In the Maryland Daily Record

In MidAmerican Energy Holdings Co., Constellation Energy Group would not only get an owner with access to the vast cash reserves of Berkshire Hathaway Corp., but also one that can be aggressive in pushing its agenda with regulators.

This should set up a true contest of wills.   On the one side, MidAmerican, controlled by investor Warren Buffett, has a history of aggressively spending on electric infrastructure projects, which Maryland sorely needs.  Recent estimates suggest that Maryland will face power blackouts as early as 2011 if more generation or transmission is not developed to meet the increasing demand.

Should MidAmerican use their Iowa model, Maryland could see electricity generated by a mix of coal, natural gas, nuclear and renewable sources.  The Daily Record reports that in Iowa, “55 percent of [MidAmerican's] facilities are fired by coal, 22 percent by natural gas and 10 percent by nuclear power. The remaining 13 percent comes from other sources.”

It would be reasonable to assume that such a model could work in Maryland, which has ready access to coal reserves in western Maryland and West Virginia.

However, this produces a legislative problem for Maryland.  Passage of the Health Air Act in April 2006 requires Maryland coal-fired power plants to install technology to reduce emissions emissions of sulfur dioxides, nitrogen oxides and mercury. It also calls for Maryland to join a regional pact to reduce carbon dioxide emissions 10 percent by 2019.

But the PSC 2007 Supply Adequacy Report indicates that

The cost of NOx, SO2 and mercury mitigation for the coal-fired Maryland power plants that have the available property is estimated to be in the range of $2 to $3 billion in capital improvements and in excess of $500 million per year in additional operating costs. It is anticipated that most or all of these costs ultimately will be passed on to consumers in the generation price of electricity via the PJM wholesale energy or capacity markets. The Commission provided substantial analysis of this factor’s potential impacts on Maryland consumers in its legislative comments on SB 154 and HB 189, and will not repeat them here. Absent plant closures, though, the HAA should not affect the reliability of electric supply.

Additional costs associated with this model include

The technologies required to eliminate the majority of NOx, SO2 and mercury require the installation of large, expensive equipment on existing power plants. The size of the additional equipment is such that the footprint of each power plant must increase by a significant amount and additional transportation facilities must be made available to import and export the materials required for operation of the capture and sequestration process. The size and costs of the equipment needed to control SO2 and mercury are particularly large. In fact, the size requirements alone raise questions as to whether all of Maryland’s coal-fired generating stations will have the physical room to install the necessary equipment. Unless new technology requiring less space becomes available, or Maryland alters the HAA’s requirements for at least one of the stations, at least one station is at serious risk of closure due to the HAA.

In addition to the costs of cleaning the air, coal-fired plants must increase the size of their facilities AND increase the transportation infrastructure facilities to obtain the raw materials to clean the air and to dispose of the waste resulting from the process.

As a result of passing the Healthy Air Act “[w]e now in Maryland have the most restrictive air environmental standards in the world.”  Any coal-fired technologies imported by MidAmerican to the state must meet Maryland’s stringent legislative requirements for emissions control or they will not meet current environmental standards.

With the substantial financial prowess behind Warren Buffet’s empire, the ability to finance such capital improvements is unquestionable.

What is questionable is whether MidAmerican will want to expend capital resources in a state that is not friendly to businesses.  While O’Malley seems to think of Warren Buffet as a “reputable, strong..white knight,” he and Mr. Buffet would definitely disagree about what a “good place for business looks like.”

And Buffet’s strength—making money—will surely sit ill with the liberals in Maryland statehouse who give the appearance of being concerned about costs to the public, but who enact policies that drive the cost of utilities like gas and electricity through the roof, and legislate mandates that forces businesses to close, creating uncertainty over utility supply.

Note the PSC’s comment

the HAA will lead to owners of at least two Maryland coal-fired power plants to consider whether it is possible, or worthwhile, to install the necessary equipment. Any existing Maryland coal plants that may have to be retired will exacerbate the existing reliability challenges and increase the possibility of supplies during peak periods not being able to meet the demand for electricity. The consequences could include periods of voltage reductions and/or rolling outages during peak load periods to keep the system from collapsing.

Without substantial investment in Maryland’s energy infrastructure, Maryland consumers face real threats to the reliability of their utilities service.  The state clearly has no money of its own to invest its energy future.

But Warren Buffet knows how to invest.  And he has no intention of allowing his financial empire to collapse.  He has proven that he knows how to make money.  Whether his holding company will be allowed to do so in Maryland is largely up to the regulators and the legislature in Maryland who hold the keys to the treasure.

They are at least partially responsible for Constellation’s demise, having scuttled its $12.4 billion merger attempt with Florida’s FPL Group Inc., over a rate hike two years ago.  Seeking aid for ratepayers facing the hike, O’Malley and friends helped to thwart that deal.  And they could thwart this one also by interjecting themselves in something they obviously know so little about.

And that something is making money.  If they really knew how to do it, would Maryland be facing such a fiscal crisis?

O’Malley would do well to remember that in fairy tales, the white knight always arrives just in time to save the damsel in distress.  But let’s not forget the end of the story:  He carries her off to his kingdom where she serves him as his queen, and they live happily ever after.

That’s the way the fairy tale ends.  It looks like we will be adding Constellation Energy to the list of businesses leaving town.

This entry was posted on Sunday, September 21st, 2008 at 5:20 pm and is filed under Business in Maryland, Energy, Maryland Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.