Todd Chason & Michael Powell: The Rising Tide of Energy Bills in Maryland

In this episode of the Gordon Feinblatt podcast, Todd Chason and Michael Powell discuss the current state of Maryland's energy market, focusing on the significant rise in energy bills faced by residents. They explore the dynamics of supply and demand, the impact of retiring fossil fuel plants, and the challenges of transitioning to renewable energy sources. The conversation highlights the complexities of energy production, the need for new supply capacity, and the implications of policy decisions on the future of Maryland's energy landscape.

Chason, Todd R. | Gordon Feinblatt LLC
Powell, Michael C. | Gordon Feinblatt LLC
Energy & Environmental | Gordon Feinblatt LLC
Electricity Prices Predicted to Soar | Gordon Feinblatt LLC

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Transcript

Intro:
Hi everyone, and welcome back to the Gordon Feinblatt podcast, your trusted source for legal insights in Maryland and beyond, here to help you navigate the often complex waters of legal matters. In each of our episodes, we really aim to empower our community with the knowledge that they need. So if you're someone keeping up with recent legislation or just seeking general guidance, we have you covered and have likely solved a problem like yours. So in today's episode, we have Todd Chason and Michael Powell, both who are energy and environmental attorneys here at Gordon Feinblatt. And they're going to be discussing the current state of Maryland's energy market with a focus on the significant rise in energy bills that Maryland residents are to be faced with.

Todd and Michael are going to discuss what's causing the rise in your energy bill, including things like supply and demand dynamics, the impact of retiring fossil fuel plants, and the challenges of transitioning to renewable energy sources. So if you live in Maryland and are responsible for paying an energy bill, you're definitely going to want to listen to this episode and obtain a better understanding of the future of Maryland's energy landscape. As always, if you need legal assistance or have any questions, you can find our contact information for the attorneys featured in each episode as well as information for the firm in the show notes and we would be happy to speak with you. All right, let's go ahead and get started with today's episode.

Todd & Michael (01:24)

Todd: Hello everybody. My name is Todd Chason. I'm an attorney with Gordon Feinblatt and here today with me is Michael Powell. Say hi to the audience, Michael. 

Michael: Hi audience, Michael. 

Todd: Michael and I have been working together now for almost a quarter century and so we don't find things very often that we're doing for the first time together, but this is the first time that we're podcasting together. Not sure that I would have predicted that that was in the cards, but here we are.

The topic de jour today is one that's probably hitting your mailboxes or has hit your mailboxes within the last few weeks, which is the incredible increase that Marylanders are seeing on their energy bills. And so we're going to talk for the next little bit about what's going on with the energy market and why you're seeing those bills and whether there's anything that can be done to get those bills back under control or at least to keep the trajectory down.

Michael, you and I have been doing this long enough that we've been through cycles like this before, haven't we? 

Michael: Yeah. And in fact, this is one that we predicted. There's a bulletin on our web page that I wrote last summer predicting that prices were going to soar. And this is a problem which has taken some time to develop. It's basically an imbalance of supply and demand. 

Todd: So let's expand on that a little bit. Everybody who's taken the Econ 101 in college has at least some idea that there's this relationship that prices follow based on supply and demand. First, what do you mean when you talk about supply? What is supply? 

Michael: Yeah, if you look at your electric bill, and to some extent also on your gas bill, you see there's several items there. There's what we call the wire cost, which is the cost of distributing the electricity to you. That's the BG&E cost. Then there are number of governmental add-ons. There's Empower Maryland, which helps primarily lower income individuals. And so there's a charge that's put on everybody's bill. There's a supply cost. That's what people think they're doing. That's the electricity you're buying. But there's also something called the capacity cost. And that requires some explanation. The capacity cost is basically we have these peak periods when the demand for electricity is much greater. You and I are talking on a day when it's 14 degrees outside. So everybody's running their heater. So you need a lot more electricity than normal. Well, you got to pay to have that power standing by. Basically a plant that runs only during those periods. And so that's where the supply shortfall hits first. It may be relatively few days a year when you have that shortfall, but those days when you've got to have a plant standing by ready to turn on, drives a lot of the increase in cost. 

