to roll back prices to 2005 levels. Of course the state would immediately be without the megawatts to power its economy and would plunge into depression.

Or, we could make electricity cheap and dependable by easing emissions caps and greasing the licensing process for new coal generation plants.

Power companies once daunted by scrubber costs and permit snafus would trip over themselves to build generators. Maybe the Baltimore Gas and Electric Co. and other utilities could construct their own. Coal is still less expensive than other fuels, and easier pollution rules would lower costs, too. Utilities could pass the savings to customers.

Naturally, asthma and cancer rates would rise, and a greenhouse-gas plume marked "Maryland" would rise to heaven.

The right answer is to spend money on cleaning up pollution and building transmission and generation construction. The money has to come from somewhere. So goodbye cheap kilowatts. The dream of rolling back BGE and Pepco prices to anything close to 2005 levels is over.

Expensive electricity is here to stay, whether or not Maryland sticks with the deregulation that caused the present high prices.

Constellation and other generators earn huge profits on coal and nuclear plants that were once required to pass their lower costs to utility ratepayers. (Since deregulation, BGE and other utilities must shop in the expensive open market.)

But high prices aren't the biggest problem. The primary problem is that, for the most part, generators aren't reinvesting earnings into Maryland projects.

When new plants and transmission lines get built - and they must - they'll still need high prices to finance the mortgages.

Even reducing energy use - sure to be a big topic at Gov. Martin O'Malley's energy summit - will require millions in investment for smart meters, home retrofits and the like.

Building and buying alternative generation such as solar and wind will cost money. So will improving aid for lower-income electricity users.

If policymakers can figure a way for high prices to be reinvested into clean and reliable electricity, two out of three on the wish list won't be bad.