Senators worry about electricity rate spikes

Caps to start expiring

deregulation questioned

January 22, 2003|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Nearly four years after Maryland passed legislation to deregulate the state's electric industry, state senators expressed concern yesterday that customers will be hit by price spikes when rate caps begin expiring in July.

Blaming the collapse of Enron Corp., a lack of competition and the threat of war, legislators on the Senate Finance Committee questioned whether deregulation should move forward at all when so much uncertainty is hounding the industry.

"I sense an impending train wreck," Sen. E.J. Pipkin told regulators at a hearing on the progress of deregulation. "We all see that competition has not developed and we have a drop-dead date of July 2003 to make changes; we all see the train wreck coming," the Eastern Shore Republican said.

Maryland Public Service Commission officials told panel members that a safety-net plan for electric consumers is almost in place. But they also warned that if legislators had any concerns or reservations about deregulation, time to retreat was running out.

"As of July 1, 2003, under statute that you all enacted, utilities lose the obligation to supply customers who do not choose an alternative supplier," said PSC Chairman Catherine I. Riley. "That is a huge public policy issue. It is a big date for us. Once this legislative session is over, that July 1, 2003, date will be etched in stone. If the governor or legislature want to make changes or reconsider this major public policy directive, this session is the time to do so.

But Riley said the PSC "is prepared to move forward" with electric restructuring.

With the start of deregulation in the summer of 2000, Maryland customers were given the freedom to choose an alternative electricity supplier, although utilities were required to continue serving those who did not. In addition, rates charged by the state's utilities, including Baltimore Gas and Electric Co., were cut and frozen for a specified period.

But with competition slow to start - only 3.6 percent of all customers have switched so far in the state - the commission began holding hearings more than a year ago to create additional protections for consumers in case adequate competition did not develop by the time price caps disappear.

A proposed settlement agreement among regulators, utilities, suppliers and consumers advocates unveiled in November would require local utilities including BGE, Potomac Electric Power Co. and Allegheny Power to continue providing electricity at regulated prices to residential and small commercial customers who do not choose an alternative energy supplier. That so-called standard offer service will last up to four years after the rate caps expire in each service territory.

The commission is poised to rule on the settlement any day now.

Large commercial and industrial customers in BGE territory lost their rate caps in July. Rate caps will expire for commercial customers on the Eastern Shore in July followed by small commercial and business customers in July 2004.

The first residents to lose their rate caps will be Eastern Shore customers in July 2004. They will be followed by Pepco and BGE residential customers in 2006 and Allegheny Power's in 2008.

"You know, that scares the daylights out of me," said Sen. George W. Della Jr., a Baltimore Democrat. "Here we are going to war ... the price of energy is so unstable and here the prices are going to be uncapped. What if someone were to drop a bill that said, hey, maybe these dates should be extended while things stabilize?"

But regulators said the settlement agreement will continue protecting customers while providing a transition period that will help competition take root. After rate caps expire in each service territory, the settlement allows utilities to solicit wholesale bids for power to supply their "standard offer service" customers. They also would be allowed to charge customers a market price that permits recovery of various costs to procure or produce the electricity, and a reasonable rate of return.

"The good thing about this settlement is that it allows customers to choose and gives suppliers the ability to charge market prices," said People's Counsel Michael J. Travieso, the state advocate for residential customers in utility matters.

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