Todd: And the demand side is just the end user, right? This is at my house, this is here in the building that we're sitting in. We need to have the lights on. We've got these computers all around us. We have the podcasting equipment that's in front of us. We have especially the heat demand. You mentioned that it's really cold out today. And so every building, home, every place that everybody is, is sucking up power. And indeed, you have a vehicle parked downstairs that might be adding to that, yeah? 

Michael: Yeah, it absolutely is. I'm driving an electric vehicle. I mean, you know that there's a number of things which are driving up the cost of electricity, right? A lot of people talk about data centers driving up, that is increasing, or is predicted to increase the demand. It's increased the demand in Virginia. We really don't have any data centers in Maryland yet, but we've got the growth of population. We got, everybody's got more devices. Who doesn't have a smartphone? Who doesn't have a laptop? And at the same time, we've also got climate policies that are suggesting that we switch from fossil fuel to electrification heat pumps. And every time you switch from heating oil to a heat pump, you increase the demand on the system. And as you said, we've got vehicles. People are switching to electric vehicles, to Tesla and similar things and that increases the amount of demand. So we got this growth in demand that's clearly going on and not likely to change anytime soon. 

Todd: Going back to what you talked about at the beginning on the supply side, what's happened with supply that's gotten us to this point? We've talked about how the demand is going up with all these new gadgets and gizmos and things, policy changes, but do we have a change in the supply? 

Michael: Yeah, there's really two things going on there. First, we have to recognize that Maryland does not produce nearly the amount of energy that we need. We import about 40% of our power from other states. 

Todd: Which is not new. 

Michael: No, that has gone on for years. We have been a net importer dependent on our neighboring states. But the situation has gotten worse. For climate reasons and economic reasons, we're retiring the old fossil fuel plants. 

Todd: What do mean by fossil fuel plants? 

Michael: Coal plants, natural gas plants. We're talking about that those were for years and years, particularly the coal plants were the source of our, the major part of our power. Originally, they were what were called base energy plants. They provided power all the time. Because they were less economical over time, they became our peakers. They became the plants you turned on when it was 14 degrees. But those are the plants we're closing. Maryland is part of what's called a PJM, that's the big grid, right? And we have been enough fossil fuel plants closed in the last few years that we've lost 6,000 megawatts. What's 6,000 megawatts? That's enough power to feed 4.8 million homes. That's how much power we've lost off the supply, primarily for climate reasons. And so those have to be replaced. And the plan, at least, is to replace them with renewable energy. The difficulty we've got is that renewable energy has two problems. One, it's not coming on nearly as fast as we're retiring the fossil fuel. We're not, as many people have read the news know, there's tremendous opposition to building large solar farms in rural areas. There's opposition to offshore wind. So we're very slow at building renewable energy. We're very fast at retiring the coal plant. The other thing is that many of the renewable energy... they're not something you can turn on and off. And you have to have them for capacity purposes. You have to have them available when it's 14 degrees outside and it's the middle of a winter night, which the solar farms don't do. So then you have to supplement it with batteries, which adds significantly to the expense. So the problem is the supply is not keeping up with the demand growth. 

Todd: Now, one thing we could do is we could import even more power. Why don't we do that? 

Michael: Well, that's where you run into the problem of transmission lines, right? And we've got obviously big issues in Maryland right now about these new transmission lines. We're already importing a lot of power into Maryland. We're also importing power through Maryland to Virginia for the data centers. But to give you an example, we have two big coal plants left. They're called Brandon Shores and Wagner. Those plants were originally scheduled to close at the end of 2025. They're not going to close because if they did close, we'd be experiencing a high risk of rolling blackouts or brownouts in Baltimore because we don't yet have replacements. The proposed replacement is a new transmission line running down to Baltimore. Now that one's less controversial because it's not running through virgin farmland. But you're still talking about $800 million to build that transmission line, $800 million which will have to be paid by the rate payers. So when you see your electric bill go up, one of the impacts are the cost to replace these fossil fuel plants as you retire them. 

Todd: And when you're importing power, let's assume we can actually get that done, how does that translate into the climate goals that Maryland has set? 

