NCPA - National Center for Policy Analysis

Blame Government for Turning off the AC

August 15, 2011

Ratepayers are steamed at Baltimore Gas & Electric Co. (BGE) for turning off air conditioners in thousands of homes on July 22, the hottest day in 75 years.  Their outrage, however, is misdirected.  Blame for this indoor heat wave lies with the government in Annapolis, not with a utility in Baltimore, says William Yeatman, an energy policy analyst at the Competitive Enterprise Institute.

  • In 2008, Gov. Martin O'Malley signed a law that established targets for utilities to reduce demand during peak periods.
  • BGE achieves these goals primarily with its PeakRewards program, by which the utility pays customers for the right to centrally plan their central air.
  • On July 22, temperatures soared and the grid was vulnerable to rolling blackouts.
  • BGE headed off this possibility by powering down air conditioners in thousands of homes.

Maryland could most efficiently, affordably and safely prevent blackouts on hot days merely by pricing electricity what it costs.  Electricity is priced at a flat rate.  During the summer, BGE customers pay 9.4 cents a kilowatt hour for electricity, night and day, whether it is 85 degrees outside or 110 degrees.  Of course, demand is much greater at 6 p.m. on a sultry day than it is at 6 a.m. on a mild day, says Yeatman.

  • If the price of electricity were a function of market forces, rather than central planning, there would be no need for BGE to "manage" demand by remotely turning off air conditioners.
  • Electricity consumers would manage demand on their own accord, in response to a price signal.
  • Peak demand would flatten naturally and the grid would no longer be threatened with blackouts due to consumption overloads on hot days.

Source: William Yeatman, "Blame Government, not BGE, for Turning off the AC," Baltimore Sun, August 8, 2011.

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