The Word ‘Deregulation’ Rears Its Head in Annapolis Utility Debate

House Speaker Pro Tem Sharee Sample-Hughes (D-Middle Shore) is chief sponsor of a bill that would deregulate Choptank Electric Cooperative. Photo by Danielle E. Gaines.

Say the word “deregulation” around the Maryland State House, and people start to get nervous.

Not that it hasn’t happened before: The state’s electric and gas utility market was deregulated in 1999 following a furious debate, with the stated goal of creating more competition and consumer choices. Whether it has actually saved ratepayers money over the past two decades is highly debatable.

But now Choptank Electric Cooperative, a major electric supplier on the Eastern Shore that is owned by its members, is also looking to deregulate.

The co-op is asking lawmakers to be freed of oversight by the Maryland Public Service Commission, which regulates utilities in the state. In return, Choptank officials say, they’ll be able to offer badly-needed broadband service to a region of the state that is still highly underserved.

“It’s a game-changer for the economic development of the Shore,” said Mike Malandro, Choptank’s CEO.

That’s why every single lawmaker who represents the Eastern Shore — 15 Republicans and one Democrat — has sponsored legislation that would allow the electric co-op to deregulate. The bill is up for a hearing in the House Economic Matters Committee on Thursday afternoon, after an airing last week in the Senate Finance Committee.

“On the surface, this may appear to pose risks for ratepayers,” state Senate Minority Whip Stephen S. Hershey Jr. (R-Upper Shore), one of the lead sponsors of the measures, conceded. “But electric co-ops by their very nature are designed to prevent risk.”

Eastern Shore lawmakers are armed with letters of support from more than 40 businesses and local governments along with 1,200 Choptank customers. The goal, they say, is simply bringing the Shore into the 21st century with a modern broadband network, which will benefit the local economy and average citizens in their everyday lives.

Supporters have told lawmakers of business opportunities lost and medical records that couldn’t be transmitted and kids who have to complete school research projects in the parking lot of a local McDonald’s because Internet service on the Shore is so spotty.

“The bottom line is, no one wants to pay taxes and no one wants to spend money, so we’re left with no Internet service,” Pamela Keeton, a military retiree living in Talbot County, testified in the Senate Finance Committee.

Being freed of PSC regulation, which will enable the co-op to establish a broadband business, will qualify Choptank for major federal grants for broadband expansion, bill advocates said. What’s more, they argued, if Choptank establishes a robust, revenue-generating broadband business, it will help the co-op to keep electric rates low.

Electric cooperatives are nonprofit entities whose origins in the U.S. date back to the 1930’s, when federal officials were looking to extend electric power to rural communities. Choptank officials point out that what they’re asking for isn’t so unusual: 83% of electric co-ops nationwide, they say, aren’t overseen by state regulators.

And yet even as supporters of the measure make compelling arguments for why the bill is necessary and why outfitting the Eastern Shore for a broader broadband network is important, they neglect to mention one thing: Nowhere does the legislation mention establishing a broadband network; it merely asks for deregulation.

The regulators themselves are not officially taking a position on the legislation and have provided written and oral testimony to the House and Senate committees on what they call an informational basis. But it’s hard not to read between the lines.

Jason Stanek, chairman of the Public Service Commission, told senators last week that the legislation takes away the ability of the regulatory agency to resolve bill disputes or complaints about service or safety concerns from Choptank customers.

“We’re just giving you the information so you can walk into this with eyes wide open,” added Tony O’Donnell, a former state delegate who now serves on the Public Service Commission.

O’Donnell also suggested that Choptank and the PSC could work out an arrangement that would enable the co-op to create a broadband business “without blowing up the entire regulatory construct.”

Notably, the state’s other electric co-op, Southern Maryland Electric Cooperative, is not a part of the legislation and is not seeking relief from the state’s regulatory scheme. Hershey suggested that this may be explained by the fact that the company generates a portion of its own power, from a solar installation.

William F. Fields, the deputy director in the Office of People’s Counsel, which represents consumer interests before the PSC, was the only person to testify against the bill last week. “It would reduce protections for Choptank customers,” he said.

Some senators expressed similar concerns.

Choptank officials insisted that the because the utility is owned by its customers, rates will naturally remain low, and they added that the co-op has the ability to trouble-shoot problems and resolve disputes with customers.

It may be difficult for supporters of the bill to find six senators on the Finance Committee to vote in favor of the measure. But the dynamic could be somewhat different in the House Economic Matters Committee, where Chairman Dereck E. Davis (D-Prince George’s) and some Democrats on the panel may be inclined to produce a legislative win for House Speaker Pro Tem Sharee Sample-Hughes (D-Middle Shore), the bill’s chief sponsor in the lower chamber.

But Hershey in an interview said he’s under no illusions.

“It’s a big step,” he said, “when you’re talking about deregulation.”

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Josh Kurtz
Co-founder and Editor Josh Kurtz is the leading chronicler of Maryland politics and government. He began covering the State House in 1995 for The Gazette newspapers, and has been writing about state and local politics ever since. He later became an editor at Roll Call, the Capitol Hill newspaper, and spent eight years at E&E News, an online subscription-only publisher of news websites covering energy and environmental issues. For seven of those years, he led a staff of 20 reporters at E&E Daily, which covers energy and environmental policy on Capitol Hill and in national politics. For 6 1/2 years he wrote a weekly column on state politics for Center Maryland and has written for several other Maryland publications as well. Kurtz has given speeches and appeared on TV and radio shows about Maryland politics through the years.