Michael: Well, it's a problem because we are clearly trying very hard to improve the amount of clean energy being developed in Maryland. And honestly, we're pretty fortunate because a lot of our energy comes from Calvary Cliffs. About 40 % or so of our power generated in state is nuclear and therefore has no carbon associated with it. And I think a lot of people don't realize that if they were asked what keeps your light on, the truth is it's the nuclear plant in Calvert Cliffs. But you're still importing a huge amount of power from out of state, and a lot of that power is fossil fuel. so particularly, we've got a lot of power coming down from Pennsylvania. Pennsylvania still has a lot of fossil fuel plant. So we're, to some extent, transferring the creation of of greenhouse gases out of state when we build those transmission lines. The solution, I think, is to increase the amount of clean power being produced in state, but obviously there are difficulties doing that. 

Todd: Yeah, and those difficulties involve the siting issues that you talked about earlier, along with the fact that it's not full-time power, right? The wind is not blowing all the time that it needs to be blowing and the sun doesn't shine on those cold nights like now when we really see the peaking as more and more of these systems are becoming electric peakers. the, you know, is there a solution that's via renewables only? 

Michael: Well, it's hard to say. mean, the Maryland Energy Administration just did a modeling study where they said, okay, if our goal is to reach 100% clean energy, that is zero carbon energy, and be entirely self-sufficient, what would we need to do? And frankly, their assumptions, I think, were unrealistic, but they were forced to make those assumptions. They assumed that we build all the offshore wind that is proposed, as well as some offshore wind, which is very unlikely even before there was a change of administration. They assumed a very rapid deployment of solar, and we're seeing so much opposition and slowing of permitting that currently, solar is not being developed fast enough. And even then, they finally had to assume that we had a 185% increase in nuclear power in the next 11 years. Nobody builds nuclear power plants that big. And at the present, nobody's proposing a new power plant here. There is one being proposed in Maryland, or at least the re-activation of the Three Mile Island plant. So that kind of nuclear power expansion, though there may well be some expansion, takes years. It takes years to do it and 185% in 11 years is an astonishing number. But look, there's really only three categories of solutions. You can slow demand growth. And the problem with that is one, if you stop data centers from being built here, they'll be built in the neighboring states. And if they're building the neighboring states, they still take power away from us because that's where our power is coming from. So you don't solve the problem by moving the data center to another state. just, you don't get the benefit of the data center, but you still got the cost. 

Todd: Can we just not have data centers? Is that, is that the solution? 

Michael: Doesn't seem to be the, where the world is going. I saw an announcement from the Trump administration of a new $500 billion program to develop data centers. That's on top of the things that Amazon and Google and others are doing. I mean, the world is moving that way. 

Todd: Because of AI, primarily, right? 

Michael: Because of AI. And we can, we could say we don't want them in Maryland. And if they build them in Pennsylvania, say it has the same economic impact on us, except that we don't get the property taxes, we don't get any of the benefits, we just get the cost. So the, and the other issue, the only other way to slow down demand is to compromise some of our climate goals and say we're not going to electrify vehicles. We're going to let buildings continue to burn heating oil. So that doesn't work. 

Todd: So unlike the last go around, right, we talked at the very beginning of this that there's some historical perspective on this. A big way we solved this 15 years ago was to reduce demand, to find ways to put in more efficient appliances and light bulbs and things like that. But A, that low hanging fruit has already been picked and B, we're not really gonna use less electricity of the three prongs that we're gonna talk about here, a demand even flattening is not realistic. Do you agree? 

Michael: Yeah, I do. I think, I mean there are some improvements you can make on energy efficiency. Don't get me wrong on that. 

Todd: It's around the edges though. 

Michael: Well it requires a huge amount of capital investment. 

Todd: That's a good point. 

Michael: And so you're talking about literally billions of dollars needed if you're going to try to upgrade the efficiency of many of these buildings. And I just don't think we can keep up. The demand is going to grow unless you shut down the economy. So I don't think you get there. Another alternative is to just import more power, but that means more transmission lines. And I don't think anybody likes transmission lines. Well, maybe the companies that build them and get paid for it like them, but they're not. 

Todd: But also they're not a quick fix. Even the ones that are being proposed now and have in-service dates that are projected within the next couple of years, I think it's worth reminding people that it's all fine and good to propose the line, but you have to have the rights to first look at the land that you're going to be going over and then actually have the rights to go through that land. The permitting process takes a fair amount of time through the Public Service Commission, but also getting those land rights means dozens or even hundreds of property owners have to be negotiated with before that can happen. And people really don't like this in their backyard, even if they already have one in their backyard. 

