Power shopping in Hagerstown Buyer's market: Municipal electric company turns on to benefits of supplier competition.

August 18, 1996

HAGERSTOWN MAY feel like it's sitting in the catbird seat now, as Mayor Steven Sager says, but it could turn out to be a canary sitting on a live wire.

The issue is the brave new world of price competition among electrical power suppliers, and the Washington County seat's municipal utility is a much courted buyer.

Competing power companies and brokers are offering price cuts of 10 percent to 20 percent below what are already among the lowest rates in Maryland. Potomac Edison, the current contractual supplier to Hagerstown, is eager to buy the city's distribution network, for $20 million and a five-year price freeze.

Under a 1992 federal law, Hagerstown and 2,000 other municipalities that own electric utilities are allowed to shop for power anywhere they want, instead of being yoked to the nearest privately owned utility. Switching suppliers has paid off for some small towns, not only benefiting residents but also local industry.

Eventually, this choice of suppliers is to be extended to residential and industrial customers everywhere. Competition for electrical power is expected to reduce consumer rates, or at least restrain their rise. Power companies that now supply and distribute electricity would collect a distribution fee for power purchased from another source.

But the effects of such full-blown competition can produce severe dislocations in supply and price over time, with smaller purchasers placed at a greater disadvantage. Sharp competition may bring price wars, and then a contraction of supply as losers drop out.

Household customers of private utilities could see their bills rise dramatically as power companies revise rates to end a practice of industrial-commercial subsidies for residential consumers. Widespread price competition could also lead to increased air pollution from greater use of cheaper, dirtier fuels.

State regulatory agencies, such as Maryland's Public Service Commission, are examining these complicated questions to see what the consequences would be. Hagerstown's experience could shed some light on the issue.

Pub Date: 8/18/96

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