Electricity suppliers fear BGE outflanked them in deregulation

Pending deal continues company's dominance, say rival utilities

September 26, 1999|By Shanon D. Murray | Shanon D. Murray,SUN STAFF

As Maryland moves closer to deregulating the sale of electricity, the so-called "shopping credit" -- a benchmark price charged consumers -- has emerged as a pivotal issue.

Once electricity prices are no longer regulated July 1, the shopping credit will be crucial in determining whether Baltimore Gas and Electric Co., the state's largest utility, will face real competition.

Under deregulation, BGE's bills to customers will list separate charges for functions such as energy generation, transmission and meter reading.

The shopping credit is what BGE will charge customers for generation, or services related to producing electricity, the part of the business that is being deregulated.

Thus, the shopping credit is the price other suppliers would have to beat to offer a competitive alternative.

But a group representing out-of-state companies that want to compete in the Maryland market says the shopping credit established under a tentative deregulation settlement is artificially low and, in effect, protects BGE from competition -- at least initially.

Under the pending settlement, which has been endorsed by BGE, the state people's counsel and other parties, the shopping credit charge to residential customers initially would be 4.224 cents per kilowatt hour, but would rise to 5.02 cents in six years.

The Mid-Atlantic Power Supply Association (MAPSA), a New Jersey-based group representing out-of-state power marketers that want to sell in Maryland, instead wants a shopping credit of 5.7 cents per kilowatt hour.

A higher credit would allow competition that would ultimately benefit customers, said Gary Alexander, an attorney with Annapolis-based Alexander & Cleaver, who represents MAPSA.

Sheldon Switzer, BGE's director of electricity pricing and tariffs, defends the shopping credit, arguing that power rates in BGE's service area are so low because the utility has controlled its costs.

The people's counsel, which represents consumers, has signed off on the deal primarily because it includes a six-year, 6.5 percent average rate cut for residential customers.

Michael J. Travieso, who heads the office, says the rate cut offers guaranteed benefits while competition only promises them.

Alexander said consumers are not guaranteed any benefits after six years, at which time BGE will likely try to recover the revenue it lost during the rate limit.

The settlement also would allow BGE to collect $528 million in so-called transition or "stranded costs" from customers -- what it claims as partial repayment for the cost of building power plants that were being underwritten by previous rates.

The state Public Service Commission, which regulates utilities, will decide whether to adopt the settlement next month.

Its decision on the shopping credit will shape competition for electricity in Maryland for years to come.

Although deregulation is in its infancy nationwide, experience so far has shown that a high shopping credit fosters competition while a lower shopping credit smothers it, said John Hanger, president and chief executive officer of Citizens for Pennsylvania's Future, a group that deals with economic and environmental issues related to utility restructuring in that state.

Pennsylvania, which opened its utilities to competition in January, is often viewed as a model for electricity restructuring because it managed -- in various parts of the state -- to offer high shopping credits, deep rate cuts and extended rate freezes.

In comparison, Massachusett's shopping credit initially has been set at 2.8 cents per kilowatt hour, limiting competition thus far, said Matthew Brown, energy program director for the National Conference of State Legislatures in Denver.

The group advised the Maryland General Assembly when it crafted the state's deregulation law.

In California, competition has been limited for residential consumers, where only 2 percent of residential customers have switched power providers. In contrast, nearly 30 percent of industrial customers have chosen another source, Brown said.

That state's version of the shopping credit -- which is not fixed, but is linked to the fluctuating wholesale price for power -- does not include electricity's retail price, he said. It's generally expected that shopping credits should be set high enough to allow competitors to enter the market.

"Everyone else coming into the service area has marketing costs," Brown said. "Utilities don't have to worry about those."

In Pennsylvania, nearly 450,000 residential customers, about 8.5 percent, had switched power suppliers as of July 1, said Sonny Popowsky, the consumer advocate of Pennsylvania, that state's people's counsel.

Nearly 80 marketers are active in the state, with about half a dozen serving the residential market in any particular region of the state, he said.

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