Michael: Absolutely right. I mean, how do you negotiate with somebody who says they don't want to negotiate with you at all? And that's what you see with the new transmission lines. And that leaves you with only one alternative, which is to create additional supply. Clearly, one of the things you have to do is accelerate solar deployment, because that's the cleanest and cheapest alternative. It doesn't give you much capacity unless you've coupled it with very expensive batteries. I mean, as an example, I saw a report saying how much would it cost to replace the Brandon Shores coal plant with batteries. And if all you needed was a four hour supply so that anytime that Brandon Shores coal would have turned up for four hours, you need enough batteries to cover that, that cost was 3.2 billion. So frankly, unfortunately, or irrevocably, the only thing that is quick to build and provides a lot of capacity...

Todd: Let me interrupt you for just a second before we go on to that piece. You're talking about capacity. And I want to just focus in on that for a minute. The solar that you're talking about, the reason that there's a limitation is that tonight at 11 o'clock tonight, when we're all cranking up our heat pumps, there won't be any solar. And that's why you mentioned that there would need to be a battery that's paired with it, but those are expensive and they take a long time. This is not to say that we don't have enough electricity on a normal day in April. 

Michael: Completely right. 

Todd: What we're talking about over the course of all the hours in a year, a handful of hours in the summer and now increasingly in the winter. It used to be that everything was a summer peaker and now we're getting to the point where our capacity demands are higher in the winter. So that's really where we're focusing in on. Now, again, before we get back to the supply piece of it, does that just mean that we have really high prices on those hours that I was just talking about or does that somehow affect that you know, normal 60 degree day in late April. 

Michael: It affects all of them because the way it works is you've got to pay those power plant owners to keep that plant standing by. 

Todd: Got to be ready. 

Michael: You got to be ready. So if you've got, let's take an example of a natural gas power plant. Maybe that natural gas plant is only going to run when you've got a lot of demand and the solar is not producing because the solar is cheaper, right? So, but you got to pay to maintain that coal, that's natural gas plant or right now coal plant all year long. You got to pay all the workers. You got to pay the cost of maintaining it. The maintenance of that, you got to keep, play the fuel to be stockpiled on site, ready to burn. So you end up having that price be very high. The way PJM does that is they have an auction. They say, okay, we need somebody to be standing by to provide this. How much do you need on a yearly basis in order to be stand by. 

Todd: And these are the most inefficient, the most expensive plants. And then to make matters worse, the way that the process works is it's not just that those plants get those high prices when that happens. Everybody gets those prices at that time. And so it's the fact that that July summer day, that cold January night, are driving the prices throughout the 365 days. 

Michael: The price of electricity or the capacity portion of the price of electricity is driven by the least efficient plant that you need. The least efficient plant that you don't need has no impact on it, but the last one that you have to have sets the price. That's the unfortunate thing about this with just a bit more supply to shave off those peaks, we could reduce the year-long cost. But instead, what's happening is demand is increasing, supply is decreasing, and that peak is getting more and more expensive. It's solvable, but the problem is solving it quickly. 

Todd: And you're not saying that we shouldn't keep moving towards renewables, that we shouldn't be looking to wind and to solar and to other sources. But when we're talking about this problem... the one that's driving the prices that we're talking about here today, they don't solve that. What does? 

Michael: Yeah, that's the problem. If you want to solve it quickly, then what you really got to look at is natural gas. I do think that the future is renewables with batteries, but right now the batteries are enormously expensive. The renewables you've got to build. We need them for the base power, but they won't help us in the short term for the capacity. Nuclear is a great solution, but again, it takes a long time to build and expensive. The only thing that you could build relatively quickly and would help you with with that peak is natural gas. And that's why I think some in the legislature are looking at that issue. It's a quicker fix than other alternatives. And we're seeing a declining situation. The situation is going to get worse unless we can bring new supply capacity on fairly quickly. 

