Deregulation yielding little competition

Businesses seeking new energy suppliers find few interested

BGE rate lid ends in June

Firms may be forced to pay volatile prices on the spot market

February 10, 2002|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Last fall, Christopher R. Cook, armed with a $21 million budget, started shopping for cheaper electricity for his high-profile government clients in the Baltimore metropolitan region.

The energy consultant wasted little time. He called all the power companies in his Rolodex, met with his connections in the industry and e-mailed a list of 36 suppliers registered in Maryland to sell electricity to customers. Despite his efforts, only three companies bid for the multimillion-dollar contract in December.

"We were asking for over $21 million worth of electricity," said Cook, a principal in E3 Energy Services LLC, an Arlington, Va., firm representing Baltimore among other clients. "That's a big deal, but apparently, it wasn't big enough in this competitive market. You'd like to get 20 bids, but I guess we were fortunate just to get multiple bids."

FOR THE RECORD - An article in Sunday's Business section gave erroneous figures for average monthly electricity usage by customers of Baltimore Gas and Electric Co. BGE's large industrial and commercial customers use an average of 1.2 million kilowatt hours per month while residential customers use about 900 kilowatt hours
The Sun regrets the errors.

Cook's experience raises serious doubts about the development of a competitive market for electricity just as the first real test of Maryland's deregulation plan approaches.

In June, more than 400 of the largest companies in Baltimore Gas and Electric Co.'s service territory will no longer enjoy electricity rates that have been frozen for the past two years, and will have to either choose an alternative energy supplier or stay with BGE and be subject to volatile spot market prices.

As these customers, who have the buying power and energy needs of a small town, scramble to nail down contracts that offer stable energy prices in an unregulated market, they are finding few suppliers, higher rates and little interest for their business.

Their limited success could spell trouble for the state's smallest and most vulnerable customers - residents - when price-freeze rates begin disappearing for them in 2004.

"The fact that hundreds of customers are going into the market in June with so few suppliers out there who want to do business here - that's a huge indictment of competition," Cook said. "It really raises a red flag."

State lawmakers, large companies, local utilities and regulators had high hopes for deregulation when the General Assembly adopted the law in 1999, which separated the electricity business into two sides - delivery and supply. While regulated local utilities such as BGE would continue delivering electricity to consumers, people would be free to buy power from another company.

The premise was that customers large and small would find cheaper prices as more energy companies flocked to the area to compete for their business.

That hasn't materialized so far.

Whether competitive prices and more choices materializes in time for residential customers is anyone's guess - rate freezes end as soon as 2004 for residents in suburban Washington and 2006 in BGE's territory.

"I don't think anyone knows the answer to that," said financial consultant Stephen G. Hill, who has worked with consumer advocates across the country on deregulation issues, including Maryland. "If you look at it now it doesn't look promising."

In a recent, scathing report, the state people's counsel - the agency that represents residential customers in utility matters - said electricity deregulation has failed to produce much competition and new services for customers since it began 18 months ago.

According to the report, only 2.6 percent of the state's residential customers have switched to an alternative energy supplier and only one company is soliciting new residential customers. In BGE's territory, the report said 14 residential customers switched to another supplier.

In addition, only 4.1 percent of industrial and commercial customers statewide have switched, and in BGE's territory, just 0.2 percent, or 278 customers, according to the people's counsel report.

"We don't know what will happen when the price caps do come off for part of the market in 2004," said Del. John A. Hurson, a Montgomery County legislator whose House committee oversees deregulation issues. He wrote a letter to industry leaders two months ago asking for a review of deregulation after a year of turmoil in the energy sector.

"We should be concerned that we don't see the formation of any significant potential competitors in the marketplace."

When a rate freeze ended in San Diego in the summer of 2000, San Diego Gas & Electric was able to pass soaring wholesale costs on to its customers. Bills for residential and business customers doubled and tripled.

That shouldn't happen here because power is plentiful and rates are more stable in the wholesale market for electricity that includes Maryland, industry experts said. But changing federal guidelines and industry problems such as the Enron Corp. fiasco put a damper on competition everywhere and could change that.

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