Maryland’s electric power industry has been in the news quite a bit lately. The Washington Post had a good wrap-up story a couple weeks ago on how Maryland consumers are struggling with rising electric bills. Politicker Maryland ran a few articles linking deregulation to campaign contributions. The Governor is announcing a legal settlement with Constellation Energy that would provide BG&E customers with a $170 rebate each. And the Maryland Senate is considering a plan that would cut electric bills by $2 a month. But none of these stories cover an important set of facts: just how well have Maryland’s electric power companies fared under deregulation?
Traditionally, power companies were vertically integrated. They owned the generating plants, the transmission facilities and the distribution lines. Deregulation was intended to create competition by separating generation and distribution ownership. Multiple generators were supposed to compete by selling power at the lowest price to commercial and retail users. Those users would order that power through the now-independent distribution companies.
After Maryland passed its law in 1999, its power industry re-organized to comply with the new regime. Baltimore Gas & Electric established a new holding company, Constellation Energy Group, and separated its generation and distribution assets into different subsidiaries. Allegheny Energy, which owned Potomac Edison in Western Maryland, followed suit. Pepco sold its power plants to a totally independent third party, national generator Mirant, and became a pure distributor. Those corporate re-organizations are one reason why deregulation is so hard to undo.
Consumer choice took effect in 2000, but to give competition a chance to develop, consumer retail rates were frozen through 2006. However, there were two problems. First, no new major competitors came to Maryland. Second, power fuel prices soared. According to the Bureau of Labor Statistics, between 2000 and 2006 wholesale prices increased 44% for coal, 80% for natural gas and 116% for refined petroleum. Constellation and Pepco claimed that these input cost increases were largely responsible for the 40-70% electric bill hikes faced by Maryland ratepayers starting in 2006.
Is that true? If all the power companies were doing was passing on cost increases to consumers (something the old regulated system was supposed to restrain), we would expect the companies to report higher revenues but stable net incomes. But that is far from what is really happening. Below we report to our readers the financial results from Maryland’s four largest electric power companies in 2003 and 2007 from their Securities and Exchange Commission filings. We also report the total compensation earned by their CEOs in 2003 and 2006 (the latest year available). Judge for yourselves the real record of Maryland’s deregulation.
Constellation Energy
Parent Company of BG&E, Nationwide Merchant Generator
Stock Close, 1/2/03: $24.84
Stock Close, 3/26/08: $90.23
Revenue, 2003: $9.343 Billion
Revenue, 2007: $21.193 Billion
Net Income, 2003: $277 Million
Net Income, 2007: $822 Million
Chairman/President/CEO: Mayo A. Shattuck III
Total Compensation, 2003: $6,901,426
Total Compensation, 2006: $20,058,669
Pepco
Electricity Distributor in Washington Suburbs
Stock Close, 1/2/03: $15.61
Stock Close, 3/26/08: $24.67
Revenue, 2003: $7.269 Billion
Revenue, 2007: $9.366 Billion
Net Income, 2003: $107 Million
Net Income, 2007: $334 Million
Chairman/President/CEO: Dennis R. Wraase
Total Compensation, 2003: $895,942
Total Compensation, 2006: $4,921,550
Mirant
Nationwide Merchant Generator, Owner of Former Pepco Power Plants
Stock Close, 1/2/03: NA (Filed for Bankruptcy on 7/14/03)
Stock Close, 3/26/08: $35.92
Revenue, 2003: $3.856 Billion
Revenue, 2007: $2.019 Billion
Net Income, 2003: Lost $3.835 Billion (declared bankruptcy)
Net Income, 2007: $1.995 Billion (includes $1.562 billion from discontinued operations)
President/CEO in 2003: S. Marce Fuller
Total Compensation, 2003: $3,231,071
Chairman/President/CEO in 2006: Edward R. Muller
Total Compensation, 2006: $8,646,648
Allegheny Energy
Generator and Distributor in Pennsylvania, West Virginia and Western Maryland
Stock Close, 1/2/03: $7.76
Stock Close, 3/26/08: $50.39
Revenue, 2003: $2.182 Billion
Revenue, 2006: $3.307 Billion
Net Income, 2003: Lost $355 Million
Net Income, 2007: $412 Million
Chairman/President/CEO: Paul J. Evanson
Total Compensation, 2003: $7,652,138 (includes “make-whole payment” of $6,397,330 connected to leaving another power company in mid-year)
Total Compensation, 2006: $9,329,832
Now I suppose we could recover some of these executives’ plunderings from Maryland ratepayers through a millionaire surcharge but some people might argue against that. After all, if any of these looting bosses – excuse me, these upstanding members of the community – actually live in Maryland, we don’t want to drive them out of the state, right?