Todd: Yeah, and part of the challenge, think, with all of this is that it takes some time for the demand to be necessary and for the supply to change. And you're not talking about small increments, right? Either you've got an 1,100 megawatt natural gas plant or you don't. They don't come in all the small sub denominations. And so
you don't have a problem until you do. And the last go around, we talked about demand flattening and reduction being a piece of it. We also ended up with a series of three or four natural gas plants that were built in the last decade, but it's now been five or six years since any of those have been built. And I think that's partially because there hasn't been this imbalance until there is. And I think in part, there's been some pretty strong messaging that we're just not doing any more of those. And to be fair, these are long-lived assets, right? You build a new natural gas plant today, probably they're in service for the remainder of both of our lives. These are 50, 60, sometimes longer. Brandon Shores is not a new...new power plant at this point, it's only just now getting to the point where it's retiring. And so I think part of the challenge is sort of the chunkiness that goes into this. I think mentioned it, know, part of the issue is just signaling to developers and to the utility world. We do need these, don't you think? 

Michael: Yeah, I mean, one way of looking at it is the capacity prices we're seeing are an incentive to get somebody to build a power plant. And when that price goes up, it means you need to pay them a lot more to get them to take the chance. The higher that number, the more you're having to pay somebody to get them to take the risk. If you're building a new power plant, and let's say it's a natural gas plant, it's going to take you probably four years, maybe five years to get the thing permitted and built. If the policy of the state where you're building is that they want to eliminate all fossil fuel within 11 years and it takes you five years to build it, then you're only going to have to plant for six years. So a lot of it is signaling. It's a, if you build it, we'll let you operate it for its life. But then you got the problem of you got the greenhouse gases that you're going to have to deal with. So there is no easy fix from that standpoint. On paper, the fix is easy. We just need to add enough supply or enough transmission or reduce demand enough to deal with these few peak days. But the solution means that you've got to make a commitment that may be inconsistent with some of the climate goals. 

Todd: And indeed, the things that we're talking about here are beginning to be discussed in Annapolis and in Baltimore at the Public Service Commission as the session gets underway. about two weeks in as we sit here today. So it's difficult for us to say what's gonna be spit out by the time sine die rolls around in early April, but clearly leadership within Annapolis is looking closely at these issues. I by sense, I don't know if you agree with this, is that there's more attention on this than there has been. you were certainly making predictions months ago that we needed to be paying more attention to this, I think that after the budget, probably this is going to be one of the things that we see the most activity on. 

Michael: Yeah, one of the interesting things about bureaucracies is they create acronyms for something when it becomes important. You and I sit here and talk about supply and demand. They call it resource adequacy. 

Todd: Very fancy. 

Michael: Yeah, and suddenly resource adequacy has become the most important, or after the budget, the second most important issue going on in Annapolis, a concern that this resource inadequacy is driving up prices. 

Todd: Nothing gets voters more upset than not having the lights on or having it cost too much to have them on. 

Michael: Or paying more taxes will do it too. 

Todd: Oh, yes. 

Michael: Right behind taxes, I completely agree. 

Todd: That's pretty much there. Well, I think this has been a pretty good summary for anybody who was trying to figure out why their bill is more expensive. And while there's very little that we can individually do about that, it is worth watching what's happening in Annapolis and in Baltimore to see how that's going to play out. We'll come back in a few months and see how this all turned out and report on what our policy folks did with the resource adequacy challenges. For everybody listening out there, I hope that you've enjoyed this and learned something out of it. We've enjoyed it. We have a number of articles on our website that we'll post along with this podcast that'll give you some more detail on some of the things that we've discussed. Other groups within the firm are also doing podcasts, like our real estate group and some of the others. We've worked very closely with the real estate groups, so that's why they come immediately to mind, because all of these new power sources that we're working on are transmission lines that are being proposed all involve real estate. So we work closely with them too. Thank you very much for your time and we'll talk to you soon. Thank you, Michael. 

Michael: Thank you.

Outro (27:19)
All right, everyone. Thank you so much for joining us on this episode of the Gordon Feinblatt podcast. At Gordon Feinblatt, we're not just your lawyers. We're your trusted advisors dedicated to serving you, our clients and community. If you ever have any questions or need assistance, please don't hesitate to reach out. Information for the attorneys in each episode, the firm and any other relevant materials will be available in the show notes. Be sure to subscribe, reach out us directly and continue to tune in with us each month. Until next time, take care.